1)A decrease in fixed financial costs will result in __________ in financial risk.

A)a decrease B) no change C)an undetermined change D) an increase 2)A warrant most closely resembles a A)preferred stock issue. B) rights offering. C)convertible security. D) subordinated debenture. 3)Which of the following, if increased, will have a negative impact on the option value (all else equal)? A)exercise price B) stock price volatility C)risk-free interest rate D) time to option expiration 4)The purchaser of a convertible issue sacrifices a portion of his or her interest return A)when the call feature is exercised. B)to raise temporarily cheap funds. C)for the potential opportunity to become a common shareholder in the future. D)due to the reduced risk of default. 5)A firm has an average age of inventory of 101 days, an average collection period of 49 days, and an average payment period of 60 days. The firm's inventory turnover is __________. A)4.0 B) 3.6 C) 2.5 D) 3.2 6)A decrease in the current liabilities to total assets ratio has the effects of __________ on profits and __________ on risk. A)an increase; an increase B) an increase; a decrease C)a decrease; an increase D) a decrease; a decrease 7)The aggressive financing strategy results in the firm financing its short-term needs with __________ funds and its long-term needs with __________ funds. A)short-term; long-term B) seasonal; permanent C)long-term; short-term D) permanent; seasonal 8)MiniComp has common stock ($1 par, 1 million shares) of $1 million, additional paid-in capital of $7 million, retained earnings of $8 million, and a fair market value of the stock of $20 per share. If the firm paid a 10 percent stock dividend A)accounting net worth would increase by 10 percent. B)the par value of the stock would decrease by 10 percent. C)stock price would increase 10 percent. D)retained earnings would decline by $2 million. 9)Stock dividends can be advantageous to a shareholder if A)earnings per share remain the same. B)the investor retains the shares, in which case the proportional ownership in the firm increases. C)the firm has unused borrowing capacity. D)the firm maintains the same cash dividend per share. 10)The Morrow Company repurchased 50 percent of its outstanding common stock from the market. The result would have been ________. A)an increase in the cash account B)a decline in EPS C)an increase in the number of stockholders 1

D)a decrease in total assets 11)The Dutch Doggie Slipper Company has forecasted the following net income and capital expenditure needs over each of the next three years. Using the residual dividend policy, determine the dividends per share in the second year. Assume the firm has 150,000 shares outstanding and has paid $100,000 in dividends each of the past 5 years. Year 1 2 3 A)$1.67 B) C)$3.33 D) Net Income $400,000 $500,000 $800,000 $0.67 None of the Capital Expenditures $300,000 $250,000 $900,000 above are correct

12)The Dutch Doggie Slipper Company has the current shareholders' equity account: Common Stock ($6 par value) $ 60,000,000 Additional paid-in capital $ 48,000,000 Retained earnings $ 12,000,000 Total shareholders' equity $ 120,000,000 What is the value of the retained earnings account after a 3-for-2 stock split? A)$ 8,000,000 B) $12,000,000 C)$18,000,000 D) None of the above are correct 13)With ________, the firm offers to repurchase a specific number of shares at a set price. A)a tender offer B) an open market purchase C)an ADR offer D) a reverse split 14)Dividend payout ratios are generally ________ for low-growth firms than for high-growth firms. Also, dividends per share for most firms are ________ volatile than earnings per share. A)lower; less B) lower; more C) higher; more D) higher; less 15)From a tax standpoint, a corporation holding common stock in another company would generally A)have a slight preference for receiving dividends rather than capital gains. B)invest in only those firms with high price/earnings ratios. C)be interested strictly in capital gains. D)be indifferent between dividends and capital gains. 16)When dividend policy is treated as part of the financing decision, an increase in the number of profitable investment opportunities in a particular period will result in A)higher dividend payouts. B) lower earnings per share. C)lower dividend payouts. D) no change in dividend payouts. 17)When working capital management is discussed, ________ and ________ tend to be thought of as forms of spontaneous financing. A)short-term debt, cash B) accounts payable, short-term debt C)accruals, cash D) accounts payable, accruals 18)Which of the following describes the hedging approach to financing? A)Each asset is offset with a financing instrument of the same approximate maturity. 2

B)Maturity dates of financing instruments are staggered so that they mature in a steady, predictable fashion. C)The firm takes out insurance to protect itself against uneven cash flows. D)Each asset is offset with a put or call. 19)When the firm considers working capital management, the trade off between risk and return is affected by all of the following except A)the difference between long-term and short-term interest rates. B)the ratio of cash to marketable securities. C)the debt maturity schedule. D)the pattern of cash borrowing needs of the firm. 20)The greater the proportion of permanent current assets financed with short-term debt, the A)riskier the working capital policy of the firm. B)lower the safety margin needed to protect against cash flow uncertainty. C)lower the firm's potential return on total investment. D)less likely that the firm will try to lengthen the maturity schedule of its debt. 21)Mary's Auto Parts has annual credit sales of $6 million. Mary is considering offering a cash discount of 2 percent for payment within 10 days. If 60 percent of her customers (in dollar volume) take advantage of the discount, the cost of the discount would be A)$120,000. B) $72,000. C) $12,000. D) $60,000. 22)Increasing the credit period from 30 to 60 days, in response to a similar action taken by all of our competitors, would likely result in ________. A)higher profits B)an increase in sales C)an increase in the average collection period D)a decrease in bad debt losses 23)The Florenza Furniture Company has credit sales of $600,000 and an average collection period of 45 days. The firm's level of accounts receivable (using a 360 day year) is A)$60,000. B) $75,000. C) $50,000. D) $90,000. 24)A firm has an average age of inventory of 90 days, an average collection period of 40 days, and an average payment period of 30 days. The firm's operating cycle is __________ days. A)120 B) 110 C) 70 D) 130 25)A firm has an average age of inventory of 60 days, an average collection period of 45 days, and an average payment period of 30 days. The firm's cash conversion cycle is __________ days. A)45 B) 75 C) 15 D) 135 26)A firm with a cash conversion cycle of 175 days can stretch its average payment period from 30 days to 45 days. This will result in a/an A)decrease of 30 days in the cash conversion cycle. B)increase of 30 days in the cash conversion cycle. C)increase of 15 days in the cash conversion cycle. D)decrease of 15 days in the cash conversion cycle. 27)The cost of giving up a cash discount under the terms of sale 1/10 net 60 (assume a 360-day year) is A)6.1 percent. B) 14.7 percent. C) 12.2 percent. D) 7.2 percent. 3

28)Between two major currencies, the spot exchange rate is the rate __________ and the forward exchange rate is the rate __________. A)on that date; today B)on that date; at some specified future date C)today; on that date D)at some specified future date; today 29)St. Paul Industries has just sold a piece of equipment to a Swedish firm for 1 million krona with terms of 90 days. In order to avoid exchange rate risk, St. Paul sells 1 million krona forward at the 90-day future rate of $0.127. If the spot rate on Swedish krona is $0.130, what is the annualized cost of using the forward market to hedge against exchange rate risk? (Assume a 360-day year.) A)6.7 percent B) 9.5 percent C) 3.3 percent D) 11.6 percent 30)XYZ Industries sold equipment to a firm in the Netherlands through its branch in Amsterdam for 1 million guilders with terms of 60 days. The spot rate was $0.4979 and the 60-day future rate was $0.4922. If XYZ wants to avoid foreign exchange risk, it should A)sell an equivalent amount of Eurodollars forward 60 days. B)buy an equivalent amount of Eurodollars forward 60 days. C)buy 1 million guilders forward 60 days. D)sell 1 million guilders forward 60 days. 31)A ________ contract is marked-to-market daily. A)futures B) currency C) spot market D) forward 32)Which of the following exchange-rate risk exposures relates the change in financial statements caused by changes in exchange rates? A)economic exposure B) accounting exposure C)translation exposure D) transaction exposure 33)Interest-rate parity refers to the concept that, where market imperfections are few, ________. A)the same goods must sell for the same price across countries B)interest rates across countries will eventually be the same C)there is an offsetting relationship provided by costs and revenues in similar market environments D)there is an offsetting relationship between interest rate differentials and differentials in the forward spot exchange market 34)A __________ option is an option to purchase a specified number of shares of a stock on or before some future date at a specified price, whereas a __________ option is an option to sell a specified number of shares of a stock on or before some future date at a specified price. __________ are purchased if the stock price is expected to fall. A)call; put; Calls B) call; put; Puts C)put; call; Calls D) put; call; Puts 35)An investor is considering buying 500 shares of ABC Company at $32 share. Analysts agree that the firm's stock price may increase to $45 share in the next four months. As an alternative, the investor could purchase a 120-day call option at a striking price of $30 for $5,000. profit would the investor realize if the stock price increased to $42 share? A)$4,000 B) $1,000 C) $0 D) $6,000 per per What per

36)An investor is considering buying 500 shares of ABC Company at $32 per share. Analysts agree that the firm's stock price may increase to $45 per 4

share in the next 4 months. As an alternative, the investor could purchase a 120-day call option at a striking price of $30 for $5,000. At what stock price would the investor break even? A)$45 B) $42 C) $35 D) $40 37)The call feature of a convertible security allows a firm to A)force the conversion of the issue. B) issue additional bonds if needed. C)increase the conversion ratio. D) reduce the conversion premium. 38)ABC Company issues 8 percent subordinate debentures exchangeable into 25 shares of XYZ Company. If XYZ is selling for $32 a share at the time of issuance, the exchange premium is closest to A)8 percent. B) 25 percent. C) 5 percent. D) 80 percent. 39)A warrant entitles the holder to purchase three shares of stock at $30 a share. If the market price of the stock is $32, the theoretical value of a warrant is closest to A)$2. B) $8. C) $6. D) $4. 40)A firm wants to issue a new debt obligation and it currently has high and increasing operating risk. The firm may find it difficult to issue ________, making ________ more attractive to the marketplace at this time. A)convertible debt; straight debt B) exchangeable bonds; straight debt C)straight debt; convertible debt D) warrants; straight debt 41)A $1,000 face value convertible bond can be converted into 40 shares of common stock. If the market price of the common stock is $30 a share, the conversion value of the bond is A)$1,000. B) $875. C) $1,200. D) $800. 42)The call price of the security generally __________ the security's par value. A)is greater than B) is equal to C)is less than D) has no relation to 43)At the time of issuance, the issuer of a convertible security normally establishes a conversion price __________ the current market price of the firm's stock. A)unrelated to B) below C) above D) equal to 44)The straight bond value is the __________ price at which a convertible bond would be traded. A)minimum B) optimum C) average D) maximum 45)A firm has fixed operating costs of $525,000, of which $125,000 is depreciation expense. The firm's sales price per unit is $35 and its variable cost per unit is $22.50. The firm's cash operating break-even point in units is __________. A)42,000 B) 32,000 C) 52,000 D) 23,330