Which of the following would result in a decrease in cash flow

and a use of cash?

A. A decrease in notes payable

B. An increase in long-term debt

C. A decrease in inventory

D. A decrease in common stock

2. In the United States, for the 2007 tax year, federal corporate

income tax rates never exceeded an average rate of

A. 15%. C. 39%.

B. 35%. D. 34%.

3. A firm has assets of $60,000 and owners equity of $33,000.

Which of the following is the correct balance of the firm s

liabilities?

A. $33,000 C. $93,000

B. $27,000 D. $60,000

4. Which of the following would result in an increase in cash flow and a source of cash?

A. A decrease in notes payable

B. A decrease in long-term debt

C. An increase in inventory

D. An increase in common stock

5. A firm has current assets of $10,000 and current liabilities of $7,000. Which of the

following is the correct net working capital for the firm?

A. $10,000 C. $3,000

B. $7,000 D. $13,000

6. If a firm has an accounts receivable balance of $18,800 at the end of 2007 and

$16,500 at the end of 2008, which of the following statements about accounts

receivable is correct?

A. Accounts receivable decreased by $2,300 and represented a use of cash.

B. Accounts receivable increased by $2,300 and represented a source of cash.

C. Accounts receivable decreased by $2,300 and represented a source of cash.

D. Accounts receivable increased by $2,300 and represented a use of cash.

7. If a firm has revenues of $15,090 and expenses of $8,850, what is the firm s taxable

income?

A. $15,090 C. $6,240

B. $8,850 D. $23,940

8. Which of the following statements about the issuance of an initial public offering (IPO)

is correct?

A. IPOs may be either underpriced or overpriced.

B. IPOs are never overpriced.

C. IPOs are never underpriced.

D. IPOs are always correctly priced.

9. If a firm has revenues of $15,090, operating expenses of $8,850, and a tax expense

of $2,120, what is the firm s net income?

A. $8,850 C. $6,240

B. $4,120 D. $8,360

10. When you re preparing a common-sized balance sheet, which of the following

measures is set to equal 100 percent?

A. Total liabilities C. Total owners equity

b total assets d cash

11. Suppose that a corporation has a taxable income of $200,000. What is the firm s

corporate income tax for the current tax year? (You can use the following table to

calculate the firm s U.S. federal corporate tax.)

Taxable Income

More Than

Taxable Income

Less Than

Tax

Rate

$0 $50,000 15%

$50,001 $75,000 25%

$75,001 $100,000 34%

$100,001 $335,000 39%

$335,001 $10,000,000 34%

$10,000,001 $15,000,000 35%

$15,000,001 $183,333,334 38%

$18,333,334 35%

A. $78,000 C. $39,000

B. $6,250 D. $61,250

12. Using the same table and information provided in Question 11, what is the firm s

average tax rate?

A. 39% C. 34%

B. 30.625% D. 31.625%

13. Using the same table and information provided in Question 11, what is the firm s

marginal tax rate?

A. 39% C. 34%

B. 30.625% D. 31.625%

14. Dilution refers to the loss of shareholder value, and may be represented by all of the

following except dilution of

A. ownership percentage.

B. market value.

C. the firm s current ratio.

D. book value per share.

15. If a firm has $6,940 in earnings before interest and taxes, $650 in depreciation

expense, and $2,120 in taxes, what is the firm s operating cash flow?

A. $4,120 C. $6,240

B. $5,470 D. $9,710

16. The type of financial statement that summarizes the sources and uses of cash

over a specified period of time is called the

A. statement of cash flows.

B. income statement.

C. balance sheet.

D. inventory ratio statement.

17. The current ratio falls within which of the following classifications of financial ratios?

A. Long-term solvency measures

B. Asset management or turnover measures

C. Short-term solvency or liquidity measures

D. Profitability measures

18. If a firm has an accounts payable balance of $34,400 at the end of 2007 and $31,200

at the end of 2008, which of the following statements about accounts payable is

correct?

A. Accounts payable decreased by $3,200 and represented a use of cash

B. Accounts payable increased by $3,200 and represented a source of cash

C. Accounts payable decreased by $3,200 and represented a source of cash

D. Accounts payable increased by $3,200 and represented a use of cash

19. Which of the following is not one of the six costs of issuing securities?

A. Rights offering C. Green Shoe option

B. Abnormal returns D. Gross spread

20. In the United States, for the 2007 tax year, federal corporate income tax rates never

exceeded a marginal rate of

A. 15%. C. 39%.

B. 35%. D. 34%.

lesson 2

1. What is the present value of $3,000, discounted at 8 percent

interest per period, for two periods? (Round your answer to

the nearest cent.)

A. $2,777.78 C. $3,499.20

B. $2,572.02 D. $3,240.00

2. The stated interest payment made on a bond is called the

A. yield to maturity. C. face value.

B. maturity. D. coupon.

3. An ordinary annuity of $500 per period, discounted at a rate

of 8 percent per period for 3 periods, has a present value of

$1,288.55. If this same annuity was an annuity due, what

would its present value be? (Round your answer to the

nearest cent.)

A. $1,288.55 C. $1,391.63

B. $1,500.00 D. $1,788.55

4. The relationship between real returns, nominal returns, and inflation is commonly

referred to as the

A. dirty price. C. Treasury yield curve.

B. Fisher effect. D. bid-ask spread.

5. On an investment of $2,000, you ll earn 10 percent interest per year compounded

semiannually. What is the future value of this investment after one year?

A. $2,205 C. $2,420

B. $2,100 D. $4,500

6. What is the future value of a $10,000 investment, earning 12 percent interest

per period, after three periods? (Round your answer to the nearest cent.)

A. $7,117.80 C. $12,544.00

B. $11,200.00 D. $14,049.28

7. Where does most bond trading occur?

A. At the corporate headquarters of Moody s

B. In the New York Stock Exchange (NYSE)

C. Electronically, over the counter

D. At the corporate headquarters of Standard

8. Suppose that you buy a $5,000 bond with a 12 percent annual coupon, payable

semiannually on January 1 and July 1. On both January 1 and July 1, the bondholder

will receive $300, for a total annual interest payment of $600 ($300 + $300).

Based on the principal and accrued interest only, how much would you expect

to pay to purchase this bond on May 1?

A. $5,200 C. $5,300

B. $5,000 D. $5,600

9. Today, you deposit $1,000 into an account that pays 12 percent interest annually.

How much will you have in the account after 4 years? (Round your answer to the

nearest cent.)

A. $635.52 C. $1,120.00

B. $1,254.40 D. $1,573.52

10. A type of loan that s paid off by making regular principal reductions, usually according

to a specified schedule, is called a(n)

A. annuity due. C. amortizing loan.

B. debenture. D. corporate bond.

11. What is the present value of the right to receive four equal payments (ordinary

annuity) of $500 per period, discounted at a rate of 10 percent per period? (Round

your answer to the nearest cent.)

A. $341.51 C. $1,584.94

B. $454.55 D. $732.05

12. On an initial investment of $1,000, you can earn 12 percent interest per year

compounded annually, or 12 percent interest per year compounded semiannually.

Which of the following statements is correct?

A. 12 percent per year, compounded annually, is the better interest rate for

the investment.

B. 12 percent per year, compounded semiannually, is the better interest rate

for the investment.

C. There s no difference between the two interest rates; both rates will produce

the same future value.

D. It isn t possible to determine the future value of thi

s investment based on

the information provided.

13. The payments made by a corporation to shareholders, either in cash or in stock,

are called

A. dividends. C. cash flows.

B. capital gains. D. bond yields

13. The payments made by a corporation to shareholders, either in cash or in stock,

are called

A. dividends. C. cash flows.

B. capital gains. D. bond yields.

14. What is the future value of a $1,500 investment, earning 10 percent interest

per period, after two periods? (Round your answer to the nearest cent.)

A. $1,650.00 C. $1,815.00

B. $1,363.63 D. $1,239.67

15. A stock s expected cash dividend divided by its current price is called the

A. dividend yield. C. constant growth.

B. capital gains yield. D. ask price.

16. Today, you deposit $6,000 into an account that pays 10 percent annually. In one

year, you ll deposit another $4,000 in the account. How much will you have in the

account after two years?

A. $10,600 C. $10,000

B. $11,660 D. $11,000

17. What is the present value of $2,200, discounted at 10 percent interest per period,

for one period? (Round your answer to the nearest cent.)

A. $2,420.00 C. $1,818.18

B. $2,000.00 D. $1,980.00

18. Which of the following statements about stock trading is correct?

A. The NASDAQ is a computer network, with no physical location for trading.

B. The number of NYSE exchange members is unlimited.

C. The NASDAQ uses a specialist system for actively traded stocks.

D. The NYSE does not have a physical location for stock trading activities.

19. You want to invest money for 3 years in an account that pays 7 percent interest

annually. How much would you need to invest today to reach a future goal of $5,000?

(Round your answer to the nearest cent.)

A. $4,650.00 C. $4,762.90

B. $6,125.22 D. $4,081.49

20. What is the present value of the right to receive four equal payments (annuity due)

of $1,000 per period, discounted at a rate of 10 percent per period? (Round your

answer to the nearest cent.)

A. $1,909.09 C. $1,464.10

B. $3,486.85 D. $2,486.85

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