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Finc 332: Corporate Finance, Pt 2

Question 1 of 3

Q1 . Which one of the following does not affect the total equity of a firm but does increase the number of shares outstanding?

A Special dividend

B Stock split

C Share repurchase

D Rights offer

E Liquidating dividend

Q2 . A firm has an accounts payable period of 51 days, an inventory period of 38 days, and an accounts receivable period of 32 days. What is the length of the cash cycle?

A 13 days

B 19 days

C 32 days

D 45 days

Q3 . The value of the firm is maximized when the:

A Debt-equity ratio is set equal to zero

B Debt-equity ratio equals 1.0

C WACC in minimized

D WACC is maximized

Q4 . Which one of the following is a direct cost of bankruptcy?

A Time spent by company managers on the bankruptcy paperwork

B Administrative expenses related to the bankruptcy filing

C Cash reserves held by a firm

D Cost of actions taken by a firm to avoid a bankruptcy filing

Q5 . Billingsley United declared a $0.20 a share dividend on Thursday, October 16. The dividend will be paid on Monday, November 10 to shareholders of record on Friday, October 31. Which one of the following is the ex-dividend date?

A Tuesday, October 28

B Wednesday, October 29

C Thursday, October 30

D Wednesday, November 5

E Thursday, November 6

Q6 . Steve purchased 300 shares of Alpha Beta stock on May 9. On May 15, he purchased another 200 shares and then on May 22 he purchased a final 400 shares of Alpha Beta stock. The company declared a dividend of $1.60 a share on April 30 to holders of record on Friday, May 23. The dividend is payable on June 2. How much dividend income will Steve receive on June 2 from Alpha Beta?

A $0

B $480

C $800

D $1,200

E $1,440

Q7 . Which one of the following is a source of cash?

A An increase in inventory

B An increase in accounts payable

C The purchase of a fixed asset

D The payment of a long-term loan

Q8 . A stock split:

A Increases the total value of the common stock account

B Decreases the value of the retained earnings account

C Increases the par value per share

D Increases the value of the capital in excess of par account

E Decreases the market value per share

Q9 . The ex-dividend date is defined as ___ business day(s) before the date of record.

A 1

B 2

C 3

D 5

E 10

Q10 . Which one of the following states that a firm's WACC is the same regardless of the firm's debt-equity ratio?

A M&M Proposition I without taxes

B M&M Proposition I with taxes

C M&M Proposition II without taxes

D M&M Proposition II with taxes

Q11 . Revol-Tech is a technology firm with excellent growth prospects. The firm wishes to do something to acknowledge the loyalty of the shareholders but needs all of its available cash to fund the firm's rapid growth. The market price of the stock is currently trading at the upper end of its preferred trading range. The firm is most apt to consider which one of the following in this situation?

A Liquidating dividend

B Stock split

C Reverse stock split

D Small stock dividend

E Special cash dividend

Q12 . Your firm has projected quarterly sales of $900, $1,500, $1,600, and $2,000, respectively for the next year starting with the first quarter. The accounts receivable period is 60 days. How much will you collect in Quarter 3? Assume that a year has 360 days.

A $1,000

B $1,066.67

C $1,533.33

D $1,566.67

Q13 . Which one of the following is the preferred source of funding according to the pecking-order theory?

A Common stock

B Preferred stock

C External debt

D Internal financing

Q14 . Which one of the following favors a low dividend policy?

A The tax on capital gains is deferred until the gain is realized

B Few, if any, positive net present value projects are available to a firm

C A majority of the shareholders has a low relevant tax rate

D A majority of the shareholders has better investment opportunities with similar risks

E Corporate tax rates exceed personal tax rates

Q15 . The information content of a dividend increase generally signals that:

A The firm has a one-time surplus of cash

B The firm has few, if any, net present value projects to pursue

C Management believes earning growht will be strong going forward

D The firm has more cash than it needs to a decling in future orders

E Dividends will thereafter be lower

Q16 . A restrictive short-term financial policy:

A Tends to produce periodic cash surpluses which can be invested in marketable securities

B Involves more long-term financing than does a flexible policy

C Is also referred to as a compromise policy

D Relies on short-term financing to fund seasonal fluctuations

Q17 . M&M Proposition I with tax implies that a firm's weighted average cost of capital:

A Remains constant regardless of a firm's debt-equity ratio

B Increases as the debt-equity ratio increases

C Decreases as the debt-equity ratio increases

D Varies independently of a firm's debt-equity ratio

Q18 . Peterson's Nursery has sales of $640,000 and COGS equal to 60% of sales. The beginning inventory is $54,000 and the ending inventory $58,000. What is the length of the inventory period?

A 31.94 days

B 46.67 days

C 49.08 days

D 53.23 days

Q19 . Which one of the following will increase your disbursement float?

A Issuing checks from a remote location

B Installing a lockbox system for payments

C Paying bills electronically

D Collecting payments electronically

Q20 . A bank account which receives funds only as needed to cover the demands for payments is called a ______ account.

A Float

B Controlled disbursement

C Master

D Compensating balance

Q21 . A stock repurchase program:

A Requires all shareholders to sell a fraction of their shares

B Is preferred over a high-dividend program only by tax-exempt shareholders

C Decreases both the number of shares outstanding and the market price per share

D Has no effect on a firm's financial statements

E Is essentially the same as a cash dividend program provided there are no taxes or other costs

Q22 . Which one of the following statements is correct?

A Lockboxes are designed to eliminate disbursement float

B Providing early payment discounts to customers increases your collecting float

C Cash concentration accounts increase the funds available for short-term investing

D Money market accounts are relatively liquid

Q23 . Collection time includes each of the following EXCEPT the time it takes:

A The bank to make funds available once you deposit your customer's checks

B Your staff to process and deposit checks

C For your customers' checks to reach you office once they are mailed

D Your staff to verify and pay invoices

Q24 . Which one of the following statements is correct?

A Firms prefer to cut dividend payments rather than borrow money to fund a short-term cash need

B Share repurchases tend to increase agency costs

C Maintaining a steady dividend is a key goal of most dividend-paying firm

D Tax rates are the key factor in determining a firm's dividend policy

E Stock prices tend to ignore expected changes in dividend payments

Q25 . Your firm has projected monthly sales of $800, $700, $1,100, and $1,300 for the months of January through April, respectively. Your cost of goods sold is 70 percent of the selling price and your AP period is 30 days. You purchase goods one month prior to the month to the month of sale. What are your cash disbursements for March?

A $770

B $840

C $870

D $910

Q26 . A flexible short-term financial policy is characterized by:

A Large investment in inventory

B Low cash balances

C Limited credit sales

D Few, if any, investments in marketable securities

Q27 . You have a $60,000 line of credit with your local bank. The interest rate is 9 percent compounded quarterly. The loan agreement requires that 5 percent of the unused amount be maintained at the bank in a non-interest bearing account. On average, you earn a rate of 1 percent per quarter on your short-term investments. What is the effective annual rate of this agreement assuming that you never borrow any money during the year?

A 4.06 percent

B 4.18 percent

C 9.28 percent

D 9.31 percent

Q28 . When you reconciled your checkbook to the bank, you had outstanding deposits of $11,219 and outstanding checks of $14,708. Your adjusted check book balance is $5,239.

A $3,489

B $9,469

C $11,219

D $14,708

Q29 . Your firm receives the following checks each month. The average amount of each check and the average collection delay are as shown below. What is the weighted average delay assuming that each month has 30 days? A 31,000 3 days B 48,000 5 days C 91,000 2 days

A 3.03 days

B 3.16 days

C 3.33 days

D 3.72 days

Q30 . Which one of the following does not affect the total equity of a firm but does increase the number of shares outstanding?

A Special dividend

B Stock split

C Share repurchase

D Rights offer

E Liquidating dividend

Q31 . A firm has an accounts payable period of 51 days, an inventory period of 38 days, and an accounts receivable period of 32 days. What is the length of the cash cycle?

A 13 days

B 19 days

C 32 days

D 45 days

Q32 . The value of the firm is maximized when the:

A Debt-equity ratio is set equal to zero

B Debt-equity ratio equals 1.0

C WACC in minimized

D WACC is maximized

Q33 . Which one of the following is a direct cost of bankruptcy?

A Time spent by company managers on the bankruptcy paperwork

B Administrative expenses related to the bankruptcy filing

C Cash reserves held by a firm

D Cost of actions taken by a firm to avoid a bankruptcy filing

Q34 . Billingsley United declared a $0.20 a share dividend on Thursday, October 16. The dividend will be paid on Monday, November 10 to shareholders of record on Friday, October 31. Which one of the following is the ex-dividend date?

A Tuesday, October 28

B Wednesday, October 29

C Thursday, October 30

D Wednesday, November 5

E Thursday, November 6

Q35 . Steve purchased 300 shares of Alpha Beta stock on May 9. On May 15, he purchased another 200 shares and then on May 22 he purchased a final 400 shares of Alpha Beta stock. The company declared a dividend of $1.60 a share on April 30 to holders of record on Friday, May 23. The dividend is payable on June 2. How much dividend income will Steve receive on June 2 from Alpha Beta?

A $0

B $480

C $800

D $1,200

E $1,440

Q36 . Which one of the following is a source of cash?

A An increase in inventory

B An increase in accounts payable

C The purchase of a fixed asset

D The payment of a long-term loan

Q37 . A stock split:

A Increases the total value of the common stock account

B Decreases the value of the retained earnings account

C Increases the par value per share

D Increases the value of the capital in excess of par account

E Decreases the market value per share

Q38 . The ex-dividend date is defined as ___ business day(s) before the date of record.

A 1

B 2

C 3

D 5

E 10

Q39 . Which one of the following states that a firm's WACC is the same regardless of the firm's debt-equity ratio?

A M&M Proposition I without taxes

B M&M Proposition I with taxes

C M&M Proposition II without taxes

D M&M Proposition II with taxes

Q40 . Revol-Tech is a technology firm with excellent growth prospects. The firm wishes to do something to acknowledge the loyalty of the shareholders but needs all of its available cash to fund the firm's rapid growth. The market price of the stock is currently trading at the upper end of its preferred trading range. The firm is most apt to consider which one of the following in this situation?

A Liquidating dividend

B Stock split

C Reverse stock split

D Small stock dividend

E Special cash dividend

Q41 . Your firm has projected quarterly sales of $900, $1,500, $1,600, and $2,000, respectively for the next year starting with the first quarter. The accounts receivable period is 60 days. How much will you collect in Quarter 3? Assume that a year has 360 days.

A $1,000

B $1,066.67

C $1,533.33

D $1,566.67

Q42 . Which one of the following is the preferred source of funding according to the pecking-order theory?

A Common stock

B Preferred stock

C External debt

D Internal financing

Q43 . Which one of the following favors a low dividend policy?

A The tax on capital gains is deferred until the gain is realized

B Few, if any, positive net present value projects are available to a firm

C A majority of the shareholders has a low relevant tax rate

D A majority of the shareholders has better investment opportunities with similar risks

E Corporate tax rates exceed personal tax rates

Q44 . The information content of a dividend increase generally signals that:

A The firm has a one-time surplus of cash

B The firm has few, if any, net present value projects to pursue

C Management believes earning growht will be strong going forward

D The firm has more cash than it needs to a decling in future orders

E Dividends will thereafter be lower

Q45 . A restrictive short-term financial policy:

A Tends to produce periodic cash surpluses which can be invested in marketable securities

B Involves more long-term financing than does a flexible policy

C Is also referred to as a compromise policy

D Relies on short-term financing to fund seasonal fluctuations

Q46 . M&M Proposition I with tax implies that a firm's weighted average cost of capital:

A Remains constant regardless of a firm's debt-equity ratio

B Increases as the debt-equity ratio increases

C Decreases as the debt-equity ratio increases

D Varies independently of a firm's debt-equity ratio

Q47 . Peterson's Nursery has sales of $640,000 and COGS equal to 60% of sales. The beginning inventory is $54,000 and the ending inventory $58,000. What is the length of the inventory period?

A 31.94 days

B 46.67 days

C 49.08 days

D 53.23 days

Q48 . Which one of the following will increase your disbursement float?

A Issuing checks from a remote location

B Installing a lockbox system for payments

C Paying bills electronically

D Collecting payments electronically

Q49 . A bank account which receives funds only as needed to cover the demands for payments is called a ______ account.

A Float

B Controlled disbursement

C Master

D Compensating balance

Q50 . A stock repurchase program:

A Requires all shareholders to sell a fraction of their shares

B Is preferred over a high-dividend program only by tax-exempt shareholders

C Decreases both the number of shares outstanding and the market price per share

D Has no effect on a firm's financial statements

E Is essentially the same as a cash dividend program provided there are no taxes or other costs

Q51 . Which one of the following statements is correct?

A Lockboxes are designed to eliminate disbursement float

B Providing early payment discounts to customers increases your collecting float

C Cash concentration accounts increase the funds available for short-term investing

D Money market accounts are relatively liquid

Q52 . Collection time includes each of the following EXCEPT the time it takes:

A The bank to make funds available once you deposit your customer's checks

B Your staff to process and deposit checks

C For your customers' checks to reach you office once they are mailed

D Your staff to verify and pay invoices

Q53 . Which one of the following statements is correct?

A Firms prefer to cut dividend payments rather than borrow money to fund a short-term cash need

B Share repurchases tend to increase agency costs

C Maintaining a steady dividend is a key goal of most dividend-paying firm

D Tax rates are the key factor in determining a firm's dividend policy

E Stock prices tend to ignore expected changes in dividend payments

Q54 . Your firm has projected monthly sales of $800, $700, $1,100, and $1,300 for the months of January through April, respectively. Your cost of goods sold is 70 percent of the selling price and your AP period is 30 days. You purchase goods one month prior to the month to the month of sale. What are your cash disbursements for March?

A $770

B $840

C $870

D $910

Q55 . A flexible short-term financial policy is characterized by:

A Large investment in inventory

B Low cash balances

C Limited credit sales

D Few, if any, investments in marketable securities

Q56 . You have a $60,000 line of credit with your local bank. The interest rate is 9 percent compounded quarterly. The loan agreement requires that 5 percent of the unused amount be maintained at the bank in a non-interest bearing account. On average, you earn a rate of 1 percent per quarter on your short-term investments. What is the effective annual rate of this agreement assuming that you never borrow any money during the year?

A 4.06 percent

B 4.18 percent

C 9.28 percent

D 9.31 percent

Q57 . When you reconciled your checkbook to the bank, you had outstanding deposits of $11,219 and outstanding checks of $14,708. Your adjusted check book balance is $5,239.

A $3,489

B $9,469

C $11,219

D $14,708

Q58 . Your firm receives the following checks each month. The average amount of each check and the average collection delay are as shown below. What is the weighted average delay assuming that each month has 30 days? A 31,000 3 days B 48,000 5 days C 91,000 2 days

A 3.03 days

B 3.16 days

C 3.33 days

D 3.72 days

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