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1 -2 QUESTIONS AND ANSWERS SOLVED
You want to travel to Europe to visit relatives when you graduate from college three years from now. The trip is expected to cost a total of $10,000. Your parents have deposited $5,000 for you in a CD paying 6% interest annually, maturing three years from now. Aunt Hilda has agreed to finance the balance. If you are going to put Aunt Hilda's gift in an investment earning 10% annually over the next three years, how much must she deposit now so you can visit your relatives in three years? A) $3, B) $3,039 C) $3, D) $3, As a part of your savings plan at work, you have been depositing $250 per quarter in a savings account earning 8% interest compounded quarterly for the last 10 years. You will retire in 15 years and want to increase your contribution each year from $1,000 to $2,000 per year, by increasing your
BUSINESS 7003 FINANCE (2) WEEK 1: CHAPTERS
1 -2 QUESTIONS AND ANSWERS SOLVED
1 -2 QUESTIONS AND ANSWERS SOLVED
contribution every four months from $250 to $500. Additionally, you have just inherited $10,000, which you plan to invest now to earn interest at 12% compounded annually for the next 15 years. How much money will you have in savings when you retire 15 years from now? A) $126, B) $73,012 C) $161,307 D) $194, You have just won a magazine sweepstakes and have a choice of three alternatives. You can get $100,000 now, or $10,000 per year in perpetuity, or $50,000 now and $150,000 at the end of 10 years. If the appropriate discount rate is 12%, which option should you choose? A) $100,000 now B) $10,000 perpetuity C) $50,000 now and $100,000 in 10 years D) $50,000 now and $150,000 in 10 years
BUSINESS 7003 FINANCE (2) WEEK 1: CHAPTERS
1 -2 QUESTIONS AND ANSWERS SOLVED
1 -2 QUESTIONS AND ANSWERS SOLVED
A) $29,
B) $25,
C)
$26,371 D)
Which of the following is not a reason for incorporating a business? A) Limited liability B) Ownership is relatively easy to transfer C) It is easier to form than a proprietorship D) Corporate tax laws may allow tax deferral or avoidance Which of the following is not a form of business organization? A) Corporation B) Sole partnership
BUSINESS 7003 FINANCE (2) WEEK 1: CHAPTERS
1 -2 QUESTIONS AND ANSWERS SOLVED
1 -2 QUESTIONS AND ANSWERS SOLVED
C) General partnership D) Sole proprietorship If you are in a business that is faced with enormous risks of failure, what type of ownership would you avoid? A) Corporation B) Sole partnership C) General partnership D) Sole proprietorship Which of the following is an advantage of a corporation over a sole proprietorship? A) A corporation is easy to set up B) Corporate tax laws are often less attractive than personal tax laws C) Shareholders' liability is limited to their investment in the corporation D) In a sole proprietorship, it is easier to transfer ownership Which of the following is the least important of the financial manager's
BUSINESS 7003 FINANCE (2) WEEK 1: CHAPTERS
1 -2 QUESTIONS AND ANSWERS SOLVED
1 -2 QUESTIONS AND ANSWERS SOLVED
shareholder wealth D) minimize expenses If you are working for a company and your job description includes accounting, budgeting, internal audit, systems management/MIS, and tax management, you are most likely a(n): A) treasurer B) tax accountant C) auditor D) controller Ratios should not be used to compare two companies in different industries since wide variation across industries can occur. But even within an industry, sometimes comparisons can be problematic. Which of the following is/are a reason(s) for concern? A) Methods of calculating ROE may differ between analysts B) Company choice between weighted average and FIFO inventory
BUSINESS 7003 FINANCE (2) WEEK 1: CHAPTERS
1 -2 QUESTIONS AND ANSWERS SOLVED
1 -2 QUESTIONS AND ANSWERS SOLVED
valuations C) Companies are based in different countries D) All of these are reasons for concern.
BUSINESS 7003 FINANCE (2) WEEK 1: CHAPTERS
1 -2 QUESTIONS AND ANSWERS SOLVED
1 -2 QUESTIONS AND ANSWERS SOLVED
A) Bondholders B) Equity holders C) Supplier s D) Customers The external financing requirements of a firm are a function of: A) Sales growth B) Retention ratio C) Profit margins D) All of the above EXLO Company has current sales of $100,000 and projected annual sales growth of 5%, profit margins of 3%, and its dividend policy is to have a dividend payout of 15% per year. The forecasted retained earnings for next year are:
BUSINESS 7003 FINANCE (2) WEEK 1: CHAPTERS
1 -2 QUESTIONS AND ANSWERS SOLVED
1 -2 QUESTIONS AND ANSWERS SOLVED
A) $472.
B)
C) $16,222.
D) $91,927.
bPM * (1+G)S = (1-.15).03(1.05)100,000 = $2,677. EXLO Company has current sales of $100,000 and has projected annual sales growth of 5%, asset growth of 120%, profit margins of 3%, and its dividend policy is to have a dividend payout of 15% per year. The sustainable growth rate for EXLO is closest to: A) 0.13% B) 0.38% C) 2.17% D) 4.25% bPM/(a-bPM) = (1-.15).03/(1.20-(1-.15)*.03)) = .0255/1.1745 = 2.17% What does operational efficiency refer to?
BUSINESS 7003 FINANCE (2) WEEK 1: CHAPTERS
1 -2 QUESTIONS AND ANSWERS SOLVED
1 -2 QUESTIONS AND ANSWERS SOLVED
This refers to which type of inefficiency? A) Operational efficiency B) Allocational efficiency C) Information efficiency D) Liquidity efficiency Which one of the following is NOT an example of market efficiency? A) Stock price changes after earning announcements. B) Stock price decreases every third day by a decrease of 0.5% from the opening price. C) Stock price has a beta of 1. D) Stock price decreases when the market goes up. Empirical support for market efficiency is strongest for: A) Weak form B) Semi-strong form
BUSINESS 7003 FINANCE (2) WEEK 1: CHAPTERS
1 -2 QUESTIONS AND ANSWERS SOLVED
1 -2 QUESTIONS AND ANSWERS SOLVED
C) Strong form D) No form of market efficiency is supported by the data Michel has developed a trading strategy for the Abitibi-Témiscamingue Market. He has observed that his strategy earns returns that are statistically significantly greater than the market. Should Michel start applying his trading strategy? A) Yes, the tests show that its returns are statistically significantly greater than the market. B) Not necessarily; the tests show that its returns are statistically significantly greater than the market. C) Yes, the tests show that its returns are economically significantly greater than the market. D) Not necessarily; the tests do not show whether the returns are economically significantly greater than the market. If markets were strong form efficient, which of the following situations would yield abnormal returns? A) Analyzing a company's earnings report B) Identifying a pattern in a company's stock price
BUSINESS 7003 FINANCE (2) WEEK 1: CHAPTERS
1 -2 QUESTIONS AND ANSWERS SOLVED
1 -2 QUESTIONS AND ANSWERS SOLVED
Which of the following is NOT an implication of the Efficient Markets Hypothesis for corporate financial officers? A) They should ignore dramatic changes in their company's stock price. B) There is no point in timing the issue of new securities. C) It does not make sense to "play" interest rates by rolling over short- term debt until long-term rates fall. D) There is no point in timing stock repurchases in an efficient market Place the following dates in chronological order from the earliest to the latest: I). Holder of record date II). Payment date III). Declaration date IV). Ex-dividend date A) III, I, II, IV B) III, IV, I, II C) I, III, II, IV D) IV, I, II, III On January 1, 2012, you purchased 100 shares of Toronto Skaters Company. On February 1, 2012, the company declared a dividend of $2 per share for
BUSINESS 7003 FINANCE (2) WEEK 1: CHAPTERS
1 -2 QUESTIONS AND ANSWERS SOLVED
1 -2 QUESTIONS AND ANSWERS SOLVED
shareholders of record on March 15, 2012, payable on April 1, 2012. Assume the ex-dividend date is March 12, 2012. If you wished to receive the dividend, you cannot sell your shares before: A) February 2, 2012 B) March 12, 2012 C) March 16, 2012 D) April 2, 2012 Which of the following would result in a decrease in the number of shares outstanding and an increase in the earnings per share? A) Cash dividend B) Stock dividend C) Reverse stock split D) None of the above result in a decrease in the number of shares outstanding With respect to a company paying a stock dividend, which of the following is false?
BUSINESS 7003 FINANCE (2) WEEK 1: CHAPTERS
1 -2 QUESTIONS AND ANSWERS SOLVED
1 -2 QUESTIONS AND ANSWERS SOLVED
An investor will prefer a high dividend if: I). the firm cannot reinvest the funds in projects where the yields exceed those that a shareholder could get elsewhere. II). the investor needs a high level of current income. III). the investor faces high personal taxes. A) I only B) II only C) I and II D) I and III An investor will prefer a low dividend if: I). the firm cannot reinvest the funds in projects where the yields exceed those that a shareholder could get elsewhere. II). the investor needs a high level of current income. III). the investor faces high personal taxes. A) I only B) III only C) I and II
BUSINESS 7003 FINANCE (2) WEEK 1: CHAPTERS
1 -2 QUESTIONS AND ANSWERS SOLVED
1 -2 QUESTIONS AND ANSWERS SOLVED
D) II and III Which of the following would impact management's decision regarding the proportion of earnings to be paid out in dividends and the proportion to be retained for reinvestment? A) Investors' reinvestment opportunities. B) Tax considerations. C) The firm's reinvestment opportunities. D) All of the above Use the following two statements to answer this question: I). Managers only repurchase stocks to take advantage of their underpricing II). Stock repurchases are exactly the same as cash dividends in the real world. A) I and II are correct B) I and II are incorrect C) I is incorrect and II is correct D) I is correct and II is incorrect
BUSINESS 7003 FINANCE (2) WEEK 1: CHAPTERS
1 -2 QUESTIONS AND ANSWERS SOLVED
