VoyForums
[ Show ]
Support VoyForums
[ Shrink ]
VoyForums Announcement: Programming and providing support for this service has been a labor of love since 1997. We are one of the few services online who values our users' privacy, and have never sold your information. We have even fought hard to defend your privacy in legal cases; however, we've done it with almost no financial support -- paying out of pocket to continue providing the service. Due to the issues imposed on us by advertisers, we also stopped hosting most ads on the forums many years ago. We hope you appreciate our efforts.

Show your support by donating any amount. (Note: We are still technically a for-profit company, so your contribution is not tax-deductible.) PayPal Acct: Feedback:

Donate to VoyForums (PayPal):

[ Login ] [ Contact Forum Admin ] [ Main index ] [ Post a new message ] [ Search | Check update time | Archives: 1, [2], 3 ]

[ Next Thread | Previous Thread | Next Message | Previous Message ]

Date Posted: 14:01:13 02/04/00 Fri
Author: Charles Hodges
Subject: A sample quiz with most questions related to chapters 4 and 14

Some quiz questions from chapters 3, 4, and 14. The online class is only can expect questions from chapters 4 and 14 only. Post your answers, I will correct any errors.

NAME ____________________________________

INSTRUCTIONS:

* Be sure to put your name on the test and your Homework problems and questions.
* Please read the instructions for each question type and mark or record your answer as instructed.
* If a question follows a the multiple choice or true-false question, give a brief answer. Each of the short answer questions following a question are worth 4 points.
* If you don't understand a question, ask me to explain it. If you need assumptions to answer a question, write your assumptions near the question.

MULTIPLE CHOICE QUESTION INSTRUCTIONS

* Choose the single best answer.
* Each question is worth 3 points.

&*( 4. The New York Stock Exchange is primarily
a. A secondary market.
b. An organized auction market.
c. An over-the-counter market.
d. Answers a and b above are both correct.
e. Answers b and c above are both correct.

&*( SA2 - What are the differences between money markets and capital markets?





&*( 5. In a recent year, interest rates on long-term government and corporate
bonds were as follows:
T-bond = 6.2% A = 7.9%
AAA = 7.2% BBB = 8.5%

The differences in rates among these issues were caused primarily by
a. Tax effects.
b. Default risk differences.
c. Maturity risk differences.
d. Inflation differences.
e. Answers b and d are both correct.

&*( 6. Which of the following statements is most correct?
a. The maturity premiums embedded in the interest rates on U.S. Treasury securities are due primarily to the fact that the probability of default is higher on long-term bonds than on short-term bonds.
b. Reinvestment rate risk is lower, other things held constant, on long-term than on short-term bonds.
c. According to the market segmentation theory of the term structure of interest rates, we should normally expect the yield curve to slope downward.
d. The expectations theory of the term structure of interest rates states that borrowers generally prefer to borrow on a long-term basis while savers generally prefer to lend on a short-term basis, and that as a result, the yield curve is normally upward sloping.
e. If the maturity risk premium was zero and the rate of inflation was expected to decrease in the future, then the yield curve for U.S. Treasury securities would, other things held constant, have an upward slope.

&*( SA4 - Define financial intermediary. Give an example of one.






10. Taxes, payment patterns, and reporting considerations, as well as credit sales and non-cash costs, are reasons why operating cash flows can differ from accounting profits.
a. True b. False

&*( 12. The secondary market is defined as the market for securities of the largest firms.
a. True b. False

PROBLEM INSTRUCTIONS

* Show all work.
* Be sure to label each section of the answer.
* Use the back of the test if you need more room.
* This portion of the exam is open book, open notes.

&*( 1. (3 points) Given the following data, find the expected rate of inflation during
the next year.

k * = real risk-free rate = 2.5%.
Maturity risk premium on 10-year T-bonds = 2%. It is zero on 1-year
bonds, and a linear relationship exists.
Default risk premium on 10-year, A-rated bonds = 1.5%.
Liquidity premium = 0%.
Going interest rate on 1-year T-bonds = 8.5%.

3. The 1995 annual balance sheet and income statement for Becker, Beaker & Becker is
presented below.
BALANCE SHEET (000)
Cash $ 2,500
Accounts receivable $1,500
Inventories $ 500
Current assets $ 4,500
Net fixed assets $ 5,000
Total Assets $ 9,500
Accounts payable $ 1,200
Bank note $ 2,300
Total current liabilities $ 3,500
Long term debt $ 4,000
Common stock $ 300
Retained earnings $ 1,700
Total liabilities and owner's equity $ 7,500

INCOME STATEMENT (000)
Net sales (all credit) $ 11,500
Cost of goods sold (3,400)
Gross profit $ 8,100
Operating expenses (3,900)
Net operating income $ 4,200
Interest expense (1,980)
Earnings before taxes $ 2,220
Income tax (34%) (755)
Net income $ 1,465
(10 points) Compute the following ratios:
Current ratio

Acid test ratio

Debt ratio

Fixed asset turnover

Basic Earnings Power

Return on Total Assets

Net profit margin

Times interest earned

Inventory turnover

Return on Common Equity

3. All of the following represent cash outflows to the firm except
a. Taxes.
b. Interest payments.
c. Dividends.
d. Purchase of plant and equipment.
e. Depreciation.

5. Recently the M&M Company has been having problems. As a result, its financial situation has deteriorated. M&M approached the First National Bank for a badly needed loan, but the loan officer insisted that the current ratio (now 0.5) be improved to at least 0.8 before the bank would even consider granting the credit. Which of the following actions would do the most to improve the ratio in the short run?
a. Using some cash to pay off some current liabilities.
b. Collecting some of the current accounts receivable.
c. Paying off some long-term debt.
d. Selling some of the existing inventory at cost.
e. Purchasing additional inventory on credit (accounts payable).

&*( 7. The constant ratio method of forecasting is based on which of the following assumptions?
a. All balance sheet accounts are tied directly to sales.
b. Most balance sheet accounts are tied directly to sales.
c. The current level of total assets are optimal for the current sales level.
d. Answers a and c above.
e. Answers b and c above.

&*( 9. The constant ratio forecasting method produces accurate results unless which of the following condition(s) is (are) present?
a. Fixed assets are "lumpy."
b. Strong economies of scale are present.
c. Excess capacity exists because of a temporary recession.
d. Answers a, b, and c all make the projected balance sheet method inaccurate.
e. Answers a and c make the projected balance sheet method inaccurate, but, as the text explains, the assumption of increasing economies of scale is built into the projected balance sheet method.

&*( 10. Which of the following statements is most correct?
a. If the capital intensity ratio is high, this permits sales to grow more rapidly without much outside capital.
b. The lower the profit margin, the lower the additional funds needed because less assets are needed to support existing sales.
c. When positive economies of scale are present, linear balance sheet relationships no longer hold. As sales increase, a proportionately greater stock of assets is required to support the higher sales level.
d. Technological considerations often require firms to add fixed assets in large, discrete units. Such assets are called lumpy assets and they affect the firm's financial requirements through the fixed assets/sales ratio at different sales levels.
e. The projected balance sheet method accounts for changing balance sheet ratios and thus, cyclical changes in the actual sales/assets ratio do not have an impact on financing requirements.

13. An increase in an asset account is a source of cash, whereas an increase in a liability account is a use of cash.
a. True
b. False

[ Next Thread | Previous Thread | Next Message | Previous Message ]

Replies:

[ Contact Forum Admin ]

Forum timezone: GMT-8
VF Version: 3.00b, ConfDB:
Before posting please read our privacy policy.
VoyForums(tm) is a Free Service from Voyager Info-Systems.
Copyright © 1998-2019 Voyager Info-Systems. All Rights Reserved.