QUESTION 21 Direct financing occurs when: a lender-savers borrows directly from a borrower-spenders. a borrower-spenders borrows directly from a lender-savers. a lender-savers borrows from the federal government. a borrower-spenders borrows from the federal government. 3 points

QUESTION 22 The financial market where a new security is sold for the first time is: a primary market. a secondary market. an indirect financial market. none of the above. 3 points

QUESTION 23 Which of the following theories states that security prices reflect all public information, but not all private information? Weak-form efficiency. Semistrong-form efficiency. Strong-form efficiency. Nominal-form efficiency. 3 points

QUESTION 24 A mutual fund is an example of: a line of credit. an endowment fund. an investment fund. a pension fund. 3 points

QUESTION 25 The generally accepted accounting principles (GAAP) are: rules that outline how a firm can operate ethically. rules on how the firm will be valued in the event of a merger. rules and procedures that define how companies are to maintain financial records and prepare financial statements. rules for how a company can issue stock to raise money. 3 points

QUESTION 26 When prices are rising, valuing ending inventory using the FIFO method rather than LIFO gives: inventory a higher value but lowers net income. inventory a lower value and also lowers net income. both inventory and net income a higher value. inventory a lower value and net income a higher value. 3 points

QUESTION 27 The major disadvantages of market-value accounting include: the difficulty in estimating the current value for some assets. the difficulty in applying some of the valuation models used to estimate market values. the resulting numbers are potentially open to abuse. All of the above are disadvantages of market-value accounting. 3 points

QUESTION 28 Centennial Brewery produced revenues of $1,145,227 in 2008. It has expenses (excluding depreciation) of $812,640, depreciation of $131,335, and interest expense of $81,112. It pays an average tax rate of 34 percent. What is the firm’s net income after taxes? Round your final answer to the nearest dollar. $120,140 $248,475 $79,292 $40,848 3 points

QUESTION 29 Which of the following best represents cash flows to investors? Cash flow from operating activity, plus cash flow generated from net working capital Earnings before interest and taxes times 1 minus the firm’s tax rate Net income minus dividends paid to preferred stockholders. Cash flow from operating activity minus cash flow invested in net working capital minus cash flow invested in long-term assets. 3 points

QUESTION 30 An individual analyzing a firm’s financial statements should do all but which one of the following? Use unaudited financial statements Perform a trend analysis Perform a benchmark analysis Compare the firm’s performance to that of its direct competitors 3 points

QUESTION 31 Which of the following is a benefit of a common-size income statement? It is very useful to assess how effectively a firm collected its accounts receivable. It reveals a great deal of information about the adequacy of a firm’s net working capital. It can tell the analyst a great deal about a firm’s efficiency and profitability. It reveals how effectively a firm has increased its assets. 3 points

QUESTION 32 Which of the following statements is correct? The lower the level of a firm’s debt, the higher the firm’s leverage. The lower the level of a firm’s debt, the lower the firm’s equity multiplier. The lower the level of a firm’s debt, the higher the firm’s equity multiplier. The tax benefit from using debt financing reduces a firm’s risk. 3 points

QUESTION 33 Why is the quick ratio considered by some to be a better measure of liquidity than the current ratio? The quick ratio more accurately reflects a firm’s profitability. It omits the least liquid current asset from the numerator of the ratio. The current ratio does not include accounts receivable. It measures how “quickly” cash flows through the firm. 3 points

QUESTION 34 The DuPont equation shows that a firm’s (return on equity) ROE is determined by three factors: net profit margin, total asset turnover, and the equity multiplier. operating profit margin, return on assets (ROA), and the total assets turnover. net profit margin, total asset turnover, the return on assets (ROA). return on assets (ROA), total assets turnover, and the equity multiplier. 3 points

QUESTION 35 There are people who believe that the analysis of financial statements has limitations. Which of the statements below would qualify as a limitation of financial statement analysis? Ratio analysis requires the analyst to evaluate a firm’s performance over a period of time to be of any value. Proper ratio analysis requires the analyst to rely upon audited financial statements, which can be easily manipulated. Thorough ratio analysis requires the analyst to refer to benchmarking, which is very easy to misinterpret. Ratio analysis requires the analyst to utilize accounting data that is based on historical costs instead of current market values. 3 points

QUESTION 36 Which of the following statements is true of time value of money? A dollar received today is worth more than a dollar to be received in the future because future dollars are not affected by inflation. A dollar received today is worth less than a dollar to be received in the future because future dollars are not affected by inflation. A dollar received today is worth more than a dollar to be received in the future because funds received today can be invested to earn a return. A dollar to be received in the future is worth more than a dollar received today because it would have less risk associated with it. 3 points

QUESTION 37 Future value measures: what one or more cash flows are worth at the end of a specified period. what one or more cash flows that is to be received in the future will be worth today. the value of an investment after subtracting interest earned on it for one or more periods. the value of an investment’s worth today. 3 points

QUESTION 38 Which of the following statements is true? Present value calculations involve converting the initial amount into a future amount. The present value (PV) is often called the compounded value of future cash payments. The present value is calculated by using the discount factor. The future value of an investment is the reciprocal of its present value. 3 points

QUESTION 39 As per the rule of 72, the time to double your money (TDM) approximately equals: 72/n. 72/i. 72/Initial investment. 72/Future value. 3 points

QUESTION 40 Omniva Inc. just generated earnings per share of $3.75 for the fiscal year ending September 30, 2014. The firm is expected to achieve earnings per share of $8.76 in 5-years. At what rate will Omniva Inc.’s earnings per share be growing over this 5-year period? (Round off to the nearest 1/10 percent) 15.7% 18.5% 21.3% 13.4% 3 points

QUESTION 41 Which of the following is used as the denominator while calculating the present value for a growing perpetuity that begins next period (PVP)? The difference between i (the discount or interest rate) and g (the constant rate of growth of the cash flow) i (the discount or interest rate) g (the constant rate of growth of the cash flow) The addition of i (the discount or interest rate) and g (the constant rate of growth of the cash flow) 3 points

QUESTION 42 If your investment pays the same amount at the end of each year for a period of six years, the cash flow stream is called: a perpetuity. an ordinary annuity. an annuity due. a growing perpetuity. 3 points

QUESTION 43 A firm receives a cash flow from an investment that will increase by 10 percent annually for an infinite number of years. This cash flow stream is called: an annuity due. a growing perpetuity. an ordinary annuity. a growing annuity. 3 points

QUESTION 44 The true cost of lending is the: annual percentage rate. effective annual rate. quoted interest rate. interest rate per period. 3 points

QUESTION 45 A lottery winner was given a perpetual payment of $25,362. She could invest the cash flows at 7.5 percent. What is the present value of this perpetuity? (Round to the nearest dollar.) $338,160 $390,215 $238,160 $201,356 3 points

QUESTION 46 In a game of chance, the probability of winning a $50 prize is 40 percent and the probability of losing a $50 prize is 60 percent. What is the expected value of the prize in the game? $10 $0 $20 $25 3 points

QUESTION 47 Gwen purchased a stock one year ago for $25, and it is now worth $31. The stock paid a dividend of $1.50 during the year. What was the stock’s rate of return from dividend income during the year? 6% 15% 24% 26% 3 points

QUESTION 48 Given the historical information in Chapter 7, which of the following investment classes had the greatest variability in returns? Intermediate-Term Government Bonds Long-Term Government Bonds Large U.S. Stocks Small U.S. Stocks 3 points

QUESTION 49 If a random variable follows a normal distribution, what is the probability that the random variable is larger than 1.96 standard deviations larger than the mean? 1.25% 2.50% 3.75% 5.00% 3 points

QUESTION 50 The expected return on Kiwi Computers stock is 16.6 percent. If the risk-free rate is 4 percent and the expected return on the market is 10 percent, then what is Kiwi’s beta? 1.26 2.10 2.80 3.15