Subject Corporate Finance

Sr.no Question 1 2 3 4 5 Answer

The stock exchange on The president of the

The board of directors which the stock is listed company Individuals buying and
1 1. Who determine the market price of a share of common stock? of the firm selling the stock 2
The number and
The minimization of
types of products or The creation of value The dollars profits
2. What should be the focal point of financial management in a firm? the amount of taxes
services provided by for shareholders earned by the firm
paid by the firm
2 the firm 3
A member in a
A limited partner in a A shareholder in a The owner of a sole
3. Which of the following would generally have unlimited liability? limited liability
partnership corporation proprietorship
3 company LC) 3

Total tax liability Rate that will be paid Percentage increase

Median marginal tax
4. Which of the following is equal to the average tax rate? divided by taxable on the next dollar of in taxable income om
rate
income taxable income the previous period
4 1
5. Felton Farm Supplies, Inc., has an 8 percent return on total assets of
Rs.3, 750,000 Rs.480, 000 Rs.300, 000
5 Rs.300,000 and a net profit margin of 5 percent. What are its sales? 2
Borrow short term to Sell common stock Sell fixed assets to
Issue long-term debt
6. Which of the following would not improve the current ratio? finance additional fixed to reduce current reduce accounts
to buy inventory
assets liabilities payable
6 1
7. With continuous compounding at 8 percent for 20 years, what is the
Rs.52,000 Rs.93,219 Rs.99,061
7 approximate future value of a Rs.20,000 initial investment? 3
8. In 2 years you are to receive Rs.10,000. If the interest rate were to
Incomplete
suddenly decrease, the present value of that future amount to you would Fall Rise Remain unchanged
information
8 __________. 2
Income tax and None of the given
9. Cash budgets are prepared from past: Balance sheets Income statements
9 depreciation data options 4
Calculations for
10. Which of the following is part of an examination of the sources and A forecasting
A funds flow analysis A ratio analysis preparing the balance
uses of funds? technique
10 sheet 2
11 11. An annuity due is always worth _____ a comparable annuity. Less than More than Equal to Can not be found 2
12. As interest rates go up, the present value of a stream of fixed cash
Goes down Goes up Stays the same Can not be found
12 flows _____. 1
13. ABC company is expected to generate Rs.125 million per year over
the next three years in free cash flow. Assuming a discount rate of 10%, Rs.375 million Rs.338 million Rs.311 million Rs. 211 million
13 what is the present value of that cash flow stream? 3

14. If we were to increase ABC company cost of equity assumption, what Incomplete
An increase A decrease No change
would we expect to happen to the present value of all future cash flows? information
14 2
15. In proper capital budgeting analysis we evaluate incremental
Accounting Operating Before-tax Financing
15 __________ cash flows 2
16. A capital budgeting technique through which discount rate equates the
present value of the future net cash flows from an investment project with Payback period Internal rate of return Net present value Profitability index
16 the project’s initial cash outflow is known as: 2
 17. Discounted cash flow methods provide a more objective basis for Both timing and
Magnitude of Timing of expected None of the given
evaluating and selecting an investment project. These methods take into magnitude of cash
expected cash flows cash flows options
17 account: flows 3
Anticipated life of All of the given
18. Which of the followings make the calculation of NPV difficult? Estimated cash flows Discount rate
18 the business options 4
19. From which of the following category would be the cash flow
All of the given
received from sales revenue and other income during the life of the Financing activity Operating activity Investing activity
options
19 project? 2
20. Which of the following technique would be used for a project that has Multiple internal rate Modified internal arte
Net present value Internal rate of return
20 non –normal cash flows? of return of return 1
Because it helps in
Because it has a direct Because we have a Because it has direct
quick judgment
Why net present value is the most important criteria for selecting the link with the simple formula to link with
regarding the
project in capital budgeting? shareholders dividends calculate the cash shareholders wealth
investment in real
maximization flows maximization
21 assets 4
There are two
More than one sign adjacent arrows one of During the life of
In which of the following situations you can expect multiple answers of All of the given
change taking place in them is downward project if you have
IRR? options
cash flow diagram pointing & the other any net cash outflow
one is upward pointing
22 4
Which one of the following selects the combination of investment
proposals that will provide the greatest increase in the value of the firm Cash budgeting Capital budgeting Capital expenditure Capital rationing
23 within the budget ceiling constraint? 4
Who is responsible for the decisions relating capital budgeting and capital All of the given
Chief executive officer Junior management Division heads
24 rationing? option 4
What is a legal agreement, also called the deed of trust, between the
corporation issuing bonds and the bondholders that establish the terms of Indenture Debenture Bond Bond trustee
25 the bond issue? 1
6. __________ is a high-risk, high-yield bond rated below investment A debenture;
A subordinated An income bond;
grade; while a/ (an) __________ bond has its interest payment contingent A junk bond; income subordinated
debenture; mortgage mortgage
26 on sufficient earnings of the firm. debenture 1
__________ is a long-term, unsecured debt instrument with a lower claim A debenture;
A subordinated An income bond;
on assets and income than other classes of debt; while a/(an) __________ subordinated A junk bond; income
debenture; mortgage junk
27 bond issue is secured by the issuer's property. debenture 1
The value of the bond is NOT directly tied to the value of which of the Liquid assets of the Fixed assets of the Lon term assets of Real assets of the
28 following assets? business business the business business 1
Par recovery at All of the given
9. The value of a bond is directly derived from which of the following? Cash flows Coupon receipts
29 maturity options 4
30 Which of the following is not the present value of the bond? Intrinsic value Fair price Theoretical price Market price 4
Annual interest
Annual interest The internal rate of
The current yield on a bond is equal to ________. The yield to maturity divided by the current
divided by the par value return
31 market price 3
 Can always be
Does not pay interest converted into a Pays interest on a
on a regular basis but specific number of regular basis
Which of the following is a characteristic of a coupon bond? Always sells at par
pays a lump sum at shares of common (typically every six
maturity stock in the issuing months)
32 company 3
Which of the following value of the shares changes with investor’s
perception about the company’s future and supply and demand situation? Par value Intrinsic value Market value Face value
33 (Comprehension) 3
Supply and demand
All of the given
The value of direct claim security is derived from which of the following? Fundamental analysis Underlying real asset of securities in the
options
34 market 2
_________ is equal to (common shareholders' equity/common shares Liquidation value per Market value per
Book value per share None of the above
35 outstanding). share share 2
Low Tech Company has an expected ROE of 10%. The dividend growth
rate will be ________ if the firm follows a policy of paying 40% of 4.80% 6.00% 7.20% 3.00%
36 earnings in the form of dividends. 3
High Tech Chip Company is expected to have EPS in the coming year of
Rs. 2.50. The expected ROE is 12.5%. An appropriate required return on
6.25% 8.75% 6.60% 7.50%
the stock is 11%. If the firm has a plowback ratio of 70%, what would be
37 the growth rate of dividends? 2
In the dividend discount model, _______ which of the following are not Risk premium for Expected inflation
Real risk-free rate Return on assets
38 incorporated into the discount rate? stocks rate 3
Bond is a type of Direct Claim Security whose value is NOT secured by
Tangible assets Fixed assets Intangible assets Real assets
39 __________. 3
Wealth Maximization Sales Maximization Profit Maximization Assets maximization
40 The only feasible purpose of financial management is 1
41 Financial management process deals with Investments Financing decisions Both a and b None of the above 3
Opportunity and
Binding Monitoring All of the above
42 Agency cost consists of structure cost 2
Safe custody of funds Expenditure of funds Procurement of Procurement &
43 Finance Function comprises only only finance only effective use of funds 4

Amount of returns Timing of anticipated Risk associated with

All of the above
expected returns uncertainty of returns
44 The objective of wealth maximization takes into account 4
All elements of
acquiring and using
Efficient management Arrangement of
Brand dimension means of financial
of every business funds
resources for financial
45 Financial management mainly focuses on activities 4
A unit of money A unit of money There is no
obtained today is obtained today is difference in the
Time value of money indicates that worth more than a unit worth less than a unit value of money None of the above
of money obtained in of money obtained in obtained today and
46 future future tomorrow 1
 Discounting all cash Compounding all cash
Time value of money supports the comparison of cash flows recorded at
flows to a common flows to a common Using either a or b None of the above
different time period by
point of time point of time
47 3
If the nominal rate of interest is 10% per annum and there is quarterly
10% per annum 10.10 per annum 10.25%per annum 10.38% per annum
48 compounding, the effective rate of interest will be: 4

Relationship between annual nominal rate of interest and annual effective Effective rate > Effective rate < Effective rate =
None of the above
rate of interest, if frequency of compounding is greater than one: Nominal rate Nominal rate Nominal rate
49 1
Mr. X takes a loan of Rs 50,000 from HDFC Bank. The rate of interest is
10% per annum. The first installment will be paid at the end of year 5.
Rs 19500 Rs 19400 Rs 19310 None of the above
Determine the amount of equal annual installments if Mr. X wishes to
50 repay the amount in five installments. 3
If nominal rate of return is 10% per annum and annual effective rate of
1 2 3 None of the above
51 interest is 10.25% per annum, determine the frequency of compounding: 2
Present value tables for annuity cannot be straight away applied to varied
True False
52 stream of cash flows. 1
Compounding
Heterogeneous cash flows can be made comparable by Discounting technique Either a or b None of the above
53 technique 3
Risk of two securities with different expected return can be compared Standard deviation of Variance of
Coefficient of variation None of the above
54 with: securities Securities 1
The securities are If the correlation The securities are
A portfolio having two risky securities can be turned risk less if completely positively ranges between zero completely None of the above.
55 correlated and one negatively correlated 3
Portfolios that have Portfolios that have
Efficient frontier comprises of negatively correlated positively correlated Inefficient portfolios Efficient portfolios
56 securities securities 4
Efficient portfolios can be defined as those portfolios which for a given
Maximum return Average return Minimum return None of the above
57 level of risk provides 1
Capital allocation line Capital allocation line
Capital market line is: Both a and b None of the above
of a market portfolio of a risk free asset
58 3
59 CAPM accounts for: Unsystematic risk Systematic risk Both a and b None of the above 2
The point of tangency between risk return indifferences curves and
Optimal portfolio Efficient portfolio Sub-optimal portfolio None of the above
60 efficient frontier highlights: 1
61 A risk free security has zero variance. True False 1
62 Return on any financial asset consists of capital yield and current yield. True False 1
There is no difference between the capital market line and security market
True False
63 line as both the terms are same. 2
Present value of Present value of
Present value of
The value of a bond and debenture is interest payments it contractual payments None of the above
redemption amount
gets it gets till maturity
64 2
65 Required rate of return>Coupon rate, the bond will be valued at Premium Par value Discount None of the above 3
If the coupon rate is constant, the value of bond when close to maturity
Issued value Par value Redemption value All of the above
66 will be 3
 Coupon rate>Required Coupon rate=Required
Coupon rate None of the above
returns returns
67 A bond is said to be issued at premium when 1
68 Value of a bond just depends on the interest payment is offers. True False 2
In a variable growth model, the dividend is believed to grow at a constant
True False
69 pace forever after an initial growth period. 1
70 For a bond YTM is always equal to coupon rate. True False 2
__________ is concerned with the acquisition, financing, and management of
71 assets with some overall goal in mind. Financial management Profit maximization Agency theory Social responsibility 1
Jensen and Meckling showed that __________ can assure themselves that the
__________ will make optimal decisions only if appropriate incentives are principals; agents; agents; principals; principals; agents; agents; principals;
72 given and only if the __________ are monitored. agents principals principals agents 1
Shareholder wealth Stakeholder
73 __________ is concerned with the maximization of a firm's earnings after taxes. maximization Profit maximization maximization EPS maximization 2
Shareholder wealth Stakeholder
74 What is the most appropriate goal of the firm? maximization. Profit maximization. maximization. EPS maximization. 1

Profit maximization
will not lead to
increasing short-term Profit maximization Profit maximization is
Profit maximization profits at the expense does consider the concerned more with
Which of the following statements is correct regarding profit maximization as considers the firm's of lowering expected impact on individual maximizing net income
75 the primary goal of the firm? risk level. future profits. shareholder's EPS. than the stock price. 4
__________ is concerned with the branch of economics relating the behavior Corporate social
76 of principals and their agents. Financial management Profit maximization Agency theory responsibility 3

A concept that implies that the firm should consider issues such as protecting
the consumer, paying fair wages, maintaining fair hiring practices, supporting Corporate social
77 education, and considering environmental issues. Financial management Profit maximization Agency theory responsibility 4
Which of the following is not normally a responsibility of the treasurer of the Investment
78 modern corporation but rather the controller? Budgets and forecasts Asset management management Financing management 1
The __________ decision involves determining the appropriate make-up of the
79 right-hand side of the balance sheet. asset management financing investment capital budgeting 2
Vice President of
80 To whom does the Treasurer most likely report? Chief Financial Officer. Operations. Chief Executive Officer. Board of Directors. 1
The __________ decision involves a determination of the total amount of
assets needed, the composition of the assets, and whether any assets need to
81 be reduced, eliminated, or replaced. asset management financing investment accounting 4

Use the income Use the income

statement to statement to
determine earnings Use the income Use the income determine earnings
after taxes (net statement to statement to after taxes (net
income) and divide by determine earnings determine earnings income) and divide by
the previous period's after taxes (net after taxes (net the forecasted period's
earnings after taxes. income) and divide by income) and divide by earnings after taxes.
Then subtract 1 from the number of the number of Then subtract 1 from
the previously common shares common and preferred the previously
82 How are earnings per share calculated? calculated value. outstanding. shares outstanding. calculated value. 3
 According to the text's authors, what is the most important of the three Asset management
83 financial management decisions? decision. Financing decision. Investment decision. Accounting decision. 3
The __________ decision involves efficiently managing the assets on the
84 balance sheet on a day-to-day basis, especially current assets. asset management financing investment accounting 3
Company-provided Country club
85 Which of the following is not a perquisite (perk)? automobile. Expensive office. Salary. membership. 3
Which of the following is not normally a responsibility of the controller of the Financial reporting to
86 modern corporation? Budgets and forecasts. Asset management. the IRS. Cost accounting. 2
All constituencies with a stake in the fortunes of the company are known as
87 __________. shareholders stakeholders creditors customers 2
EPS maximization does
EPS maximization not specify the timing EPS maximization EPS maximization is
Which of the following statements is not correct regarding earnings per share ignores the firm's risk or duration of naturally requires all concerned with
88 (EPS) maximization as the primary goal of the firm? level. expected EPS. earnings to be retained. maximizing net income. 4
Shareholder wealth Stakeholder welfare
89 __________ is concerned with the maximization of a firm's stock price. maximization Profit maximization maximization EPS maximization 1

Board of Directors, Common shareholders,

Corporate governance success includes three key groups. Which of the Suppliers, managers, executive officers, and Suppliers, employees, managers, and
90 following represents these three groups? and customers. common shareholders. and customers. employees. 2
the project's costs
(cash outlay) are (is) the project returns 92
less than the present cents in present value
value of the project's the project's NPV is the project's NPV is for each current dollar
91 A profitability index (PI) of .92 for a project means that __________. benefits greater than zero greater than 1 invested (cost) 4

The LMN Corporation is considering an investment that will cost $80,000 and
have a useful life of 4 years. During the first 2 years, the net incremental after-
tax cash flows are $25,000 per year and for the last two years they are $20,000 Cannot be determined
92 per year. What is the payback period for this investment? 3.2 years. 3.5 years. 4.0 years. from this information. 2

If the IRR of a project is If the PI of a project If the IRR of a project is

8%, its NPV, using a equals 0, then the greater than the
If the NPV of a project discount rate, k, project's initial cash discount rate, k, then
is greater than 0, then greater than 8%, will outflow equals the PV its PI will be greater
93 Which of the following statements is incorrect regarding a normal project? its PI will exceed 1. be less than 0. of its cash flows. than 1. 1
What do we call a formal comparison of the actual costs and benefits of a Business scorecard
94 project with original estimates? Post-completion audit. Feedback audit. Cost-benefit analysis. report. 3

A project whose acceptance does not prevent or require the acceptance of one a mutually exclusive
95 or more alternative projects is referred to as __________. project an independent project a dependent project a contingent project 2
When operating under a single-period capital-rationing constraint, you may
first want to try selecting projects by descending order of their __________ in
order to give yourself the best chance to select the mix of projects that adds internal rate of return
96 most to firm value. profitability index (PI) net present value (NPV) (IRR) payback period (PBP) 1
The sequence of -$100, The sequence of
The sequence of -$100, $600, -$1,100, $600, +$100, -$1,100, and The sequence of -$50,
$50, $40, $60, and $50 and $20 has at most $1,600 is a $50, $70, $60, and -
Which of the following statements regarding cash flow patterns (for time is a nonconventional two internal rates of conventional cash flow $150 has at most two
97 periods 0, 1, 2, 3, and 4) is correct? cash flow pattern. return. pattern. internal rates of return. 4
 As long as you are not
dealing with mutually
exclusive projects,
capital rationing, or
unusual projects
having multiple sign
changes in the cash- The internal rate of
flow stream, the return is rarely used by
internal rate of return The internal rate of firms today because of
Each project has a method can be used return does not the ease at which net
Which of the following statements is correct regarding the internal rate of unique internal rate of with reasonable consider the time value present value is
98 return (IRR) method? return. confidence. of money. calculated. 2

One of the mutually

exclusive projects
The projects have The costs of the two The two projects have involves replacement
Which of the following is not a potential for a ranking problem between two unequal lives that projects differ by cash flow patterns that while the other
99 mutually exclusive projects? differ by several years. nearly 30%. differ dramatically. involves expansion. 4

the rate at which the the minimum

The discount rate associated with the single intersection of the NPV profiles of Fisher's rate of projects have identical acceptable rate of
100 two mutually exclusive projects represents __________. intersection profitability indexes Gordon's rate of return return for each project 1

displays the expected

NPV for a project at a
displays Fisher's rate of is generally upward variety of different None of the above
101 An NPV profile for a single project __________. intersection sloping discount rates answers are 3
A project whose acceptance precludes the acceptance of one or more a mutually exclusive
102 alternative projects is referred to as __________. project. an independent project. a dependent project. a contingent project. 1

Use the common-life

Two mutually exclusive projects are being considered. Neither project will be technique to replicate Ignore the NPV In this situation, we
repeated again in the future after their current lives are complete. There exists the one-year project technique and simply need to rely on the
a potential problem though -- the expected life of the first project is one year Rely on the NPV three times and choose the highest IRR profitability index (PI)
and the expected life of the second project is three years. This has caused the method and make your recalculate the NPV since managers are method and choose
NPV and IRR methods to suggest different project preferences. What technique choice as it will tell you and IRR for the one- concerned about the one with the
103 can be used to help make a better decision in this scenario? which one is best. year project. maximizing returns. highest PI. 1

To the nearest dollar, what is the net present value of a replacement project
whose cash flows are -$104,000; $34,444; $39,877; $25,000; and $52,800 for
years 0 through 4, respectively? The firm has decided to assume that the
104 appropriate cost of capital is 10% and the appropriate risk-free rate is 6%. $15,115 $26,798 $33,346 $48,121 1
A project has the following cash inflows $34,444; $39,877; $25,000; and
$52,800 for years 1 through 4, respectively. The initial cash outflow is The IRR is greater than The IRR is greater than
$104,000. Which of the following four statements is correct concerning the The IRR is less than or equal to 10%, but or equal to 14%, but The IRR is greater than
105 project internal rate of return (IRR)? 10%. less than 14%. less than 18%. or equal to 18%. 3
 A or B; Makes no
difference which you
You must decide between two mutually exclusive projects. Project A has cash choose because the
flows of -$10,000; $5,000; $5,000; and $5,000; for years 0 through 3, IRR for A is identical to
respectively. Project B has cash flows of -$20,000; $10,000; $10,000; and the IRR for B and both
$10,000; for years 0 through 3, respectively. The firm has decided to assume IRRs are greater than Neither A nor B; The
that the appropriate cost of capital is 10% for both projects. Which project A; Project A's NPV > 10 percent, the cost of B; Project B's NPV > NPVs of both projects
106 should be chosen? Why? Project B's NPV. capital. Project A's NPV. are negative. 3

There are two mutually exclusive projects that have different lives. Project A
has a 4-year life and Project B has a 5-year life. In replacement chain analysis, It is not possible to
the earliest common life will occur when Project A is replicated __________ determine the answers
107 times and Project B is replicated __________ times. 5; 4 4; 5 20; 20 for this problem. 1
A project whose acceptance requires the acceptance of one or more a mutually exclusive
108 alternative projects is referred to as __________. project an independent project a dependent project None of the above are 3

long-term debt,
preferred stock, and current assets and total assets minus
109 The term "capital structure" refers to: common stock equity. current liabilities. liabilities. shareholders' equity. 1
that interest
that debt and that dividends that ko remains
A critical assumption of the net operating income (NOI) approach to expense and taxes are
equity levels remain increase at a constant constant regardless of
valuation is: included in the
unchanged. rate. changes in leverage.
110 calculation. 3
that the overall
capitalization rate that there is an that total risk is not
that markets are
The traditional approach towards the valuation of a company assumes: holds constant with optimum capital altered by changes in
perfect.
changes in financial structure. the capital structure.
111 leverage. 2
this will not
the firm with continue because
one will be at this proves that
Two firms that are virtually identical except for their capital structure are greater financial arbitrage will
greater risk of markets cannot be
selling in the market at different values. According to M&M leverage will have eventually cause the
bankruptcy. efficient.
the higher value. firms to sell at the
112 same value. 4
113 The cost of monitoring management is considered to be a (an): bankruptcy cost. transaction cost. agency cost. institutional cost. 3
What is the value of the tax shield if the value of the firm is $5 million, its
value if unlevered would be $4.78 million, and the present value of $140,000 $220,000 $360,000 $580,000
114 bankruptcy and agency costs is $360,000? 4
According to the concept of financial signaling, management behavior
good bad non-event risk-neutral
115 results in new debt issues being regarded as " news" by investors. 1
first declines and
remains constant increases with decreases with
The cost of capital for a firm -- when we allow for taxes, bankruptcy, and then ultimately rises
with increasing levels increasing levels of increasing levels of
agency costs -- with increasing levels
of financial leverage. financial leverage. financial leverage.
116 of financial leverage. 2
When sequential long-term financing is involved, the choice of debt or
timing flexibility liquidity
117 equity influences the future financial of the firm. 2
 It avoids the problem It acknowledges that
It acknowledges that
of computing the It is the only way to most new investment
most new investment
required rate of return measure a firm's projects offer about
projects have about
for each investment required return. the same expected
the same degree of risk.
proposal. return.
118 A single, overall cost of capital is often used to evaluate projects because: 1
Rate of return a firm
Discount rate which Maximum rate which
must earn on its Coupon rate the firm e. Required rate which
the firm should apply the firm should require
existing assets to should expect to pay every project's internal
to all of the projects it on any projects it
maintain the current on its next bond issue. rate of return must
undertakes. undertakes.
119 The weighted average cost of capital for a firm is the: value of its stock. exceed. 2

Peter’s Audio Shop has a cost of debt of 7%, a cost of equity of 11%, and a cost
of preferred stock of 8%. The firm has 104,000 shares of common stock
outstanding at a market price of $20 a share. There are 40,000 shares of 6.14% 6.54% 8.60% 9.14%
preferred stock outstanding at a market price of $34 a share. The bond issue
has a total face value of $500,000 and sells at 102% of face value. The tax rate
120 is 34%. What is the weighted average cost of capital for Peter’s Audio Shop? 4
Difference between
Return on the stock the return on the Beta times the market Beta times the risk-
If the CAPM is used to estimate the cost of equity capital, the expected excess minus the risk-free rate. market and the risk- risk premium. free rate. e. Market rate of
121 market return is equal to the: free rate. return. 2
Discount rate which Overall rate which the
c. Rate the firm should d. Maximum rate
the firm should apply firm must earn on its
of its stock. expect to pay on its which the firm should
to all of the projects it existing assets to
next bond issue. require on any projects
undertakes. maintain the value
122 The weighted average cost of capital for a firm is the: it undertakes. 2
using the firm's beta is
the firm is all-equity the financial risk is
the same measure of Both A and B.
financed. equal to business risk.
risk as the project.
123 Using the CAPM to calculate the cost of capital for a risky project assumes that: 4
covariance of the
variance of the market
direction of the overall cycle of the security with the
and asset, but not their
market variance. market. market and how they
co-movement.
124 Beta measures depend highly on the: are correlate e. All of the above. 5
standard deviation; expected return;
The formula for calculating beta is given by the dividing the ___________ of the variance; covariance covariance; variance e. expected return;
variance variance
125 stock with the market portfolio by the ___________ of the market portfolio. covariance 2
126 The slope of the characteristic line is the estimated: intercept. beta. unsystematic risk. market variance. 2

how small the how similar the firm's

estimation errors are operations are to the whether the company the size of the
of all betas across operations of all other is a leader or follower. company's public float.
Betas may vary substantially across an industry. The decision to use the industries. firms in the industry.
127 industry or firm beta: to estimate the cost of capital depends on 2
Comparing two otherwise equal firms, the beta of the common stock of a
levered firm is ____________ than the beta of the common stock of an equal to significantly less slightly less greater
128 unlevered firm. 4
 low fixed costs in its high variable costs in high fixed costs in its
high price per unit.
production process. its production process. production process.
129 A firm with high operating leverage has: 3
no effect in any way
a smaller change in a decreasing effect on a larger change in EBIT
on the firms as volume
EBIT for the firm versus the cyclical nature of for the firm versus the
If a firm has low fixed costs relative to all other firms in the same industry, a does not effect fixed
the other firms. the business. other firms.
130 large change in sales volume (either up or down) would have: costs. 1
low fixed cost of high variable cost of high fixed costs of low costs of
production; low fixed production; high production; high fixed production; high fixed
A firm with high operating leverage is characterized by __________ while one
financial costs variable financial costs financial costs financial costs
131 with high financial leverage is characterized by __________. 3

The weight of the

When computing the
common stock used in
WACC, the weight
The WACC may A firm's WACC will the computation of the
assigned to the
decrease as a firm's decrease as the WACC is based on the
preferred stock is
debt-equity ratio corporate tax rate number of shares
based on the coupon
increases. decreases. outstanding multiplied
rate multiplied by the
by the book value per
par value of the stock.
Which one of the following statements is correct concerning the weighted share.
132 average cost of capital (WACC)? 1
Be ignored when Be averaged over the Be included in the
Only be considered
analyzing a project life of the project initial cost of a project
when two projects
because flotation costs thereby reducing the before the net present
have the same net
are not an actual cost cash flows for each value of the project is
present value.
of the project. year of the project. compute
133 Flotation costs should: 4

The Sealing Company has 1,500 bonds outstanding that are selling for $1,060
each. The company also has 5,000 shares of preferred stock at a market price
6 percent 35 percent 41 percent 54 percent
of $32 each. The common stock is priced at $26 a share and there are 36,000
shares outstanding. What is the weight of the common stock as it relates to the
134 firm's weighted average cost of capital? 2
A return on the equity-
The minimum rate financed portion of an
By far the most Generally lower than
that a firm should earn investment that, at
difficult component the before-tax cost of
on the equity-financed worst, leaves the
cost to estimate. debt.
part of an investment. market price of the
stock unchanged.
135 The cost of equity capital is all of the following EXCEPT: 4
The current market
The sum of common
The common stock price per share of
stock and preferred The book value of the
equity account on the common stock times
stock on the balance firm.
In calculating the proportional amount of equity financing employed by a firm, firm's balance sheet. the number of shares
sheet.
136 we should Use: outstanding. 4
The market return
The earnings for the
To compute the required rate of return for equity in a company using the The risk-free rate. The beta for the firm. expected for the time
next time period.
137 CAPM, it is necessary to know all of the following EXCEPT: period 3
 In calculating the costs of the individual components of a firm's financing, the
corporate tax rate is important to which of the following component cost Common stock. Debt. Preferred stock. None of the above
138 formulas? 2
There is more
There is less demand There is greater There is a market
systematic risk
for stock than for demand for stock than premium required for
The common stock of a company must provide a higher expected return than involved for the
bonds. for bonds. bonds.
139 the debt of the same company because common stock. 3
This is required in the
This is the simplest This is consistent with
U.S. by the Securities This is a very common
way to do the the goal of maximizing
and Exchange mistake.
Market values are often used in computing the weighted average cost of calculation. shareholder value.
Commission.
140 capital because 2
For an all-equity financed firm, a project whose expected rate of return plots Above the Above the security Below the security Below the
141 should be rejected. characteristic line market line market line characteristic line 3
Adjusts its hurdle rate
Adjusts its hurdle rate
(i.e., cost of capital) Does not adjust its Raises its prices to
(i.e., cost of capital)
downward to hurdle rate up or down compensate for this
upward to compensate
Some projects that a firm accepts will undoubtedly result in zero or negative compensate for this regardless of this fact. fact.
for this fact.
142 returns. In light of this fact, it is best if the firm fact. 3
Long-term debt,
Current assets and Total assets minus
preferred stock, and Shareholders' equity.
current liabilities. liabilities.
common stock equity.
143 The term "capital structure" refers to: 1
That debt and equity That dividends That ko remains That interest expense
levels remain increase at a constant constant regardless of and taxes are included
A critical assumption of the net operating income (NOI) approach to valuation
unchanged. rate. changes in leverage. in the calculation.
144 is: 3
That the overall
capitalization rate That there is an That total risk is not
That markets are
holds constant with optimum capital altered by changes in
perfect.
changes in financial structure. the capital structure.
145 The traditional approach towards the valuation of a company assumes: leverage. 2
This will not continue
The firm with greater This proves that because arbitrage will
One will be at greater
financial leverage will markets cannot be eventually cause the
risk of bankruptcy.
have the higher value. efficient. firms to sell at the
Two firms that are virtually identical except for their capital structure are
same value.
146 selling in the market at different values. According to M&M 4
Closeness to its
Level of fixed
Sales variability. operating break-even Debt-to-equity ratio
operating costs.
147 A firm's degree of operating leverage (DOL) depends primarily upon its point. 3
Examining EPS results
Determining the Showing the changes
Evaluating the effects for alternative
impact of a change in in EPS quality over
of business risk on EPS. financing plans at
sales on EBIT. time.
varying EBIT levels.
148 An EBIT-EPS indifference analysis chart is used for 2
Funds provided by
Earnings before taxes. Net income. Operating profit.
149 EBIT is usually the same thing as: operations. 4
 Still be indeterminate
until interest and
In the context of operating leverage break-even analysis, if selling price per unit Fall. Rise. Stay the same.
preferred dividends
rises and all other variables remain constant, the operating break-even point in
paid are known.
150 units will: 1
If sales rise by 5%, If sales rise by 1%, If sales rise by 5%, If sales rise by 1%,
151 If a firm has a DOL of 5 at Q units, this tells us that: EBIT will rise by 5%. EBIT will rise by 1%. EBIT will fall by 25%. EBIT will rise by 5%. 4
A firm's degree of total leverage (DTL) is equal to its degree of operating
Plus Minus Divided by Multiplied by
152 leverage its degree of financial leverage (DFL). 4
The further a firm operates above its operating break-even point, the closer its
Minus one. Zero. One. Infinity.
153 degree of operating leverage (DOL) measure approaches 3
QWC Ltd. has cash of $100,000 that will be invested in an equity investment
that has a beta of 2.25. The current risk-free rate in the market is 2.5%, and the
$8,000 $18,000 $23,625 $20,500
market requires an 8% risk premium for equity securities. What return should
154 QWC Ltd. expect to earn? 4
155 An asset’s market (systematic) risk is measured by its Variance of returns. Beta coefficient. Standard deviation. Total return. 2
Trout Ltd. produces a single product that has a contribution margin of 60% per
unit and sold 500,000 units last year. Trout has a degree of operating leverage
of 1.60 and a degree of financial leverage of 1.20 for the current year. If the
16% 12% 6% 19%
sales volume were to increase by 10% this coming year, what would be the
expected percentage increase in earnings per share (rounded to the nearest
156 percent)? 4
The cumulative
An indication of a The same as cash in Not important when earnings of the
company's liquidity. the bank. determining dividends. company after
157 Retained earnings are dividends. 4
Some investors'
Reduction of
Informational content. preference for current All of the above.
uncertainty.
158 Which of the following is an argument for the relevance of dividends? income. 4
An increase in the
A decrease in total
If Ian O'Connor Enterprises, Inc., repurchased 50 percent of its outstanding A decline in EPS. An increase in cash. number of
assets.
159 common stock from the open (secondary) market, the result would be; stockholders. 3

Company Q is all equity financed. For each £1 of earnings, it consistently pays

30p in dividends and retains 70p for reinvestment. It expects to earn a rate of 4·2% 7% 9·8% 14%
return of 14% on capital employed. According to the Gordon Growth Model,
160 what would the rate of earnings growth be in future? Ignore tax. 1
Dividends per share Dividends per share Dividends per share
The dividend yield plus
divided by earnings per divided by par value divided by current
the capital gains yield.
161 The dividend-payout ratio is equal to share. per share. price per share. 2
Based on the Based on the
Equal to the security's Based on the total risk
According to the capital-asset pricing model (CAPM), a security's expected unsystematic risk of systematic risk of the
beta. of the security.
162 (required) return is equal to the risk-free rate plus a premium the security. security. 1
The risk-free security has a beta equal to, while the market portfolio's beta Less than zero; more
One; more than one. One; less than one. Zero; one.
163 equal to than zero 3
The security market
The capital market line. A characteristic line. The CAPM.
164 Beta is the slope of line. 3
Greater the Greater the avoidable Less the unavoidable
Less the avoidable risk
165 The greater the beta, the…………………of the security involved. unavoidable risk risk risk 1
 A firm belief by A large proportion of
management that A large number of its shares are owned
Pecking order theory
dividends represent a desirable projects. by institutional
Which of the following factors is most likely to explain why a company decides
residual payment investors
166 to increase its annual dividend? e) Poor cash flows 3
Shareholders are
concerned with total Investors' discount
Shareholders making Firms have particular
earnings rather than rates increase with
homemade dividends clienteles due to their
with the split between time due to
face dealing costs dividend policy
distributed and uncertainty.
Which of the following statements lends most support to the theory that
retained earnings.
167 dividend payments are irrelevant to the value of ordinary shares? 3
Investment decisions Making homemade Companies with stable Investors like to
are the sole dividends causes dividend policies build maintain the real value
determinant of investors to incur up shareholder of their dividend
Which of the following statements is consistent with dividend irrelevance
shareholder wealth transaction costs clienteles payments.
168 theory? 1

An investor is looking to calculate the current share price of Bolder plc. Given
the risk of the company the investor requires an annual return of 13 percent.
£4.83 £4.60 £4.74 £5.20
The company's share price is still cum div and the current dividend (to be paid
shortly) is 23p per share. Historically, dividends have grown at an annual rate of
169 8 percent. What is the company's current share price? 4

The current ex div market price of a share is £2.25p and the current dividend
6.5 percent. 8.7 percent. 6.9 percent. 7.8 percent.
(just paid) was 20p. Shareholders require a return from the share of 16 percent.
170 What is the dividend growth rate expected by shareholders? 1

XYZ's current cum div share price is £3.45 and the company has just announced
a dividend of 20p per share. At what rate do investors expect its dividends to 8.3 percent. 7.8 percent. 9.5 percent. 7.1 percent.
grow in the future, if the current share price is thought to be a fair one and if
171 investors require a rate of return of 15 percent? 1
The firm sets a policy The firm sets a policy
The firm pays
such that the such that the quantity All of the above are
dividends with what
proportion of (dollar amount per examples of various
remains of net income
dividends paid from share) of dividends types of passive
after taking acceptable
net income remains paid from net income dividend policies
investment projects
constant. remains constant.
172 Which of the following examples best represents a passive dividend policy? 2

Firm Pickemon, Inc. has had earnings of $3.20, $3.00, and $5.50 per share for
the past three years. The firm anticipates maintaining the same dividend policy
this year as the past three years. That dividend policy has resulted in dividends $3.92 $1.56 $3.12 $4.68
per share of $1.28, $1.20, and $2.20 for the past three years. It is anticipated
that the next year will result in a large increase in earnings to $9.80 per share.
173 What dividend do you expect the firm to pay in the next year? 1
A (n) __________ is a payment of additional shares to shareholders in lieu of
stock split stock dividend extra dividend regular dividend
174 cash. 2
A (n) __________ occurs when there is an increase in the number of shares
stock split stock dividend extra dividend regular dividend
175 outstanding by reducing the par value of stock. 1
 A (n) __________ is the expected cash dividend that is normally paid to
stock split stock dividend extra dividend regular dividend
176 shareholders. 4
__________ is a nonrecurring dividend paid to shareholders in addition to the
A stock split A stock dividend An extra dividend A regular dividend
177 regular dividend. 3
a mandatory plan, a mandatory plan,
an optional plan,
an optional plan, provided by brokerage provided by large
provided by large
provided by brokerage firms, where corporate firms, where
corporate firms,
firms, allowing shareholders are shareholders are
allowing shareholders
shareholders to automatically automatically
to automatically
automatically reinvest reinvesting dividend reinvesting dividend
reinvest dividend
dividend payments in payments in additional payments in additional
payments in additional
additional shares of the shares of the firm's shares of the firm's
shares of the firm's
firm's stock. stock at a reduced stock at a reduced
stock.
178 A dividend reinvestment plan (DRIP) is __________. price. price. 2
It will reduce the stock It may convey
It decreases the supply price into what information about the
It may conserve cash
of shares and enhances management perceives firm to investors that it
for other firm needs.
shareholder wealth. as a more beneficial cannot convey credibly
Which of the following is not a reason that a firm would prefer to pay a stock
trading range. otherwise.
179 dividend rather than a regular cash dividend? 1
the repurchase of stock is considered __________ decision rather than an investment; a a financing; an an investment; a
a dividend; a financing
180 __________ decision. financing investment dividend 2
The __________ is the proportion of earnings that are paid to common 1 plus the retention
retention rate growth rate dividend payout ratio
181 shareholders in the form of a cash dividend. rate 4
A payment made out of a firm's earnings to its owners in the form of either
dividend. distribution. repurchase. payment-in-kin stock split.
182 cash or stock is called a: 1
A payment made by a firm to its owners from sources other than current or
dividend. distribution. repurchase. payment-in-kin stock split
183 accumulated retained earnings is called a: 2
A cash payment generally paid quarterly by a firm to its owners in the normal
repurchase. liquidating dividend. regular cash dividend. special dividen extra cash dividend.
184 course of business is called a: 3
stock begins selling
holders of record are board of directors
without entitlement to dividend checks are bank trustee approves
determined for a passes a resolution to
an upcoming dividend maile a dividend payment.
dividend payment. pay a dividend.
185 The declaration date is the date on which the: payment. 3
The ex-dividend date is defined as _____ business days before the date of
1 2 3 5 10
186 record. 2
The date by which a shareholder must be recorded as the share owner in order
ex-rights date. ex-dividend date. date of record. date of payment. declaration dat
187 to receive a declared dividend is called the: 3
188 The date the dividend payments are mailed is called the: ex-rights date. ex-dividend date. date of record. date of payment. declaration dat 4
The ability of shareholders to undo a firm's dividend policy and create an
perfect foresight capital structure homemade dividend
alternative dividend policy by reinvesting dividends or selling shares of stock is personalization. homemade leverage.
model. irrelevancy. policy.
189 called (a): 5
The market's reaction to a change in a firm's dividend payout is referred to as information content efficient markets
clientele effect. distribution effect. dividend fallout.
190 the: effect. hypothesis. 1
The observable fact that stocks attract particular investors based dividend yield information content efficient markets
clientele effect. distribution effect. market reaction.
191 and the resulting tax effects is called the: effect. hypothesis. 2
A payment made by a firm to its owners in the form of new shares is called a
stock normal special extra liquidating
192 _____dividend. 1
An increase in the number of shares outstanding which does not affect owners'
special dividend. stock split. share repurchase. tender offer. liquidating dividend.
193 equity is called a: 2
 The difference between the highest and lowest prices at which a stock has sold
average price.
194 is called the stock's:
an increase in the
number of shares
outstanding that does
not affect owners'
195 A reverse stock split is defined as: equity.
bid-ask spread. trading range. opening price. closing pric
3
a decrease in the
a decrease in both the
a firm buying back a firm selling new number of shares
number of shares
existing shares of stock shares of stock on the outstanding that does
outstanding and the
on the open market. open market. not affect owner's
price per shar
equity. 4

The chief financial If a firm has paid The dividend yield

officer of a corporation A dividend is not a regular quarterly Cash dividends always expresses the dividend
determines whether or liability of a firm until it dividends in the past it reduce the paid-in amount as a
not a dividend will be has been declared. is legally obligated to capital account balance. percentage of the net
paid. continue doing so. incom
196 Which one of the following statements concerning cash dividends is correct? 2
1 2 3 4 5
197 The ex-dividend date is _____ business days before the date of record. 2

The last date on which you can purchase shares of stock and still receive the 1 2 3 4 5
198 dividend is the date which is _____ business days prior to the date of record. 3
a majority of
stockholders have
few, if any, positive
the tax on capital gains a preponderance of other investment corporate tax rates
net present value
is deferred until the stockholders have opportunities that exceed personal tax
projects are available
gain is realized minimal taxable income offer higher rewards rates
to the firm
with similar risk
199 Which one of the following is an argument in favor of a low dividend policy? characteristics 1
a firm to maintain a
constant dividend maintaining a constant maintaining a low
a firm to issue larger
policy even if they dividend policy even maintaining a high dividend policy and
dividends than their
frequently have to when profits decline dividend policy. rarely issuing extra
closest competitors.
issue new shares of significantly. dividends.
200 The fact that flotation costs can be significant is justification for: stock to do so. 5
_______________ refers to the amount invested in various components of Temporary working Permanent working
Net working capital Gross working capital
201 current assets. capital capital 3
____________ is the length of time between the firm’s actual cash
Net operating cycle Cash conversion cycle Working capital cycle Gross operating cycle
202 expenditure and its own cash receipt. 1
_______________ refers to a firm holding some cash to meet its routine
Speculative motive Transaction motive Precautionary motive Compensating motive
203 expenses that are incurred in the ordinary course of business. 2
_______________ refers to the length of time allowed by a firm for its Average collection
Holding period Pay-back period Credit period
204 customers to make payment for their purchases. period 4
Amounts due from customers when goods are sold on credit are called
Trade balance Trade debits Trade discount Trade off
205 _____________. 2
Production
Profit maximisation, Sales maximisation, Value maximisation,
maximisation, Sales
____________________ and __________________________ are the two Wealth maximization Profit maximization Wealth maximisation
maximisation
206 versions of goals of the financial management of the firm. 1
Credit policy of every company is largely influenced by _____________ and Liquidity,
Liquidity, profitability Liability, profitability Liability, liquidity
207 _____________. accountability 2
 Borrow short term to Sell common stock to Sell fixed assets to
Issue long-term debt
finance additional fixed reduce current reduce accounts
to buy inventory.
assets. liabilities. payable
208 Which of the following would NOT improve the current ratio? 1
depreciation charges. dividends. goodwill. patent amortization.
209 Which of the following would be included in a cash estimation/ budget? 2
210 Which of the following is NOT a cash outflow for the firm? depreciation. dividends. interest payments. taxes. 1
applies only to
has the prospect of has the prospect of is only undertaken by
investment in fixed
long-term benefits. short-term benefits. large corporations.
211 A capital investment is one that assets 1
the project returns 85
the present value of
the project's NPV is cents in present value the payback period is
benefits is 85% greater
greater than zero. for each current dollar less than one year.
than the project's costs.
invested.
212 A profitability index of .85 for a project means that: 3
If the IRR of a project
If the IRR of a project
is greater than the
If the NPV of a project is 0%, its NPV, using a If the PI of a project is
discount rate, k, its PI
is greater than 0, its PI discount rate, k, less than 1, its NPV
will be less than 1 and
will equal 0. greater than 0, will be should be less than 0.
its NPV will be greater
0.
than 0.
213 Which of the following statements is correct? 3
A project's profitability index is equal to the ratio of the of a project's future present value; initial net present value; present value; net present value;
214 cash flows to the project's . cash outlay initial cash outlay depreciable basis depreciable basis 1
current assets minus
total assets. fixed assets. current assets.
current liabilities.
215 In finance, "gross working capital" means the same thing as 3
Financing short-term Financing permanent Financing seasonal Financing some long-
needs with short-term inventory buildup with needs with short-term term needs with short-
Which of the following would be consistent with a more aggressive approach to
funds. long-term debt. funds. term funds.
216 financing working capital? 4
Reducing current
Increasing current Increasing current assets, increasing
Replacing short-term
assets while lowering assets while incurring current liabilities, and
debt with equity.
Which asset-liability combination would most likely result in the firm's having current liabilities. more current liabilities. reducing long-term
217 the greatest risk of technical insolvency? debt. 3
All assets financed
Short-term assets Permanent working
Short-term assets with 50 percent equity,
financed with long- capital financed with
financed with equity. 50 percent long-term
Which of the following illustrates the use of a hedging (or matching) approach term liabilities. long-term liabilities.
debt mixture.
218 to financing? 2
a trade-off between a trade-off between
a trade-off between a trade-off between
liquidity and short-term versus long-
In deciding the appropriate level of current assets for the firm, management is profitability and risk. equity and debt.
marketability. term borrowing.
219 confronted with 1
220 varies inversely with profitability. Liquidity. Risk. Financing. Liabilities. 1
221 Spontaneous financing includes accounts receivable. accounts payable. short-term loans. a line of credit. 2
 is the amount of
varies with seasonal current assets required includes accounts
includes fixed assets.
needs. to meet a firm's long- payable
term minimum needs.
222 Permanent working capital 3
total assets minus current assets minus current assets minus
current assets.
fixed assets. current liabilities. inventories.
223 Net working capital refers to 2
short-term debt short-term equity long-term debt long-term equity
224 Marketable securities are primarily instruments. securities. instruments. securities. 1
225 The basic requirement for a firm's marketable securities. Safety Yield Marketability All of the above. 4
customer possible worker
lost sales. all of these.
226 Costs of not carrying enough inventory include: disappointment. layoffs. 4
an increase in the
a decrease in bad debt
Increasing the credit period from 30 to 60 days, in response to a similar action average collection an increase in sales. higher profits.
losses.
227 taken by all of our competitors, would likely result in: period. 1
it is collecting credit
cash sales have it has initiated more inventories have
sales more quickly than
decreased. liberal credit terms. increase
228 An increase in the firm's receivable turnover ratio means that: before. 1
a return on the equity-
the minimum rate that financed portion of an
by far the most generally lower than
a firm should earn on investment that, at
difficult component the before-tax cost of
the equity-financed worst, leaves the
cost to estimate. debt.
part of an investment. market price of the
stock unchanged.
229 The cost of equity capital is all of the following EXCEPT: 4
In calculating the costs of the individual components of a firm's financing, the
corporate tax rate is important to which of the following component cost common stock. debt. preferred stock. none of the above
230 formulas? 2
Temporary Working
Gross Working Capital Both a and b Net Working Capital
231 When total current assets exceeds total current liabilities it refers to. Capital 4
If the weighting of equity in total capital is 1/3, that of debt is 2/3, the return
on equity is 15% that of debt is 10% and the corporate tax rate is 32%, what is 10.53% 7.53% 9.53% 11.35%
232 the Weighted Average Cost of Capital (WACC)? 3
A new personal
Cash float. Accounts receivable. Credit sales.
computer for the office.
233 Which of the following would not be financed from working capital? 4
The current ratio The current ratio does The current ratio The current ratio does
includes inventories not include inventories includes physical not include physical
and the quick ratio and the quick ratio capital and the quick capital and the quick
234 What is the difference between the current ratio and the quick ratio? does not. does. ratio does not. ratio does. 1
Making greater use of Making greater use of Making greater use of Making greater use of
short term finance and long term finance and short term finance and long term finance and
maximizing net short minimizing net short minimizing net short maximizing net short
term asset. term asset. term asset. term asset.
235 Which of the following working capital strategies is the most aggressive? 3
Which of the following is not a metric to use for measuring the length of the Accounts receivable
Acid test days. Accounts payable days. Inventory days.
236 cash cycle? days. 1
 allocation of funds to preparation of the development of an
obtaining the best mix
current and capital firm's accounting appropriate dividend
of financing alternatives
237 Which of the following is not the responsibility of financial management? assets statements policy 3
sale of shares and the receipt and
Which of the following are not among the daily activities of financial credit management inventory control
bonds disbursement of funds
238 management? 1
239 An asset is a- Source of fund Use of fund Inflow of funds none of the above. 2
240 If a company issues bonus shares the debt equity ratio will Remain unaffected Will be affected Will improve none of the above. 3
241 Current ratio of a concern is 1,its net working capital will be Positive Negative Nil None of the above 3
Current ratio is 4:1.Net Working Capital is Rs.30,000.Find the amount of current
Rs.10,000 Rs.40,000 Rs.24,000 Rs.6,000
242 Assets. 2
Rs.18,000 Rs.45,000 Rs.(-) 45,000 Rs.(-)18000
243 Current ratio is 2:5.Current liability is Rs.30000.The Net working capital is 4

Of the following factors, which one is considered to be the primary factor personal taxes of the avoidance of attracting retail attracting institutional e. sustainable changes
244 affecting a firm's dividend decision? company shareholders reducing dividends investors investors in earnings 2
tend to prefer cutting prefer cutting
dividends every time dividends over place little emphasis on
are reluctant to cut tend to ignore past quarterly earnings incurring flotation dividend policy
245 Financial managers dividends. dividend policies decline costs. consistency 1
e. is essentially the
same as a cash
c. decreases both the dividend program
a. requires all b. is utilized only by number of shares d. has no effect on a provided there are no
shareholders to sell a firms that do not pay outstanding and the firm's financial taxes or other
246 A stock repurchase program: portion of their shares. dividends. market price per share. statements. imperfections. 5

a. increase in retained b. decrease in total d. decrease in capital in e. increase in common

247 Which one of the following is a result of a small stock dividend? earnings owner's equity c. decrease in cash excess of par stock 5

a. increases the total b. decreases the value d. increases the value

value of the common of the retained c. increases the par of the capital in excess e. decreases the
248 A stock split: stock account. earnings account. value per share. of par account. market value per share. 5

a. adjust the market c. increase both the

price of a stock such number of shares
that it falls within a b. decrease the excess outstanding and the d. increase the total e. adjust the debt-
249 Stock splits can be used to: preferred trading range. cash held by a firm. market price per share. equity of a firm. equity ratio. 1
b. a 100% increase in
a. a 100% increase in the amount of cash d. a 50% increase in
the number of required to fund a c. a 100% decrease in the number of shares e. a 50% decrease in
250 Which one of the following is a direct result of a 2-for-1 stock split? shareholders dividend the stock price outstanding the par value per share 5

The optimal balance of marketable securities held to take care of probable

deficiencies in the firm's cash account is referred to as the __________ cash and cash
251 segment in the firm's portfolio of short-term marketable securities. ready cash controllable cash free cash equivalent 1
The marketable securities available for unassigned purposes at the current time
is referred to as the __________ segment in the firm's portfolio of short-term cash and cash
252 marketable securities. ready cash controllable cash free cash equivalents 3