Quiz#1 7.

Margie opened a used bookstore and is both the 100

percent owner and the store's manager. Which type of
1. Jenna has been promoted and is now in charge of all business entity does Margie own if she is personally liable
external financing. In other words, she is in charge of: for all the store's debts?
a. capital structure management a. Sole proprietorship
b. asset allocation b. Limited partnership
c. risk management c. Corporation
d. capital budgeting d. Joint stock company
e. working capital management e. General partnership
2. Uptown Markets is financed with 45 percent debt and 55 8. Will and Bill both enjoy sunshine, water, and surfboards.
percent equity. This mixture of debt and equity is referred Thus, the two friends decided to create a business together
to as the firm's: renting surfboards, paddle boats, and inflatable devices in
a. capital structure California. Will and Bill will equally share in the decision
b. capital budget making and in the business profits or losses. Which type
c. asset allocation of business did they create if they both have full personal
d. working capital liability for the firm's debts?
e. risk structure a. Sole proprietorship
3. Which one of the following is the hypothesis that b. Limited partnership
securities markets are efficient? c. Corporation
a. Geometric market hypothesis d. Joint stock company
b. Standard deviation hypothesis e. General partnership
c. Efficient markets hypothesis 9. Which one of the following could cause the total return on
d. Capital market hypothesis an investment to be a negative rate?
e. Financial markets hypothesis a. Constant annual dividend amount
4. Which one of the following combinations will always b. Increase in the annual dividend amount
result in an increased dividend yield? c. Stock price that remains constant over the
a. Increase in the stock price combined with a lower investment period
dividend amount d. Stock price that declines over the investment period
b. Increase in the stock price combined with a higher e. Stock price that increases over the investment period
dividend amount 10. Which answer creates a false sentence? Percentage
c. Decrease in the stock price combined with a lower returns:
dividend amount a. relay information about a security more easily than
d. Decrease in the stock price combined with a higher dollar returns do
dividend amount b. are not affected by the amount of the investment
e. Increase in the stock price combined with a constant c. can be easily separated into dividend yields and
dividend amount capital gain yields
5. Which one of the following statements is correct d. are easy to understand
concerning both the dollar return and the percentage e. are difficult to compute
return on a stock investment? 11. Matt and Alicia created a firm that is a separate legal
a. Without the size of an investment, the dollar return entity and will share ownership of that firm on a 75/25
has less value than the percentage return. basis. Which type of entity did they create if Alicia has no
b. The dollar return is more accurate than the personal liability for the firm's debts?
percentage return because the dollar return includes a. Limited partnership
dividend income while the percentage return does b. Corporation
not. c. Sole proprietorship
c. The dollar return considers the time value of money d. General partnership
while the percentage return does not. e. Public company
d. Dollar returns are based on capital gains while 12. The potential conflict of interest between a firm's owners
percentage returns are based on the total rate of and its managers is referred to as which type of conflict?
return. a. Organizational
e. Dollar returns must either be zero or a positive value b. Structural
while percentage returns can be negative, zero, or c. Formative
positive. d. Agency
6. Theo’s BBQ has $48,000 in current assets and $39,000 in e. Territorial
current liabilities. Decisions related to these accounts are 13. An employee has a claim on the cash flows of Martin’s
referred to as: Machines. This claim is defined as a claim by one of the
a. capital structure decisions firm's:
b. capital budgeting decisions a. residual owners
c. working capital management b. shareholders
d. operating management c. financiers
e. fixed account structure d. provisional partners
e. stakeholders
14. The shareholders of Weil’s Markets would benefit if the a. Size of future cash flows only
firm were to be acquired by Better Foods. However, b. Size and timing of future cash flows only
Weil’s board of directors rejects the acquisition offer. c. Timing and risk of future cash flows only
This is an example of: d. Risk and size of future cash flows only
a. a corporate takeover e. Size, timing, and risk of future cash flows
b. a capital structure issue 22. Assume the securities markets are strong form efficient.
c. a working capital decision Given this assumption, you should expect which one of
d. an agency conflict the following to occur?
e. a compensation issue a. The risk premium on any security in that market will
15. One year ago, you purchased 600 shares of a stock. This be zero.
morning you sold those shares and realized a total return b. The price of any one security in that market will
of 3.1 percent. Given this information, you know for sure remain constant at its current level.
the: c. Each security in the market will have an annual rate
a. stock price increased by 3.1 percent over the last of return equal to the risk-free rate.
year d. The price of each security in that market will
b. stock increased in value over the past year frequently fluctuate.
c. stock paid a dividend e. The prices of each security will fall to zero because
d. dividend yield is greater than zero the net present value of the investments will be zero.
e. sum of the dividend yield and the capital gains yield 23. If the financial markets are efficient then:
is 3.1 percent a. stock prices should remain constant
16. When conducting a financial analysis of a firm, financial b. stock prices should increase or decrease slowly as
analysts: new events are analyzed and the information is
a. cannot use accounting information as it is historical absorbed by the markets
b. rely solely on accounting information c. an increase in the value of one security should be
c. frequently use accounting information offset by a decrease in the value of another security
d. ignore accounting information but do use marketing d. stock prices will change only when an event actually
information occurs, not at the time the event is anticipated
e. assume the future will be a repeat of the past as e. stock prices should respond only to unexpected news
reflected in the firm’s accounting reports and events
17. Jamie is employed as a currency trader in the Japanese 24. According to the efficient markets hypothesis,
yen market. Her job falls into which one of the following professional investors will earn:
areas of finance? a. excess profits over the long-term
a. International finance b. excess profits, but only on short-term investments
b. Financial institutions c. a dollar return equal to the value paid for an
c. Corporate finance investment
d. Capital management d. a return that cannot be accurately predicted because
e. Personal finance investments are subject to the random movements of
18. If you accept a job as a domestic security analyst for a the markets
brokerage firm, you are most likely working in which one e. a return that "beats the market."
of the following financial areas? 25. Semistrong form market efficiency states that the value of
a. International finance a security is based on:
b. Private placements a. all public and private information
c. Corporate finance b. historical information only
d. Capital management c. all publicly available information
e. Investments d. all publicly available information plus any data that
19. Which one of the following occupations best fits into the can be gathered from insider trading
corporate area of finance? e. random information with no clear distinction as to
a. Mortgage broker the source of that information
b. Treasury bill analyst
c. Chief financial officer
d. Insurance risk manager
e. Local bank manager
20. Which one of the following is a working capital decision?
a. How should the firm raise additional capital to fund
its expansion?
b. What debt-equity ratio is best suited to the firm?
c. What is the cost of debt financing?
d. Should the firm borrow money for five or for ten
years?
e. How much cash should the firm keep in reserve?
21. Capital budgeting includes the evaluation of which of the
following?