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FIN 370 Final Exam (1st Set) 54 Questions with ANSWERS.doc






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FIN 370 Final Exam.
1) The true owners of the corporation are the:
A. holders of debt issues of the firm.
B. preferred stockholders.
C. common stockholders.
D. board of directors of the firm.
2) In terms of organizational costs, which of the following sequences is correct, moving
from lowest to highest cost?
A. Corporation, limited partnership, general partnership, sole proprietorship
B. General partnership, sole proprietorship, limited partnership, corporation
C. Sole proprietorship, general partnership, limited partnership, corporation
D. Sole proprietorship, general partnership, corporation, limited partnership
3) Which of the following best describes the goal of the firm?
A. The maximization of the total market value of the firm’s common stock]
B. Profit maximization
C. Risk minimization
D. None of the above
4) __________ is a method of offering securities to a limited number of investors.
A. Public offering
B. Initial public offering
C. Private placement
D. Syndicated underwriting
5) Money market instruments include:
A. corporate bonds.
B. bankers’ acceptances.
C. preferred stock.
D. common stock.
6) When public corporations decide to raise cash in the capital markets, what type of
financing vehicle is most favored?
A. Common stock
B. Retained earnings
C. Preferred stock
D. Corporate bonds
7) According to the agency problem, _________ represent the principals of a corporation.
A. employees
B. shareholders
C. managers

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D. suppliers
8) Difficulty in finding profitable projects is due to:
A. ethical dilemmas.
B. social responsibility.
C. competitive markets.
D. opportunity costs.
9) Which of the following is NOT a principle of basic financial management?
A. Efficient capital markets
B. Risk/return tradeoff
C. Incremental cash flow counts
D. Profit is king
10) Marshall Networks, Inc. has a total asset turnover of 2.5% and a net profit margin of
3.5%. The firm has a return on equity of 17.5%. Calculate Marshall’s debt ratio.
A. 30%
B. 40%
C. 60%
D. 50%
11) The accounting rate of return on stockholders’ investments is measured by:
A. return on assets.
B. return on equity.
C. realized rate of inflation.
D. operating income return on investment.
12) Which of the following financial ratios is the best measure of the operating effectiveness
of a firm’s management?
A. Current ratio
B. Gross profit margin
C. Return on investment
D. Quick ratio
13) Northwest Bank pays a quoted annual (nominal) interest rate of 4.75%. However, it
pays interest (compounded) daily using a 365-day year. What is the effective annual rate of
return (APY)?
A. 4.75%
B. 5.02%
C. 4.86%
D. 3.61%
14) Suppose that you wish to save for your child's college education by opening up an
educational IRA. You plan to deposit $100 per month into the IRA for the next 18 years.
Assume that you will be able to earn 10%, compounded monthly, on your investment. How
much will you have accumulated at the end of 18 years?

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A. $21,600
B. $54,719
C. $60,056
D. $85,920
E. $33,548
15) You have $10,000 to invest. You do not want to take any risk, so you will put the funds
in a savings account at the local bank. Of the following choices, which one will produce the
largest sum at the end of 22 years?
A. An account that compounds interest annually
B. An account that compounds interest daily
C. An account that compounds interest monthly
D. An account that compounds interest quarterly
16) The primary purpose of a cash budget is to:
A. provide a detailed plan of future cash flows.
B. determine the level of investment in current and fixed assets.
C. determine accounts payable.
D. determine the estimated income tax for the year.
17) Which of the following is NOT a basic function of a budget?
A. Budgets compare historical costs of the firm with its current cost performance.
B. Budgets indicate the need for future financing.
C. Budgets provide the basis for corrective action when actual figures differ from the budgeted
D. Budgets allow for performance evaluation.
18) Which of the following statements about the percent-of-sales method of financial
forecasting is true?
A. It involves estimating the level of an expense, asset, or liability for a future period as a
percent of the forecast for sales revenues.
B. It is the least commonly used method of financial forecasting.
C. It is a much more precise method of financial forecasting than a cash budget would be.
D. It projects all liabilities as a fixed percentage of sales.
19) Which of the following is a non-cash expense?
A. Packaging costs
B. Depreciation expenses
C. Interest expense
D. Administrative salaries
20) A plant can remain operating when sales are depressed:
A. in an effort to cover at least some of the variable cost.
B. if the selling price per unit exceeds the variable cost per unit.
C. to help the local economy.
D. unless variable costs are zero when production is zero.

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