MGF301 F24 Practice Midterm Questions (10/11/2024) PDF

MGF301 F24 Prof. Wu- Practice for Midterm – Qualitative & Definitional Questions – v2 10/11/2024 Sample questions for midterm—Use this as a study guide to help you prepare for midterm. 1. The accounting statement that measures the revenues, expenses, and net income of a firm over a period is ca...

MGF301 F24 Prof. Wu- Practice for Midterm – Qualitative & Definitional Questions – v2 10/11/2024 Sample questions for midterm—Use this as a study guide to help you prepare for midterm. 1. The accounting statement that measures the revenues, expenses, and net income of a firm over a period is called the: A) statement of cash flows. B) income statement. C) equity shareholder statement. D) balance sheet. 2. The financial statement that summarizes a firm's accounting value as of a particular date is called the: A) income statement. B) cash flow statement. C) equity shareholder statement. D) balance sheet. 3. Which one of the following statements concerning the balance sheet is correct? A) Total assets equal total liabilities minus total equity. B) Net working capital is equal total assets minus total liabilities. C) Assets are listed in descending order of liquidity. D) Current assets are equal to total assets minus net working capital. 4. Highly liquid assets: A) appear on the right side of a balance sheet. B) generally, produce a high rate of return. C) can be sold quickly at close to full value. D) include all intangible assets. 5. Net working capital is defined as: A) total assets minus total liabilities. B) the value of a firm's current assets. C) current assets minus current liabilities. D) available cash minus current liabilities. 6. Over the past year, a firm decreased its current assets and increased its current liabilities. As a result, the firm's net working capital: A) had to increase. B) had to decrease. C) remained constant. D) was unaffected as the changes occurred in the firm's current accounts. Page 1 of 20 MGF301 F24 Prof. Wu- Practice for Midterm – Qualitative & Definitional Questions – v2 10/11/2024 7. Paid-in surplus is classified as: A) owners’ equity. B) net working capital. C) a current asset. D) long-term debt. 8. Shareholders’ equity is best defined as: A) the net liquidity of a firm. B) the residual value of a firm. C) positive net working capital. D) the cumulative profits of a firm over time. 9. A company has negative value for “addition to retained earnings”, A) it goes bankruptcy B) its retained earnings decrease C) it has negative equity balance D) its source of funds is mainly from leverage 10. Net income increases when: A) fixed costs increase. B) depreciation increases. C) revenue increases. D) dividends cease. 11. Which one of these is correct? A) Depreciation has no effect on taxes. B) Interest paid is a non-cash expense. C) Taxable income must be a positive value. D) Net income is distributed either to dividends or retained earnings. 12. Which one of the following items is not considered for EBIT? A) Revenue B) Taxes C) Depreciation expenses D) Cost of goods sold E) Dividend paid Page 2 of 20 MGF301 F24 Prof. Wu- Practice for Midterm – Qualitative & Definitional Questions – v2 10/11/2024 13. Market values: A) reflect expected selling prices given the current economic situation. B) are affected by the accounting methods selected. C) are equal to the initial cost minus the depreciation to date. D) are equal to the greater of the initial cost or the current expected sales value. 14. Operating cash flow is defined as: A) a firm's net profit over a specified period. B) the cash that a firm generates from its normal business activities. C) a firm's operating margin. D) the cash that is generated and added to retained earnings. 15. Which one of the following has nearly the same meaning as free cash flow? A) Net income B) Cash flow from assets C) Operating cash flow D) Cash flow to shareholders 16. Cash flow to creditors is defined as: A) interest paid minus net new borrowing. B) interest paid plus net new borrowing. C) operating cash flow minus net capital spending minus the change in net working capital. D) dividends paid plus net new borrowing. 17. Negative cash flow to creditors indicates: A). The company's net new borrowing is greater than the interest paid. B). The company has decreased its long-term debt. C). The company has gone bankrupt. D). There is an increase in the company’s interest expenses. 18. Cash flow to stockholders is defined as: A) cash flow from assets plus cash flow to creditors. B) dividends paid plus the change in retained earnings. C) dividends paid minus net new equity raised. D) net income minus the addition to retained earnings. Page 3 of 20 MGF301 F24 Prof. Wu- Practice for Midterm – Qualitative & Definitional Questions – v2 10/11/2024 19. Negative cash flow to stockholders indicates: A). The company has gone bankrupt. B). The company's net new equity raised is greater than the dividend paid. C). The company has decreased its number of share outstanding. D). There is a decrease in the company’s retained earnings. 20. A negative cash flow to stockholders indicates a firm: A) had a net loss for the year. B) had a positive cash flow to creditors. C) paid dividends that exceeded the amount of the net new equity. D) received more from selling stock than it paid out to shareholders. 21. Common-size financial statements present all balance sheet account values as a percentage of: A) sales. B) total equity. C) total assets. D) last year's account value. 22. Which one of the following is the maximum growth rate that a firm can achieve without any additional external financing? A) DuPont rate B) External growth rate C) Sustainable growth rate D) Internal growth rate 23. The sustainable growth rate is defined as the maximum rate at which a firm can grow given which of the following conditions? A) No new external financing of any kind B) New debt and external equity in equal proportions C) New debt and external equity, provided the debt-equity ratio remains constant D) No new external equity and a constant debt-equity ratio 24. Jacky is the owner of a corner store. Which ratio should he compute if he wants to know how long the store can pay its bills given its current level of cash and accounts receivable? Assume all receivables are collectible when due. A) Current ratio B) Cash coverage ratio C) Cash ratio D) Quick ratio Page 4 of 20 MGF301 F24 Prof. Wu- Practice for Midterm – Qualitative & Definitional Questions – v2 10/11/2024 25. ABC company just hired a new chief financial officer. To get a feel for the company, she wants to compare the firm's sales and costs over the past three years to determine if any trends are present and also determine where the firm might need to make changes. Which one of the following statements will best suit her purposes? A) Income statement B) Balance sheet C) Common-size income statement D) Common-size balance sheet 26. If a firm has an inventory turnover of 15, the firm: A) sells its entire inventory every 15 days. B) stocks its inventory only once every 15 days. C) delivers inventory to its customers every 15 days. D) sells its entire inventory an average of 15 times each year. 27. Which one of the following is a measure of long-term solvency? A) Price-earnings ratio B) Profit margin C) Cash coverage ratio D) Receivables turnover 28. Financial leverage: A) is equal to the market value of a firm divided by the firm's book value. B) is inversely related to the level of debt. C) is the ratio of a firm's revenues to its fixed expenses. D) increases the potential return to the stockholders. 29. The equity multiplier is equal to: A) one plus the debt-equity ratio. B) one plus the total asset turnover. C) total debt divided by total equity. D) total equity divided by total assets. 30. Which one of the following best indicates that a firm is utilizing its total assets more efficiently than it has in the past? A) An increase in the total asset turnover B) An increase in days' sales in receivables C) A decrease in the profit margin D) A decrease in the inventory turnover rate Page 5 of 20 MGF301 F24 Prof. Wu- Practice for Midterm – Qualitative & Definitional Questions – v2 10/11/2024 31. ABC Company generates $0.97 in sales for every $1 invested in total assets. Which one of the following ratios would reflect this relationship? A) Equity multiplier B) Profit margin C) Return on assets D) Total asset turnover 32. Which of the following is most likely true about Inventory turnover ratio? A) A high inventory turnover ratio suggests slow-moving inventory. B) It is fair to compare inventory turnover ratio between Walmart and Tiffany & Co as long as it is in the same fiscal year. C) A high inventory turnover ratio may lead to stockouts, as inventory is sold too quickly. D) Low inventory turnover ratios indicate fast inventory movement. 33. All else held constant, which one of the following will decrease if a firm increases its net income? A) Return on assets B) Price-earnings ratio C) Profit margin D) Return on equity 34. Which one of these statements is true concerning the price-earnings (PE) ratio? A) A high PE ratio may indicate that a firm is expected to grow significantly. B) A PE ratio of 16 indicates that investors are willing to pay $1 for every $16 of current earnings. C) PE ratios are unaffected by the accounting methods employed by a firm. D) The PE ratio is classified as a profitability ratio. 35. Which ratio was primarily designed to assess firms with negative earnings? A) Price-sales ratio B) Market-to-book ratio C) ROE D) ROA 36. If a firm has a 100% dividend payout ratio, then the internal growth rate of the firm is: A) zero percent. B) 100 percent. C) equal to the ROA. D) infinite. Page 6 of 20 MGF301 F24 Prof. Wu- Practice for Midterm – Qualitative & Definitional Questions – v2 10/11/2024 37. The DuPont identity can be used to help a financial manager determine the: 1. degree of financial leverage used by a firm. 2. operating efficiency of a firm. 3. utilization rate of a firm's assets. 4. rate of return on a firm's assets. A) 2 and 3 only B) 2, 3, and 4 only C) 1, 2, and 3 only D) 1, 2, 3, and 4 38. The DuPont identity can help managers answer which of the following questions related to a company's operations: 1. How many dollars of assets have been acquired per dollar in shareholders' equity? 2. How many sales are being generated per dollar of assets? 3. Can the company meet its current debt obligations due within a year? 4. How much net profit is being generated per dollar of sales? A) 2 and 3 only B) 2, 3, and 4 only C) 1, 2, and 4 only D) 1, 2, 3, and 4 39. Which of the following is true regarding the internal growth rate? A) It represents the maximum possible growth rate a firm can achieve without external equity financing while maintaining a constant debt-equity ratio. B) It represents the maximum possible growth rate a firm can achieve without external financing of any kind. C) It represents the potential growth of the company based only on internal management controls. D) It represents the potential growth of the company if more common stock is issued and sold. 40. If a firm only relies on internal financing, then through time, A) Its total debt ratio will increase B) Its total debt ratio will decline C) Its dividend payout ratio will decline. D) Its net working capital will increase Page 7 of 20 MGF301 F24 Prof. Wu- Practice for Midterm – Qualitative & Definitional Questions – v2 10/11/2024 41. Jamie is investing $5 today at 7 percent interest so he can have $35 later. This $35 is referred to as the: A) true value. B) future value. C) present value. D) discounted value. 42. Jamie earned $14 in interest on her savings account last year. She has decided to leave the $14 in her account so that she can earn interest on the $14 this year. The interest earned on last year’s interest earnings is called: A) simple interest. B) accrued interest. C) interest on interest. D) discounted interest. 43. James had $6,270 in his savings account at the beginning of this year. This amount includes both the $6,000 he originally invested at the beginning of last year plus the $270 he earned in interest last year. This year, James earned a total of $282.15 in interest even though the interest rate on the account remained constant. This $282.15 is best described as: A) simple interest. B) interest on interest. C) discounted interest. D) compound interest. 44. By definition, a bank that pays simple interest on a savings account will pay interest: A) only at the beginning of the investment period. B) on interest. C) only on the principal amount originally invested. D) on both the principal amount and the reinvested interest. 45. Jamie needs to invest $5,318 today for her savings account to be worth $8,000 six years from now. Which one of the following terms refers to the $5,318? A) Present value B) Compound value C) Future value D) Factor value Page 8 of 20 MGF301 F24 Prof. Wu- Practice for Midterm – Qualitative & Definitional Questions – v2 10/11/2024 46. Jamie is investing $3,333 today at 3 percent annual interest for three years. Which one of the following will increase the future value of that amount? A) Shortening the investment time period B) Paying interest only on the principal amount C) Paying simple interest rather than compound interest D) Increasing the interest rate 47. James wants to invest $15,000 for 7 years. Which one of the following rates will provide him with the largest future value? A) 3 percent interest, compounded annually B) 2 percent interest, compounded annually C) 4 percent simple interest D) 4 percent interest, compounded annually 48. Jamie needs to borrow $5,500 for four years. The loan will be repaid in one lump sum at the end of the loan term. Which one of the following interest rates is best for Jamie? A) 6.5 percent simple interest B) 6.5 percent interest, compounded annually C) 6.75 percent interest, compounded annually D) 6.80 percent interest, compounded annually 49. The future value of a lump-sum investment will increase if you: A) decrease the interest rate. B) decrease the number of compounding periods. C) increase the time period. D) decrease the lump-sum amount. 50. All else held constant, the future value of a lump-sum investment will decrease if the: A) amount of the lump-sum investment increases. B) interest earned is reinvested in the investment. C) interest rate increases. D) interest is changed to simple interest from compound interest. 51. Given an interest rate of zero percent, the future value of a lump sum invested today will always: A) remain constant, regardless of the investment time period. B) decrease if the investment time period is shortened. C) decrease if the investment time period is lengthened. D) be equal to $0. E) be infinite in value. Page 9 of 20 MGF301 F24 Prof. Wu- Practice for Midterm – Qualitative & Definitional Questions – v2 10/11/2024 52. Which one of the following will increase the present value of a lump-sum future amount to be received in 15 years? A) An increase in the time period B) An increase in the interest rate C) A decrease in the future value D) A decrease in the interest rate E) Changing to compound interest from simple interest 53. Jamie deposits $5,000 into an account that pays 2 percent interest, compounded annually. At the same time, James deposits $5,000 into an account paying 3.5 percent interest, compounded annually. At the end of three years: A) both Jamie and James will have accounts of equal value. B) James will earn exactly twice the amount of interest that Jamie earns. C) James will have a larger account value than Jamie will. D) Jamie will have more money saved than James. 54. South Bank pays 2.5 percent interest, compounded annually, on its savings accounts. Northern Bank pays 2.5 percent simple interest on its savings accounts. You want to deposit sufficient funds today so that you will have $1,500 in your account 2 years from today. The amount you must deposit today: A) is the same regardless of which bank you choose because they both pay the same rate of interest. B) is the same regardless of which bank you choose because the time period is the same for both banks. C) will be greater if you invest with South Bank. D) will be greater if you invest with Northern Bank. 55. The present value of a lump-sum future amount: A) increases as the interest rate decreases. B) decreases as the time period decreases. C) is directly related to the interest rate. D) is directly related to the time period. 56. James is buying a car and will finance it with a loan that requires monthly payments of $265 for the next four years. His car payments can be described by which one of the following terms? A) Perpetuity B) Annuity C) Lump sum D) Present value Page 10 of 20 MGF301 F24 Prof. Wu- Practice for Midterm – Qualitative & Definitional Questions – v2 10/11/2024 57. Jamie just won a scholarship that will pay her $500 a month, starting today, and continuing for the next 48 months. Which one of the following terms best describes these scholarship payments? A) Ordinary annuity B) Annuity due C) Perpetuity D) Ordinary perpetuity 58. The James Brothers recently established a trust fund that will provide annual scholarships of $12,000 indefinitely with the first scholarship one year from today. These annual scholarships are: A) an ordinary annuity. B) an annuity due. C) a perpetuity. D) a perpetuity due. 59. Jamie pays 0.85 percent interest monthly on her credit card account. When the interest rate on that debt is expressed as if it were compounded annually, the rate would be referred to as the: A) annual percentage rate. B) quoted rate. C) stated rate. D) effective annual rate. 60. James pays 1 percent per month interest on his credit card account. When his monthly rate is multiplied by 12, the resulting answer is referred to as the: A) annual percentage rate. B) compounded rate. C) effective annual rate. D) simple rate. 61. All else held constant, the present value of an annuity will decrease if you: A) increase the annuity's future value. B) increase the payment amount. C) decrease the discount rate. D) decrease the annuity payment. Page 11 of 20 MGF301 F24 Prof. Wu- Practice for Midterm – Qualitative & Definitional Questions – v2 10/11/2024 62. Which statement is true? A) All else equal, an ordinary annuity is more valuable than an annuity due. B) All else equal, a decrease in the number of payments increases the future value of an annuity due. C) An annuity with payments at the beginning of each period is called an ordinary annuity. D) All else equal, an increase in the discount rate decreases the present value and increases the future value of an annuity. 63. Which one of these is a perpetuity? A) Retirement pay of $2,200 a month for 20 years B) Lottery winnings of $1,000 a month for life C) Car payment of $260 a month for 60 months D) Rental payment of $800 a month for one year 64. Which one of the following statements concerning annuities is correct? A) The present value of an annuity is equal to the cash flow amount divided by the discount rate. B) An annuity due has payments that occur at the beginning of each time period. C) The future value of an annuity decreases as the interest rate increases. D) If unspecified, you should assume an annuity is an annuity due. 65. Perpetuities have: A) equal payments and an infinite life. B) equal payments and a set number of equal payment periods. C) less value than comparable annuities. D) no application in today’s world. 66. All else held constant, the future value of an annuity will increase if you: A) decrease both the interest rate and the time period. B) increase the time period. C) decrease the payment amount. D) decrease the interest rate. 67. All else held constant, which one of the following features distinguishes an ordinary annuity from an annuity due? A) Number of equal payments B) Frequency of the payments C) Annuity interest rate D) Timing of the annuity payments Page 12 of 20 MGF301 F24 Prof. Wu- Practice for Midterm – Qualitative & Definitional Questions – v2 10/11/2024 68. You are comparing two annuities. Annuity A pays $100 at the end of each month for 10 years. Annuity B pays $100 at the beginning of each month for 10 years. The rate of return on both annuities is 8 percent. Which one of the following statements is correct given this information? A) The present value of Annuity A is equal to the present value of Annuity B. B) Annuity B will pay one more payment than Annuity A will. C) Annuity B has both a higher present value and a higher future value than Annuity A. D) Annuity A has a higher future value but a lower present value than Annuity B. 69. You are comparing three investments, all of which pay $100 a month and have an interest rate of 8 percent. One is ordinary annuity, one is an annuity due, and the third investment is a perpetuity. Which one of the following statements is correct given these three investment options? A) To be the perpetuity, the payments must occur on the first day of each monthly period. B) The ordinary annuity would be more valuable than the annuity due if both had a life of 10 years. C) The present value of the perpetuity must be higher than the present value of either the ordinary annuity or the annuity due. D) The present value of all three investments must be equal. 70. Which one of the following has the highest effective annual rate? A) 6 percent compounded monthly B) 6 percent compounded semiannually C) 6 percent compounded quarterly D) 6 percent compounded daily 71. Assume all else is equal. When comparing savings accounts, you should select the account that has the: A) highest annual percent rate. B) highest stated rate. C) lowest effective annual rate. D) highest effective annual rate. 72. A credit card has an annual percentage rate of 12.9 percent and charges interest monthly. The effective annual rate on this account: A) will be less than 12.9 percent. B) is 12.9 percent. C) can either be greater than or equal to 12.9 percent. D) will be greater than 12.9 percent. Page 13 of 20 MGF301 F24 Prof. Wu- Practice for Midterm – Qualitative & Definitional Questions – v2 10/11/2024 73. Which one of the following statements is correct? A) The APR is equal to the EAR for a loan that charges interest monthly. B) The EAR is always greater than the APR. C) The APR is the best measure of the actual rate you are paying on a loan. D) The EAR, rather than the APR, should be used to compare both investment and loan options. 74. A loan has an APR of 8.5 percent and an EAR of 8.5 percent. Given this, the loan must: A) have a one-year term. B) have a zero percent interest rate. C) charge interest annually. D) require the accrued interest be paid in full with each monthly payment. 75. Generally speaking, bonds issued in the U.S. pay interest on a(n) __________ basis. A) annual B) semiannual C) quarterly D) monthly 76. What condition must exist if a bond’s coupon rate is to equal both the bond’s current yield and its yield to maturity? Assume the market rate of interest for this bond is positive. A) The clean price of the bond must equal the bond’s dirty price. B) The bond must be a zero-coupon bond and mature in exactly one year. C) The market price must exceed the par value by the value of one year’s interest. D) The bond must be priced at par. 77. A zero-coupon bond A). is free of interest rate risk B). has zero yield-to-maturity C). is always price at par D). does not pay coupon 78. The only difference in Treasury bonds, Treasury notes, and Treasury bills is A). The issuer B). The coupon rate C). The time to maturity D). The default risk Page 14 of 20 MGF301 F24 Prof. Wu- Practice for Midterm – Qualitative & Definitional Questions – v2 10/11/2024 79. On which one of the following dates is the principal amount of a semiannual coupon bond repaid? A). A portion of the principal is repaid on each coupon date. B). The entire bond is repaid on the issue date. C). The entire bond is repaid on the maturity date. D). Half of the principal is repaid evenly over each coupon period with the remainder paid on the maturity date. 80. When a bond's yield to maturity is less than the bond's coupon rate, the bond: A). had to be recently issued. B). is selling at a premium. C). has reached its maturity date. D). is priced at par. E). is selling at a discount. 81. The written agreement that contains the specific details related to a bond issue is called the bond: A). debenture. B). indenture. C). registration statement. D). issue paper. 82. The yield to maturity on a discount bond is: A). equal to the current yield but greater than the coupon rate. B). greater than both the current yield and the coupon rate. C). less than the current yield but greater than the coupon rate. D). less than both the current yield and the coupon rate. 83. The current yield on a bond is equal to the annual interest divided by the: A). maturity value. B). face amount. C). current market price. D). current par value. 84. Which one of the following statements is true? A). The current yield on a par value bond will exceed the bond's yield to maturity. B). The yield to maturity on a premium bond exceeds the bond's coupon rate. C). A premium bond has a current yield that exceeds the bond's coupon rate. D). A discount bond has a coupon rate that is less than the bond's yield to maturity. Page 15 of 20 MGF301 F24 Prof. Wu- Practice for Midterm – Qualitative & Definitional Questions – v2 10/11/2024 85. What condition must exist if a bond’s coupon rate is to equal both the bond’s current yield and its yield to maturity?. A). The bond must be risk-free. B). The bond must be priced at par. C). The bond must be a zero-coupon bond. D). The bond must have a clean price equal to dirty price. 86. Which one of the following bonds is the most sensitive to changes in market interest rates (the greatest interest rate risk)? A). 5-year, zero coupon B). 5-year, 5 percent coupon C). 10-year, zero coupon D). 10-year, 5 percent coupon 87. Of these choices, a risk-adverse investor who prefers to minimize interest rate risk is most apt to invest in: A). 20-year, 6 percent coupon bonds. B). 20-year, zero coupon bonds. C). 2-year, 7 percent coupon bonds. D). 3-year, zero coupon bonds. 88. Which of the following description is incorrect about a premium bond? A). Its market price is larger than the par value B). Its coupon rate is larger than the yield-to-maturity C). Its current yield is larger than the yield-to-maturity D). Assume constant discount rate, the bond price next year will be higher than it is today. 89. Which of the following description is correct about a discount bond? A). Its market price is larger than the par value B). Its coupon rate is larger than the yield-to-maturity C). Its current yield is larger than the yield-to-maturity D). Assume constant discount rate, the bond price next year will be higher than it is today. 90. A bond dealer sells at the __________ price and buys at the __________ price. A). clean; dirty B). dirty; clean C). bid; asked D). asked; bid Page 16 of 20 MGF301 F24 Prof. Wu- Practice for Midterm – Qualitative & Definitional Questions – v2 10/11/2024 91. The price at which an investor can purchase in the bond market is called the __________ price. A). asked B). coupon C). face D). bid 92. A bond trader just purchased and resold a bond. The amount of profit earned by the trader from this purchase and resale is referred to as the: A). market yield. B). bid-ask spread. C). current yield. D). bond premium. 93. Which one of the following is the quoted price of a bond? A). Invoice value B). Full price C). Dirty price D). Clean price 94. Which one of the following is the price that an investor pays to purchase an outstanding bond? A). Dirty price B). Quoted value C). Bid price D). Clean price 95. What is the price of a $1,000 face value bond if the quoted price is 102.1? (Note: I consider it a conceptual not a computational question) A). $102.10 B). $1,002.10 C). $1,020.01 D). $1,020.10 E). $1,021.00 96. The primary purpose of bond covenants in an indenture is to: A). meet regulatory requirements. B). define the bond’s repayment terms. C). protect the bondholders. D). protect the bond issuer from lawsuits. Page 17 of 20 MGF301 F24 Prof. Wu- Practice for Midterm – Qualitative & Definitional Questions – v2 10/11/2024 97. A protective covenant in an indenture: A). protects the borrower from unscrupulous practices by the lender. B). guarantees the interest and principal payments will be paid in full on a timely basis. C). limits the actions of the borrower. D). guarantees the market price of a bond will never be less than par value. 98. Which one of the following is correct? A). Bondholders have voting power. B). Subordinated debt is given preference to senior debt in the event of default. C). Corporate bonds are typically unsecured debt. D). The corporation’s interest payment on bond is not tax deductible. 99. Based on the quotes in the previous question, how much do you pay for the bond if the face value is $1,000? (Note: I consider it a conceptual not a computational question) A). $94.244 B). $94.262 C). $944,24 D). $942,62 100. Municipal bonds are: A). Entirely risk-free. B). tax-advantageous for high income investors. C). issued by federal, state, and local governmental entities. D). zero coupon bonds. E). safer than Treasury bonds 101. Based on the quotes below, what is the yield-to-maturity of the bond? Maturity Coupon Bid Asked Change in Asked Asked yield 11/15/2050 1.625 94.424 94.262 0.09 1.852 A). 1.625% B). 0.090% C). 1.852% D). 0.976% 102. ABC Company has $48,000 in current assets and $39,000 in current liabilities. Decisions related to these accounts are referred to as: A) capital structure decisions. B) capital budgeting decisions. C) working capital management. D) operating management. Page 18 of 20 MGF301 F24 Prof. Wu- Practice for Midterm – Qualitative & Definitional Questions – v2 10/11/2024 103. Which one of the following is a working capital decision? A) How should the firm raise additional capital to fund its expansion? B) What debt-equity ratio is best suited to the firm? C) Should the firm borrow money for five or for ten years? D) How much cash should the firm keep in reserve? 104. Which one of the following is a capital structure decision? A) Determining the optimal inventory level B) Establishing the preferred debt-equity level C) Selecting new equipment to purchase D) Setting the terms of sale for credit sales 105. Working capital management includes which one of the following? A) Deciding which new projects to accept B) Deciding whether to purchase a new machine or fix a currently owned machine C) Determining which customers will be granted credit D) Determining how many new shares of stock should be issued 106. The daily financial operations of a firm are primarily controlled by managing the: A) total debt level. B) working capital. C) capital structure. D) capital budget. E) long-term liabilities. 107. One advantage of the corporate form of organization is the: A) unlimited liability for its shareholders. B) double taxation of revenues. C) ability to access to capital market and raise larger capital D) ease of formation compared to other organizational forms. 108. The goal of financial management is to increase the: A) future value of the firm's total equity. B) book value of equity. C) dividends paid per share. D) current market value per share. E) number of shares outstanding. Page 19 of 20 MGF301 F24 Prof. Wu- Practice for Midterm – Qualitative & Definitional Questions – v2 10/11/2024 109. An agency problem is most apt to occur when: A) a firm encounters a period of stagnant growth. B) a firm downsizes. C) the management and ownership of a firm is separate. D) the firm’s owner is also its key manager. 110. One example of a primary market transaction would be the: A) sale of 100 shares of stock by Jamie to her best friend. B) purchase by James of 5,000 shares of stock from his father. C) sale of 1,000 shares of newly issued stock by ABC Company to general public investors. D) sale by James of 50,000 shares of stock to his brother. 111. The issuer of a security must be involved in all _____________ transactions involving that security. A) secondary market B) over-the-counter C) dealer market D) primary market 112. You contacted your stock broker this morning and placed an order to sell 100 shares of a stock that trades on the NYSE. This transaction will occur in the: A) dealer market. B) over-the-counter market. C) secondary market. D) primary market. 113. Which one of the following parties can sell (issue) shares of ABC stock in the primary market? A) ABC company B) Any institutional shareholder C) Any private individual shareholder D) Only officers and directors of ABC Company Page 20 of 20