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BUSI 7110 EXAM QUESTIONS AND CORRECT
ANSWERS 100% VERIFIED
Capital structure of a firm refers to the firm's: A. combination of different types of production equipment. B. investment choices for its excess cash reserves. C. combination of cash and cash equivalents. D. combination of accounts appearing on the left side of its balance sheet. E. proportions of financing from current and long-term debt and equity. - ANSWER proportions of financing from current and long-term debt and equity. Which of the following most accurately describes an agency cost? A. increasing the dividend payments per share B. the advantages gained by reducing production costs per unit C. the payment of corporate income taxes D. the payment required for an outside audit of the firm E. the payment of interest on a firm's debts - ANSWER the payment required for an outside audit of the firm The ultimate control of a corporation lies in the hands of the corporate: A. board of directors. B. stockholders. C. president.
D. chief executive officer. E. chairperson of the board. - ANSWER stockholders Which corporate document sets forth the number of members on the original board of directors? A. indenture contract. B. state tax agreement. C. corporate bylaws. D. debt charter. E. articles of incorporation. - ANSWER articles of incorporation The process of planning and managing a firm's long-term assets is called: A. working capital management. B. financial depreciation. C. agency cost analysis. D. capital budgeting. E. capital structure. - ANSWER capital budgeting The primary goal of financial management is to: A. maximize current dividends per share of the existing stock. B. Correct! maximize the current value per share of the existing stock. C. avoid financial distress. D. minimize operational costs and maximize firm efficiency. E. maintain steady growth in both sales and net earnings. - ANSWER maximize the current value per share of the existing stock
The cheapest business entity to form is typically the: A. limited liability company. B. joint stock company. C. general partnership. D. limited partnership. E. sole proprietorship. - ANSWER sole proprietorship. Projected future financial statements are called: A. plug statements. B. pro forma statements. C. reconciled statements. D. aggregated statements. E. comparative statements. - ANSWER pro forma statements. The maximum rate at which a firm can grow while maintaining a constant debt-equity ratio is best defined by its: A. rate of return on assets. B. internal rate of growth. C. average historical rate of growth. D. rate of return on equity. E. sustainable rate of growth. - ANSWER sustainable rate of growth. The sustainable growth rate will be equivalent to the internal growth rate when, and only when:
A. a firm has no debt. B. the growth rate is positive. C. the plowback ratio is positive but less than 1. D. a firm has a debt-equity ratio equal to 1. E. the retention ratio is equal to 1. - ANSWER a firm has no debt. The sustainable growth rate: A. assumes there is no external financing of any kind. B. is normally higher than the internal growth rate. C. assumes the debt-equity ratio is variable. D. is based on additional external debt and equity financing. E. assumes the dividend payout ratio is equal to zero. - ANSWER is normally higher than the internal growth rate. Marcie's Mercantile wants to maintain its current dividend policy, which is a payout ratio of 35 percent. The firm does not want to increase its equity financing but is willing to maintain its current debt-equity ratio. Given these requirements, the maximum rate at which Marcie's can grow is equal to: A. 35 percent of the internal rate of growth. B. 65 percent of the internal rate of growth. C. the internal rate of growth. D. the sustainable rate of growth. E. 65 percent of the sustainable rate of growth. - ANSWER the sustainable rate of growth. A flow of unending and equal payments that occur at regular intervals of time is called a(n):
A. perpetuity payments vary with the rate of inflation. B. perpetuity payments vary with the market rate of interest. C. there are variable perpetuity payments and level annuity payments D. the perpetuity payments do not ever stop. E. the annuity payments are made over unpredictable time intervals. - ANSWER perpetuity payments do not ever stop. You would be making a smart decision if you decide to: A. Use effective rate to make investment decisions but use annual percentage rates for loan decisions. B. Assume that all the loans and investments are on simple interest. C accept the loan with the lower effective annual rate rather than the loan with the lower annual percentage rate. D invest in an account paying 6 percent, compounded quarterly, rather than an account paying 6 percent, compounded monthly. E. Disregard the effective rates and focus on the annual percentage rates for all transactions. - ANSWER Accept the loan with the lower effective annual rate, rather than the loan with the lower annual percentage rate. You are the beneficiary of a life insurance policy. The insurance company offers two options for receiving the proceeds: a lump sum of $50,000 today or payments of $550 a month for ten years. If you can earn 6 percent, compounded monthly, which option should you take and why? A. You should accept the lump sum because the payments are only worth $49,540. today. B. You should accept the payments because they are worth $51,523.74 today. C. You should accept the payments because they are worth $53,737.08 today. D. You should accept the $50,000 because the payments are only worth $49,757. today. E. You should accept the $50,000 because the payments are only worth $48,808. today. - ANSWER You should accept the lump sum because the payments are only worth
$49,540.40 today. Denise will receive annual payments of $10,000 for the next 25 years. The discount rate is 6.8 percent. What is the difference in the present value of these payments if they are paid at the beginning of each year rather than at the end of each year? A. $8, B. $9, C. $9, D. $8, E. $8,850 - ANSWER $8, You borrow $12,600 to purchase a car. The terms of the loan call for monthly payments for five years at an interest rate of 4.65 percent, compounded monthly. What is the amount of each payment? A. $253. B. $243. C. $230. D. $235. E. $233.04 - ANSWER $235. Theo is depositing $1,300 today in an account with an expected rate of return of 8. percent. If he deposits an additional $3,200 two years from today, and $4,000 three years from today, what will his account balance be ten years from today? A. $14,044. B. $16,412. C. $15,182.
