Financial Management_Lec1234

An example of a capital budgeting decision is deciding:

• how to refinance a debt issue that is maturing.

• whether or not to purchase a new machine for the production line.

• how many shares of stock to issue.

• how much money should be kept in the checking account.

• how much inventory to keep on hand.

Financial managers should primarily focus on the interests of:

• shareholders.

• the vice president of finance.

• their immediate supervisor.

• stakeholders.

• the board of directors.

Ratios that measure how efficiently a firm manages its assets and operations to generate net income are referred to as ________ ratios.

• turnover

• long-term solvency

• profitability

• short-term solvency

• asset management

The DuPont identity can be used to help managers answer which of the following questions related to a company's operations?

I. How many sales dollars are being generated per each dollar of assets?
II. How many dollars of assets have been acquired per each dollar in shareholders'
equity?
III. How much net profit is being generating per dollar of sales?
IV. Does the company have the ability to meet its debt obligations in a timely manner?

• I and III only

• I, II, and III only

• II, III and IV only

• II and IV only

• I, II, III, and IV

Alex invested $2,550 in an account that pays 5 percent simple interest. How much money will he have at the end of four years?

• $3,099.54

• $3,060.00

• $2,650.00

• $3,100.26

• $3,250.00

Project X has cash flows of $8,500, $8,000, $7,500, and $7,000 for Years 1 to 4, respectively. Project Y has cash flows of $7,000, $7,500, $8,000, and $8,500 for Years 1 to 4, respectively. Which one of the following statements is true concerning these two projects given a positive discount rate? (No calculations needed)

• Both projects have the same future value at the end of Year 4.

• Both projects are ordinary annuities.

• Project X has both a higher present and a higher future value than Project Y.

• Both projects have the same value at Time 0.

• Project Y has a higher present value than Project X.

The Distribution Point plans to save $2,000 a month for the next 3 years for future emergencies. The interest rate is 4.5 percent compounded monthly. The first monthly deposit will be made today. What would today's deposit amount have to be if the firm opted for one lump sum deposit that would yield the same amount of savings as the monthly deposits after 3 years?

• $70,459.07

• $69,333.33

• $69,068.18

• $67,485.97

• $67,233.84

The expected risk premium on a stock is equal to the expected return on the stock minus the:

• risk-free rate.

• variance.

• expected market rate of return.

• inflation rate.

• standard deviation.

The expected rate of return on a stock portfolio is a weighted average where the weights are based on the:

• number of shares owned of each stock.

• market price per share of each stock.

• market value of the investment in each stock.

• cost per share of each stock held.

• original amount invested in each stock.

What is the standard deviation of the returns on a stock given the following information?

• 3.89 percent

• 4.01 percent

• 3.57 percent

• 3.42 percent

• 3.28 percent