Financial management multiple choice questions

1.Which of the following is not part of the underwriting process?

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the syndicate

the Federal Reserve

the prospectus

the Securities and Exchange Commission


2.Which of the following financial ratios is the best measure of the operating effectiveness of a firm’s management?

Current ratio

Return on investment

Quick ratio

Gross profit margin

3.Project Sigma requires an investment of $1 million and has a NPV of $10. Project Delta requires an investment of $500,000 and has a NPV of $150,000. The projects involve unrelated new product lines. What is your evaluation of these two projects?

The company should look at other investment criteria, not just NPV.

Only project Delta should be accepted. Alpha’s NPV is too low for the investment.

Both projects should be accepted because they have positive NPV’s

Neither project should be accepted because they might compete with one another

4.You just purchased a parcel of land for $10,000. If you expect a 12% annual rate of return on your investment, how much will you sell the land for in 10 years?





A company collects 60% of its sales during the month of the sale, 30% one month after the sale, and 10% two months after the sale. The company expects sales of $10,000 in August, $20,000 in September, $30,000 in October, and $40,000 in November. How much money is expected to be collected in October?





Accounting break-even analysis solves for the level of sales that will result in:

NPV = $0.00.

Free cash flow = $0.00.

net income = $0.00.

IRR=Cost of Capital0.0

7. When the impact of taxes is considered, as the firm takes on more debt

the weighted average cost of capital will increase.

both taxes and total cash flow to stockholders and bondholders will decrease.

cash flows will increase because taxes will decrease.

there will be no change in total cash flows.

8. Which of the following is true regarding Investment Banks?

When Glass-Steagal was repealed in 1999, commercial banks and Investment banks had to be separate entities.

As a result of the financial crisis of 2008, all stand-alone Investment banks either failed, were merged into commercial banks, or became commercial banks.

As of 2010, stand alone Investment banks are numerous.

Under the Glass-Steagal act, commercial banks were allowed to operate as Investment banks.


If you have $20,000 in an account earning 8% annually, what constant amount could you withdraw each year and have nothing remaining at the end of five years?





Aspects of demand risk controllable by the firm include:

status of the regional and national economy.

entry of external competitors.

interest rates.

product quality.

The Oviedo Thespians are planning to present performances of their Florida Revue on 2 consecutive nights in January. It will cost them $5,000 per night for theater rental, event insurance and professional musicians. The theater will also take 10% of gross ticket sales. How many tickets must they sell at $10.00 per ticket to raise $1,000 for their organization?

1,223 tickets

1,314 tickets

1,112 tickets

1000 tickets

Buying and selling in more than one market to make a riskless profit is called:

international trading.

profit maximization.



If managers are making decisions to maximize shareholder wealth, then they are primarily concerned with making decisions that should:

either increase or have no effect on the value of the firm’s common stock.

positively affect profits.

increase the market value of the firm’s common stock.

maximize sales revenues

Delta Inc. is considering the purchase of a new machine which is expected to increase sales by $10,000 in addition to increasing non-depreciation expenses by $3,000 annually. Due to the sales increase, Delta expects its working capital to increase $1,000 during the life of the project. Delta will depreciate the machine using the straight-line method over the project’s five year life to a salvage value of zero. The machine’s purchase price is $20,000. The firm has a marginal tax rate of 34 percent, and its required rate of return is 12 percent. The machine’s initial cash outflow is:





Given an accounts receivable turnover of 8 and annual credit sales of $362,000, the average collection period (360-day year) is

60 days.

45 days.

90 days.

75 days