Loans to businesses and individuals are oftentimes secured by collateral.

Question 2 options:

	True
	False

Question 3 (5 points)

A bond represents equity in a company.

Question 3 options:

	True
	False

Question 4 (5 points)

A mutual fund pools the investments of multiple investors and employs a professional manager to select securities that match those investor’s investment goals.  

Question 4 options:

	True
	False

Question 5 (5 points)

A company that has a positive net income could go bankrupt without sufficient cash flow.

Question 5 options:

	True
	False

Question 6 (5 points)

Double taxation is an major financial advantage of the traditional corporate form of ownership.  

Question 6 options:

	True
	False

Question 7 (5 points)

The conflict of interest between stockholders and management is known as the frequency problem.

Question 7 options:

	True
	False

Question 8 (5 points)

A creditor is anyone who is owed money by a business including lenders, vendors, employees or a government.

Question 8 options:

	True
	False

Question 9 (5 points)

The capital budgeting decision determines how a firm should raise funds for selected investments.  

Question 9 options:

	True
	False

Question 10 (5 points)

The statement of cash flows presents operating, investing and working capital activities separately.  

Question 10 options:

	True
	False

Question 11 (5 points)

Opportunity cost usually represents the income or benefit an asset would produce in its next best use and this cost is never included in a capital budgeting decision.

Question 11 options:

	True
	False

Question 12 (5 points)

An investor who purchases a preferred stock expects to be paid a constant dividend forever.

Question 12 options:

	True
	False

Question 13 (5 points)

A preferred stock shares certain characteristics of both common equity and debt.

Question 13 options:

	True
	False

Question 14 (5 points)

Common size income statements measure the total value of the outstanding common stock of a publicly traded company.  

Question 14 options:

	True
	False

Question 15 (5 points)

Net present value (NPV) is determined by calculating the present value of future cash flows (PV) associated with an investment and then adding to PV the value of the initial investment.  

Question 15 options:

	True
	False

Question 16 (5 points)

Investment risk may be defined as the probability that a return on an an investment will be as expected.  

Question 16 options:

	True
	False

Question 17 (5 points)

A Beta of greater than one means a stock is less volatile than the market in general.  

Question 17 options:

	True
	False

Question 18 (5 points)

Realized returns always equal expected returns.

Question 18 options:

	True
	False

Question 19 (5 points)

Bonds tend to be more risky than stocks because their prices fluctuate with changes in the market interest rate.  

Question 19 options:

	True
	False

Question 20 (5 points)

The total return of a stock is equal to its expected return plus the risk free rate of return.

Question 20 options:

	True
	False

Question 21 (5 points)

In a break-even analysis NPV = 0

Question 21 options:

	True
	False

Question 22 (5 points)

A financing activity occurs when

Question 22 options:

	a company builds an addition onto its existing restaurant.
	a company sells land to a developer.
	a company sells merchandise for a profit.
	a company borrows money, pays off loans, sells stock, or pays dividends.

Question 23 (5 points)

The market value of a company is 

Question 23 options:

	always less than book value.
	equal to its book value.
	is always greater than book value.
	equal to its total shares outstanding multiplied by the market price of a share of stock at a given moment in time.

Question 24 (5 points)

From our class discussions, financial management decisions fall into the following three categories:

Question 24 options:

	capital budgeting, financing structure and working capital.
	capital budgeting, capital allocation and capital disposition.
	capital allocation, working capital and cash flow.
	capital financing, asset allocation and market value.

Question 25 (5 points)

The investment concept of earning interest on previously earned interest is known as:

Question 25 options:

	compound interest.
	effective interest rate.
	simple interest.
	annual interest rate.

Question 26 (5 points)

For a given interest rate, 

Question 26 options:

	the shorter the time period the larger the future value.
	the longer the time period the smaller the present value.
	time does not impact present value.
	the longer the time period the larger the present value.

Question 27 (5 points)

Bond prices fall when market interest rates rise because,

Question 27 options:

	the coupon rate is paid annually.
	the coupon rate is paid semi-annually.
	the coupon rate is fixed.
	the coupon rate is variable.

Question 28 (5 points)

Your boss walks into you office and asks you to prepare a cash flow analysis for a plan she has to build a restaurant in the parking lot of the hotel you manage.  The land has a market value of $250,000.  You would 

Question 28 options:

	include the market value of the land in your analysis as a cost.
	exclude the market value of the land because it is a sunk cost.
	include the original cost of the land in your analysis.
	calculate the future value of the project.

Question 29 (5 points)

An example of non-systematic risk is

Question 29 options:

	rising interest rates.
	management turnover in a company.
	falling oil prices.
	a global pandemic.

Question 30 (5 points)

Pro forma financial statements are 

Question 30 options:

	financial statements that are reported to the pubic after the close of a business period.
	presented in public company annual reports.
	projections of future financial performance based of assumptions.
	used by all professional cricket players to wrap their bats.

Question 31 (5 points)

An annuity is 

Question 31 options:

	a perpetual series of equal payments.
	similar to a preferred stock.
	a finite series of equal payments separated by equal time intervals.
	an infinite series of equal payments separated by equal time intervals.

Question 32 (5 points)

The discipline of corporate finance is 

Question 32 options:

	the management of the relationship between senior management and the board of directors.
	the management of the relationship between senior management and company line employees.
	the management of the relationship between stakeholders and shareholders.
	the management of the relationship between business decisions and the market value of the business.

Question 33 (5 points)

The capital budgeting decision determines

Question 33 options:

	how short term assets should be managed and financed.
	how funds should be raised to pay for investments.
	the long term investments that should be chosen by a company.

Question 34 (5 points)

In order to prepare a cash flow statement you need, 

Question 34 options:

	two balance sheets from consecutive periods and an income statement from the last of those consecutive periods.
	a pro forma income projections and a balance sheet.
	a checking account ledger and inventory receipts.
	two income statements from consecutive periods and a balance sheet from the last of those consecutive periods.

Question 35 (5 points)

A tax system the applies marginal tax rates

Question 35 options:

	charges taxes consistent with historic tax rates.
	charges taxes at rates that grow progressively higher as taxable income grows.
	charges taxes at rates that diminish as taxable income grows.
	charges taxes at a flat rate regardless of taxable income.

Question 36 (5 points)

A liquidity ratio indicates a firm’s ability to 

Question 36 options:

	determine investor sentiment.
	determine its ability to pay a dividend.
	pay expenses in the short run.
	manage its debt.

Question 37 (5 points)

A real asset may be 

Question 37 options:

	a bond.
	a share of preferred stock.
	a share of common stock.
	a delivery truck.

Question 38 (5 points)

The risk versus return trade off implies

Question 38 options:

	you should expect a lower return for taking on less risk.
	you should expect a higher return for taking on more risk.
	you cannot measure risk when making investments.
	you should not be concerned with risk when making investments.

Question 39 (5 points)

Leverage implies the use of

Question 39 options:

	depreciation expense to fund capital.
	serial funding.
	debt financing.
	equity financing.

Question 40 (5 points)

Depreciation

Question 40 options:

	increases income taxes.
	is the lack of appreciation.
	is a cash expense.
	is a non cash expense.

Question 41 (5 points)

Good cash management

Question 41 options:

	implies maintaining adequate liquidity while minimizing cash in the bank.
	implies a company is not prudent with its free cash flow.
	implies maintaining no cash on the balance sheet.
	implies a company has too much debt.

Question 42 (15 points)

Match the following where 1 is a Source of Cash and 2 is a Use of Cash:

Question 42 options:

Sale of an asset  Increase in accounts payable Positive net income from operations Decrease in long term liabilities Purchase of an asset

1. Source of cash 2. Use of cash

Question 43 (15 points)

Match the following:

Question 43 options:

Sale of common stock Buying supplies on credit Purchase a delivery van Loan payment Acquire land for a new restaurant

1. Operating activity 2. Investing activity 3. Financing activity

Question 44 (15 points)

Five years ago you took out a loan to buy a restaurant.  The terms of the loan as follows:

1.  Fully amortized over 20 years
2.  Amount:  $250,000
3.  Interest Rate:  7%
4. Payments made monthly

Today (the first day of the sixth year of the loan) you have an opportunity to refinance the outstanding principal balance with a new loan as follows:

1.  Fully amortized over 15 years
2.  Interest Rate:  3.5%
3.  Payments made monthly

What is you new monthly payment? 

Question 44 options:

	Between $1,700 and $1,800
	Between $2,200 and $2,300
	Unable to calculate due to missing data.
	Between $1,500 and $1,600

Question 45 (15 points)

Your company has the following capital structure and associated cost of capital:

1.  Equity = 50% weight at a cost of 20%
2.  Secured debt = 30% weight at a cost of 7%
3.  Un-secured debt = 20% weight at a cost of 12%

Your CFO reduces the weight of equity to 20% and increases the weight of Secured Debt to 60%.   Calculate the old and the new weighted average costs of capital.

Question 45 options:

	Old:  10.6% and New:  14.5%
	Old:  13.0% and New:  10.6%
	Old:  14.5% and New:  10.6%
	Old:  14.5% and New:  13%

Question 46 (15 points)

You have prepared an investment plan for the next 15 years as follows:

1.  Years 1-5, invest $300 per month at 7%
2.  Years 6-10, invest $500 per month at 7%
3.  Years 11-15, invest $1,000 per month at 7%

You stop investing at the end of Year 15.  What is the value of your investment account at the end of 45 years if it keeps growing at 7%?

Question 46 options:

	More than $1.5 million
	Between $1.3 million and $1.4 million
	$81,000
	Less than $1.0 million

Question 47 (15 points)

What is the weighted average return for the following portfolio of stocks?

Stock	$ Invested	Return
A	$ 6,000	5%
B	$ 9,000	9%
C	$15,000	11%

Question 47 options:

	10.2%
	8.3%
	7.5%
	9.2%

Question 48 (15 points)

What is the expected return on a stock given the following variables?

1.  Beta = 1.4
2.  Risk Free Rate = 3.5%
3.  Expected Market Return = 7.5%

Question 48 options:

	12.4%
	14%
	12.8%
	13.2%

Question 49 (15 points)

You have an opportunity to purchase an investment with that will deliver the following cash flows to you at the end of each of the following three years.

Year 1	$10,000
Year 2	$12,000
Year 3	$14,000

Assuming you earn an average of 12% annually on your other investments, how much would you be willing to pay today for this stream of cash flows?

Question 49 options:

	approximately $26,255
	approximately 36,000
	approximately $28,500
	approximately $40,500

Question 50 (15 points)

Calculate the price of a bond given the following assumptions:

1.  Face Value:  $10,000
2.  Coupon Rate:  10%
3.  Market Interest Rate:  7%
4.  Time to Maturity:  15 Years

Question 50 options:

	approximately $7,000
	approximately $14,000
	approximately $12,700
	approximately $10,000

Question 51 (15 points)

Calculate the price of a stock given the following information:

1.  Required rate of return:  12%
2.  Dividend Growth Rate:  3%
3.  Dividend in Period 0:  $1.40 per share

Question 51 options:

	approximately $16 per share
	approximately $14.00 per share
	approximately $11.60 per share
	approximately $15.50 per share

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