Financial Management Concepts, Exams of Advanced Education

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BMAL 590 Business Finance Exam Questions With 100% Correct Answers 2024 A company's balance sheet shows the value of assets, liabilities, and stockholders' equity - Correct Answer-At a specific point in time On a balance sheet, retained earnings are not "unspent cash" because - Correct Answer-They have been used to finance the firm's assets For both managers and external financial analysts, ________ is the single most important accounting number found on the income statement - Correct Answer-Net income (net profit after tax) Earnings per share (EPS) is calculated by - Correct Answer- Dividing earnings available for common stockholders by the number of shares of common stock outstanding Net working capital - Correct Answer-Is a measure of a firm's overall liquidity Why is the quick ratio a more appropriate measure of liquidity than the current ratio for a large-airplane manufacturer? - Correct Answer-It excludes inventory from the numerator of the ratio because it is difficult to convert inventory to cash and most sales are made on a credit basis The one fixed asset that is not depreciated is _________ - Correct Answer-Land Return on total assets (ROA) is equal to _________ - Correct Answer-All of the above When a firm has no "other income," its operating profit and _________ are equal - Correct Answer-EBIT The firm's ________ are primarily interested in ratios that measure the short-term liquidity of the company and its ability to make principal and interest payments - Correct Answer-Creditors A firm that employs an aggressive strategy to finance assets - Correct Answer-Will finance a portion of long-term (permanent) growth in assets with short-term financing A strategic plan is a - Correct Answer-Long-term guide driven by competitive forces A cash budget is - Correct Answer-A statement of a firm's planned inflows and outflows of cash used to ensure that a firm has available cash to meet short-term financial obligations A speedup in ________ should ________ a firm's financing needs; whereas, a slow down in ________ should ________ financing needs for a firm - Correct Answer-Payments; increase; collections; increase ________ are often used as the plug figure in pro forma projections - Correct Answer-Cash balances "Required total financing" figures in a cash budget - Correct Answer-Show the additional amount a firm must borrow at the end of each month A long-term financial plan begins with ________ - Correct Answer-Strategy When generating pro forma statements, most firms rely on a ________ approach to sales forecasts - Correct Answer- Blended Most firms when planning for growth focus on - Correct Answer-Meeting sales target growth rates The terms and conditions to which a bond is subject are set forth in its - Correct Answer-Indenture The preemptive right is important to shareholders because it - Correct Answer-Protects the current shareholders against dilution of ownership interests Companies can issue different classes of common stock. Which of the following statements concerning stock classes is correct? - Correct Answer-None of the above statements is necessarily true Pure options are instruments that are - Correct Answer-All of the above Your Aunt Agatha purchased a call option a few months ago. Today is the expiration date, so she must decide whether to exercise the option. Which of the following statements is correct? Do not consider brokers' commissions in your answer - Correct Answer-Aunt Agatha should exercise the option if the price of the sock is greater than the exercise, or strike, price Which of the following are generally considered advantages of term loans over publicly issued bonds? - Correct Answer-All of the above Eurodebt is the term used to designate - Correct Answer-Debt that is denominated in a currency that is different than the currency of the country in which it is sold An American Depository Receipt (ADR) represents - Correct Answer-Certificates representing ownership in stocks of foreign companies that are held in trust by a bank located in the country the stock is traded A ________ is an agreement between two firms where one firm agrees to sell some of its financial assets to another and then buy the financial assets back from that firm at a later time - Correct Answer-Repurchase agreement Bond ratings of ________ and higher are considered investment grade - Correct Answer-BBB Which of the following statements is most correct? Other things held constant, - Correct Answer-The "liquidity preference theory" would generally lead to an upward sloping yield curve Your uncle would like to restrict his interest rate risk and his default risk, but he still would like to invest in corporate bonds. Which of the possible bonds listed below satisfies your uncle's criteria? - Correct Answer-AAA bond with 5 years to maturity If the yield curve is downward sloping, what is the yield to maturity on a 10-year Treasury coupon bond, relative to that on a 1-year T-bond? - Correct Answer-The yield on the 10-year bond is less than a yield on a 1-year bond An inverted yield curve - Correct Answer-Exists when short- term rates exceed long-term rates If the expectations theory of the term structure of interest rates is correct, and if the other term structure theories are invalid, and we observe a downward sloping yield curve, which of the following is a true statement? - Correct Answer- Investors expect short-term rates to decrease in the future Which of the following statements is most correct? - Correct Answer-If the maturity risk premium were zero and the rate of inflation were expected to increase in the future, then the yield curve for U.S. Treasury securities would, other things held constant, have an upward slope Which of the following statements is correct? - Correct Answer-Reinvestment rate risk is lower, other things held constant, on long-term than short-term bonds Which of the following is not one of the fundamental factors that affect the cost of money? - Correct Answer-Exchange rates Most experts think that in the United States the real risk-free rate fluctuates between - Correct Answer-Two to four percent Which of the following assets is the most liquid? - Correct Answer-Cash During recessions the demand for funds typically - Correct Answer-Decreases As the demand for fund increase, the demand curve will shift to the ________ resulting in ________ market clearing interest rate - Correct Answer-Right; higher The ________ premium is compensation for possibility that the borrower will not be able to pay the debt's interest and principal on time - Correct Answer-Default risk When a project's NPV exceeds zero, - Correct Answer-The project should be accepted without any further consideration, assuming we are confident that the cash flows and the required rate of return have been properly estimated Which of the following methods involves calculating an average beta for firms in a similar business and then applying that beta to determine the beta of its own project? - Correct Answer-Pure play method Which of the following statements is correct? - Correct Answer-All of the above are correct ________ are decisions about whether to purchase capital projects and add them to existing assets so as to increase existing operations - Correct Answer-Expansion decisions ________ projects are a set of projects where the acceptance of one project means that other projects cannot be accepted - Correct Answer-Mutually exclusive A(n) ________ is a cash outlay that already has been incurred and that cannot be recovered regardless of whether the project is accepted or rejected - Correct Answer-Sunk cost Which of the following capital budgeting techniques does not adjust for the riskiness of the cash flows? - Correct Answer- Payback Uncertainty regarding the domestic flows that result from converting foreign cash flows is what type of risk? - Correct Answer-Exchange rate