Financial Management 1 Online Test

The objective of capital structure management is to mix the permanent sources of funds used by the firm in a manner that will maximize the firm’s
Common stock price
Earnings per share
Composite cost of capital
Total revenues
Which of the following best describe the capital structure of the firm?
The mix of the long-term sources of funds used by the firm.
The financial structure of the firm minus current liabilities.
The mix of all items that appear on the left-hand side of a firm’s balance sheet.
Retained earnings minus short-term (current) liabilities.
Net working capital refers to
Total assets minus fixed assets.
Current assets minus current liabilities.
Current assets minus inventories.
Current assets.
Financing a long-lived asset with short-term financing would be
An example of “moderate risk- moderate (potential) profitability” asset financing.
An example of “low risk- low (potential) profitability” asset financing.
An example of “high risk- high (potential) profitability” asset financing.
An example of the “hedging approach” to financing.
Permanent working capital
Varies with seasonal needs.
Includes fixed assets.
is the amount of current assets required to meet a firm’s long-term minimum needs.
Includes accounts payable
Spontaneous financing includes
Accounts receivable
Accounts payable
Short-term loans
A line of credit
_______ Varies inversely with profitability.
In deciding the appropriate level of current assets for the firm, management is confronted with
A trade-off between profitability and risk.
A trade-off between liquidity and marketability.
A trade- off between equity and debt.
A trade-off between short-term versus long-term borrowing.
Which of the following illustrates the use of a hedging (or matching) approach to financing?
Short-term assets financed with long-term liabilities.
Permanent working capital financed with long-term liabilities.
Short-term assets financed with equity.
All assets financed with a 50 percent equity, 50 percent long-term debt mixture.
Which asset-liability combination would most likely result in the firm’s having the greatest risk of technical insolvency?
Increasing current assets while lowering current liabilities.
Increasing current assets while incurring more current liabilities.
Reducing current assets, increasing current liabilities, and reducing long-term debt.
Replacing short-term debt with equity.
Which of the following would be consistent with a more aggressive approach to financing working capital?
Financing short-term needs short-term funds.
Financing permanent inventory buildup with long-term debt.
Financing seasonal needs with short-term funds.
Financing some long-term needs with short-term funds.
In finance, “Gross working capital” means the same thing as
Total assets
Fixed assets
Current assets
Current assets minus current liabilities
(1+i) n
When n=1, this interest factor equals one for any positive rate of interest.
For Rs. 1,000 you can purchase a 5-year ordinary annuity that will pay you a yearly payment of Rs. 263.80 for 5 years. The compound annual interest rate implied by this arrangement is closest to
8 percent
9 percent
10 percent
11 percent
To increase a given present value, the discount rate should be adjusted
None of the above
You are considering investing in a zero-coupon bond that sells for Rs. 250. At maturity in 16 years it will be recommended for Rs. 1,000. What approximate annual growth does this represent?
8 percent
9 percent
12 percent
25 percent
Assume that the interest rate is greater than zero. Which of the following cash-inflow streams should you prefer?
YEAR 1 YEAR 2 YEAR 3 YEAR4 Rs. 400 Rs. 300 Rs. 200 Rs. 100
Rs. 100 Rs. 200 Rs. 300 Rs. 400
Rs. 250 Rs. 250 Rs. 250 Rs. 250
Any of the above, since they each sum to Rs. 1000
In 3 years you are to receive $5,000. If the interest rate were to suddenly increase, the present value of that future amount to you would
Remain unchanged
Cannot be determined without more information
With continuous compounding at 10% for 30 years, the future value of an initial investment of Rs. 2,000 is closed to
Rs. 34,898
Rs. 40,171
Rs. 164,500
Rs. 328,282
You want to buy an ordinary annuity that will pay you Rs. 4, 000 a year for the next 20 years. You expect annual interest rates will be 8% over that time period. The maximum price you would be willing to pay for the annuity is closest to
Rs. 32,000
Rs. 39,272
Rs. 40,000
Rs. 80,000
The controller’s responsibilities are primarily _______ in nature, while the treasure’s responsibilities are primarily related to _______.
Operational; financial management
Financial management; accounting
Accounting; financial management
Financial management; operations
The decision function of financial management can be broken down into the decisions
Financing and investment
Investment, financing, and asset management
Financing and dividend
Capital budgeting, cash management, and credit management
The focal point of financial management in a firm is:
The number and type of products or services provided by the firm
The minimization of the amount of taxes paid by the firm
The creation of value for shareholders
The dollars profits earned by the firm
The market price of a share of common stock is determined by:
The board of directors of the firm
The stock exchange on which the stock is listed
The president of the company
Individuals buying and selling the stock
_______ would be an example of a principal, while would be an example of an agent.
Shareholder; manager
Manager; owner
Accountant; bondholder
Shareholder; bondholder
What are the earnings per share (EPS) for a company that earned Rs.100, 000 last year in after-tax profits, has 200, 000 common shares outstanding and $1.2 million in retained earning at the year end?
Rs. 100, 000
Rs. 6.00
Rs. 0.50
Rs. 6.50
The long-run objective of financial management is to:
Maximize earning per share
Maximize the value of the firm’s common stock
Maximize return on investment
Maximize market share
Shareholder wealth in a firm is represented by:
The number of people employed in the firm
The book value of the firm’s assets less the book value of its liabilities
The amount of salary paid to its employees
The market price per share of the firm’s common stock
When fluctuations in EBIT result in even greater fluctuations in EPS, this means that a firm has
An equal degree of financial leverage
A smaller degree of financial leverage
A greater degree of financial leverage
A large or smaller degree of financial leverage
Knowledge of the various leverage measures (DOL, DFL, and DCL) aids the financial manager in determining the
Proper level of overall risk that should be accepted
Variable cost of the firm
Earning per share of the firm
Break-even level of sales
Operating leverage is the
Concept of financing a portion of the firm’s assets with securities bearing a fixed rate of return
Occurrence of fixed operating costs in the firm’s cost structure
Additional variability in earnings available to the firm’s common shareholders
Concept of financing a portion of the firm’s assets with securities bearing a variable rate of return
Individuals in a high tax bracket typically prefer for a firm to:
Issue dividends
Retain earnings
Hold cash
None of the above
The ex-dividend date is the date:
On which recipients of the dividend are determined
The dividend is declared
Which no longer includes dividend payments for stock bought on that date
None of the above
A fully owned foreign subsidiary is a form of MNC in which:
The MNC owns and operates he firm itself.
The MNC has a partner in the foreign country.
The foreign government is cooperative.
None of the above
Multinational Corporation may be defined as:
A company that imports foreign product
A company that hires foreign labor
A company which carries on business activity outside the home country
None of the above
The exchange rate between two currencies outside the American dollar is called the:
Forward rate
Cross rate
Spot rate
None of the above
When an MNC cannot produce an actual product in a foreign subsidiary due to political restrictions, it can export technology and knowledge through:
An exporter
A joint venture
An importer
A licensing agreement
Many MNCs prefer _________ above all other methods of establishing a foreign presence.
Joint ventures
Fully owned foreign subsidiaries
None of the above
The board of directors may do which of the following with net income?
Put it in the cash account
Retain it
Pay it out as dividends
2 & 3 above
One desire of stockholders regarding dividend policy is:
Stable dividends
Frequent dividends
Low dividends
High dividends
Stock dividend:
Increases the value of stockholder’s equity.
Decreases the value of stockholder’s equity.
Does not change the value of stockholder’s equity.
None of the above.
Purpose of stock split is usually to:
Increase the investor’s wealth
Bring down the stock price into a lower trading range.
Reduce the threat of takeover
Decrease the number of shares outstanding
Fact that some stockholders like dividends and some would rather the firm retain earnings is called:
The dividend effect
The retention factor
The clientele effect
None of the above
Which of the following balance sheet accounts will be affected by a stock dividend but not by a stock split?
Dividends in arrears
Common stock
Retained earnings
A firm may repurchase its own stock because:
It provides positive information about the firm.
The firm has inadequate capital budgeting alternative.
It will increase shareholder’s wealth
All of the above
A stock split:
Does not change the amount in the common stock account
Is treated by accountants just like a stock dividend
Reduced retained earnings
None of the above
What one currency is worth in terms of another currency is called a ________
Exchange rate
Spot rate
Forward rate
The system of government accounts that catalog the flow of economic transactions between the residents of one country and the residents of other countries is called ________
A joint venture
Current account
Balance of payments
Balance of interest rates
The exchange rate that is paid for a currency for immediate delivery is the:
Spot rate
Cross rate
Forward rate
None of the above

This paper has 50 questions which are required to be finished within one hour approximately.


Richard Lutalo

share holders'wealthy in a firm is represented by?

2587 days 4 hours 39 minutes ago


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