BUSI 530 Corporate Finance Exam 1 Help
Q1. Which of the following statements best distinguishes the difference between real and financial assets?
- Real assets have less value than financial assets.
- Real assets are tangible; financial assets are not.
- Financial assets represent claims to income that is generated by real assets.
- Financial assets appreciate in value; real assets depreciate in value.
Q2. Which one of these is a disadvantage of the corporate form of business?
- Access to capital
- Unlimited personal liability for owners
- Limited firm life
- Legal requirements
Q3. Financial managers should only accept investment projects that:
- increase the current profits of the firm.
- can increase the firm’s market share.
- earn a higher rate of return than the firm currently earns on its existing projects.
- earn a higher rate of return than shareholders can get by investing on their own.
Q4. In a firm having both a treasurer and a controller, which of the following would most likely be handled by the controller?
- Internal auditing
- Credit management
- Banking relationships
Q5. A corporate director:
- is selected by and can be removed by management.
- can be voted out of power by the shareholders.
- has a lifetime appointment to the board.
- is selected by a vote of all corporate stakeholders.
Q6. A corporate board of directors should provide support for the top management team:
- under all circumstances.
- in all decisions related to cash dividends.
- only when the board approves of management’s actions.
- if shareholders are pleased with the firm’s performance.
Q7. A financial analyst in a corporation may be involved with all of the following EXCEPT:
- analyzing a new investment project.
- monitoring risk.
- managing investment of the company’s cash.
- purchasing the firm’s plant and equipment.
Q8. Which one of these was a contributing factor to the need for many foreign banks to seek aid from their governments as a result of the financial crisis of 2007-2009?
- Decrease in their exchange rates
- Investments in U.S. subprime mortgages
- Interest rate spikes
- Currency controls
Q9. Which one of the following financial intermediaries has shown the greatest preference for investing in long-term financial assets?
- Commercial banks
- Insurance companies
- Finance companies
- Savings banks
Q10. Firms can often determine the price of any commodities they use in their production process by consulting the price quotes provided by:
- their investment bank.
- the New York Mercantile Exchange.
- the New York Stock Exchange.
- the Standard & Poor’s market indexes.
Q11. In the United States, banks are the most important source of long-term financing for corporations.
Q12. Liquidity is important to a mutual fund primarily because:
- a fund that is less liquid will attract more investors.
- the fund’s shareholders may want to redeem their shares at any time.
- new investors may invest in the fund at any time.
- the fund requires cash to pay its taxes.
Q13. One contributing factor to the 2007-2009 financial crisis was the structuring of mortgage loans with:
- high initial payments, offset by significantly lower payments later.
- low initial payments, offset by significantly higher payments later.
- high initial payments, offset by high payments later.
- very short maturities.
Q14. Which one of the following is the biggest provider of payment mechanisms?
- Hedge funds
- Mutual funds
- Insurance companies
Q15. If the market value of assets is high, then the market value of liabilities must be high also.
Q16. The statement of cash flows shows the firm’s cash inflows and outflows from operations as well as from its investments and financing activities.
Q17. If market interest rates have increased since a company last borrowed long-term funds, the market value of these long-term funds will likely be:
- greater than their book value.
- less than their book value.
- equal to their book value.
- unknown without knowing the maturity of the debt.
Q18. If the balance sheet of a firm indicates that total assets exceed current liabilities plus shareholders’ equity, then the firm has:
- no retained earnings.
- long-term debt.
- no accumulated depreciation.
- current assets.
Q19. Net working capital is a measure of a company’s:
- short-term liabilities.
- estimated cash reservoir.
- shareholders’ equity.
Q20. Professor Diehard found an effective antibiotic for the DEPRESS bacteria, and patented the drug. He believes that he could sell the patent for $20 million. He then formed a corporation and invested $400,000 in setting up a production plant. There are 2 million shares of stock outstanding. If the professor’s belief is correct, what would be the price per share and the book value per share?
- $10.20; $0.20
- $10.00; $0.20
- $9.80; $0.40
- $9.80; $0.20
Q21. Amy wants to know if inventory is increasing as a percentage of total assets. Which one of these statements most easily provides the information she is seeking?
- Statement of cash flows
- Balance sheet
- Common-size balance sheet
- Income statement
Q22. What happens to the market value of a firm’s equity as the book value of the firm’s equity increases?
- It increases by the same amount.
- It decreases by the same amount.
- It remains constant.
- There is no set relationship to determine this outcome.
Q23. What is the inventory turnover ratio for ABC Corp. if cost of goods sold equals $5,000, current ratio equals 3, quick ratio equals 1.5, and the firm has $1,800 in current assets?
- 2.78 times
- 4.17 times
- 5.56 times
- 8.33 times
Q24. A deficiency of the standard measures of liquidity is that the measures:
- ignore a firm’s reserve borrowing capacity.
- fail to include accounts receivable as an asset.
- give inventories equal weighting in the quick ratio.
- do not include the current portions of long-term debt.
Q25. Calculate the average collection period for Dots Inc. if its accounts receivables were $550 at the beginning of a year in which the firm generated $3,000 of sales?
- 60 days
- 61 days
- 67 days
- 73 days
Q26. Balsco’s balance sheet shows total assets of $238,000 and total liabilities of $107,000. The firm has 55,000 shares of stock outstanding that sell for $11 a share. What is amount of market value added?
Q27. The use of debt in the firm’s capital structure will increase ROE if the firm:
- has more debt than equity.
- pays less in taxes than in interest.
- earns a higher return than the rate paid on debt.
- has a times interest earned ratio greater than 1.0.
Q28. What are the annual sales for a firm with $400,000 in debt, a total debt ratio of 0.4, and an asset turnover of 3?
Q29. Which of the following will allow your firm to achieve its targeted 16% ROA with an asset turnover of 2.5?
- A leverage ratio of .0667
- A P/E ratio of 14
- A return on equity of 25%
- An operating profit margin of 6.4%
Q30. A firm has average daily expenses of $2.13 million and average accounts payable of $112.7 million. On average, how many days does it take the firm to pay its bills?
- 63.47 days
- 52.91 days
- 48.19 days
- 59.03 days
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