Financial Management Mc Chapters 1-9

101 Questions | Total Attempts: 272

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Financial Management Quizzes & Trivia

Questions and Answers
  • 1. 
    Which of the following organizations is not a business?
    • A. 

      A university hospital.

    • B. 

      A record store.

    • C. 

      A shipping company.

    • D. 

      A tax consultancy firm.

  • 2. 
    Which of the following activities is not concerned with efficiency?
    • A. 

      Modifying a product to tailor it to costumers wishes.

    • B. 

      Purchasing from a selected group of suppliers to achieve bigger discounts.

    • C. 

      Sending sales invoices more quickly.

    • D. 

      Modifying a product to shorten processing times.

  • 3. 
    Which of the following statements is correct?
    • A. 

      Extending discount to reliable costumers is a business tactic that can secure maximum profit.

    • B. 

      The supply of public-sector goods is regulated through the market mechanism.

    • C. 

      Non-profit organizations are economically independent, because they rely on contributions, donations, subsidies, legacies and so forth.

    • D. 

      Companies tend to find it more difficult to transfer to other activities than non-profit organizations.

  • 4. 
    Which of the following statements is incorrect?
    • A. 

      It is more difficult to measure the effectiveness of profit-based businesses than non-profit institutions.

    • B. 

      Non-profit organizations always strive to operate as efficiently as possible.

    • C. 

      Public-sector goods and services are provided by the government, because market mechanisms are not suitable for these goods and services.

    • D. 

      A negative financial result for a non-profit organization does not necessarily imply that the organization has performed poorly.

  • 5. 
    Which of the following types of information is not likely to be included in a mission statement?
    • A. 

      The expect profit for next year.

    • B. 

      The environment credentials of the business.

    • C. 

      The main product groups offered by the business.

    • D. 

      The groups of participants for which the business wants to improve the level of prosperity.

  • 6. 
    Which of the following statements is incorrect?
    • A. 

      Service business tend to have relatively low labour costs.

    • B. 

      A service business purchases hardly any raw materials.

    • C. 

      With the mass production products are usually manufactured for stock and not to order.

    • D. 

      The production process pf a trading company can be a conversion according to place.

  • 7. 
    The manufacturing of a car in a saloon and a cabriolet versions is called:
    • A. 

      Mass production.

    • B. 

      Batch Production.

    • C. 

      Job production.

  • 8. 
    Statement 1: The wholesale trade is ' B2B ' Statement 2: Wholesale trade is seasonal products is important for reducing the time between production and consumption.
    • A. 

      Both statements are correct.

    • B. 

      Both statements are incorrect

    • C. 

      Statement 1 is correct, statement 2 is incorrect.

    • D. 

      Statement 1 is incorrect, statement 2 is correct.

  • 9. 
    Which of the following businesses is not obliged to publish financial statements?
    • A. 

      Brown and son partnership.

    • B. 

      Johnston Ltd.

    • C. 

      Harvey PLC.

    • D. 

      Eastman LLC.

  • 10. 
    The Torville & Dean partnership has failed to repay a bank loan of 100.000 Torville has a 40% share, Dean a 60% share in the partnership. The bank is entitled to demand that torville pays:
    • A. 

      € 100,000,-

    • B. 

      € 40,000,-

    • C. 

      € 50,000,-

    • D. 

      Nothing.

  • 11. 
    A partnership has two general partners and one limited partner. General Partner A has invested 100.000 in the partnership, general partner B 50.000 and limited partner C 450.000. The partnership has a total debt of 1 Million. Partner A is liable for:
    • A. 

      € 1 Million.

    • B. 

      € 100,000,-

    • C. 

      € 500,000,-

    • D. 

      € 550,000,-

  • 12. 
    Which of the following statements is incorrect?
    • A. 

      A sole proprietorship is subject to corporate tax.

    • B. 

      Under the imputation system, corporate tax is treated as a prepayment of income tax levies on the shareholders.

    • C. 

      The 'company tax burden balance' aims at striking a balance between companies that are legal entities and those that are not.

    • D. 

      The partners in a partnership are subject to income tax.

  • 13. 
    XYZ Ltd records a profit of 400.000 and distributes half of its profit after taxation to shareholders. The rate of corporate tax is 20% and the rate of income tax is 45%. Under the classical system, the total amount in taxes paid is:
    • A. 

      € 152,000,-

    • B. 

      € 72,000,-

    • C. 

      € 224,000,-

    • D. 

      € 80,000,-

  • 14. 
    Which of the following statements is incorrect?
    • A. 

      A limited partner in a partnership is liable for the partnership's debts.

    • B. 

      LLCs and PLCs are both joint-stock companies.

    • C. 

      Shareholders are not liable for the repayment of a company's debts.

    • D. 

      Only public limited companies can have their shares traded at the stock exchange.

  • 15. 
    A Dutch wholesale trader purchases 1.000 radios at a unit price of 20 euros. Excluding 19% VAT. The trader sells 700 radios to Dutch retailers at selling price of 40 euros. The Dutch wholesale trader pays the Dutch tax authorities an amount of: 
    • A. 

      € 190,-

    • B. 

      € 2,470,-

    • C. 

      € 3,520,-

    • D. 

      € 4,210,-

  • 16. 
    An industry comprises:
    • A. 

      Competing businesses.

    • B. 

      Businesses operating at the same stage of the production process.

    • C. 

      Businesses operating at all stages of the production process of a single product.

    • D. 

      Businesses operating in the same market sector.

  • 17. 
    The owner of a do-it-yourself shop affiliates with a chain, thereby being allowed to call his shop hobby plus. The owner pays a fee on the basis of his turnover. This is:
    • A. 

      Franchising.

    • B. 

      A merger.

    • C. 

      A takeover.

    • D. 

      Cartelization.

  • 18. 
    When businesses enter into cartel agreement, their aim is:
    • A. 

      To have a stronger bargaining position with regard to the trade unions.

    • B. 

      To restrict competition.

    • C. 

      To buy out competitors.

    • D. 

      To start a new joint-stock company.

  • 19. 
    Cartelization will predominantly occur in a:
    • A. 

      Oligopoly.

    • B. 

      Monopoly.

    • C. 

      Competitive Market.

    • D. 

      All of the above mentioned.

  • 20. 
    Investments decisions are part of the discipline of: 
    • A. 

      Finance.

    • B. 

      Management accounting.

    • C. 

      Financial accounting.

    • D. 

      Bookkeeping.

  • 21. 
    In which of the following situations is investment caused automatically by the production process?
    • A. 

      Provision of trade credit on the sale of goods.

    • B. 

      Purchase of a new computer system.

    • C. 

      Lease of trucks.

    • D. 

      Sale of company premises.

  • 22. 
    Which of the following is not part of the discipline of management accounting?
    • A. 

      Cost calculations.

    • B. 

      Designing a budgeting system.

    • C. 

      Disclosure of financial figures.

    • D. 

      Make or buy decisions.

  • 23. 
    2.4 Which of the following is statements is correct?
    • A. 

      In financial accounting a company's management may resort to creative accounting.

    • B. 

      The legal form of a business is not important to financial accounting.

    • C. 

      Financial accounting is focused on the future.

    • D. 

      Financial accounting only has an accountability function.

  • 24. 
    Which statement is correct?
    • A. 

      Company law influences the discipline of finance.

    • B. 

      Organizational behavior influences the discipline of finance.

    • C. 

      Management accounting provides basic data for bookkeeping.

    • D. 

      Marketing is part of the discipline of management accounting.

  • 25. 
    Tax law mainly applies to:
    • A. 

      Financial accounting.

    • B. 

      Finance.

    • C. 

      Management accounting.

    • D. 

      Organizational behavior.

  • 26. 
    Designing a budgeting system is the responsibility of:
    • A. 

      The controller.

    • B. 

      The bookkeeper.

    • C. 

      The internal accountant.

    • D. 

      The public accountant.

  • 27. 
    Which of the following statements is correct:
    • A. 

      Giving tax advice is one of the services provided by accountancy firms.

    • B. 

      Certified public accountants provide services only to big businesses.

    • C. 

      All accountants work in accountancy firms.

    • D. 

      All businesses are obliged to have a certified public accountant audit the annual financial statements.

  • 28. 
    Which of the following statements are false?
    • A. 

      Provision of debt is riskier than provision of equity.

    • B. 

      Share capital is classified as equity.

    • C. 

      Liabilities are temporary capital.

    • D. 

      Creditors precede owners with regard to payback at bankruptcy.

  • 29. 
    An entrepreneur purchases a van and pays €10.000 in cash. He also purchases trade good for €5000 from a wholesaler, to be paid in one month. A bank provides a €3000 loan. The capital deficit is provided by the owner’s savings. At the start of the company:
    • A. 

      Total assets are €15,000 and owner’s equity is €7,000.

    • B. 

      Total assets are €10,000 and owner’s equity is €7,000.

    • C. 

      Total assets are €15,000 and owner’s equity is €8,000.

    • D. 

      Total assets are €10,000 and owner’s equity is €8,000.

  • 30. 
    At the beginning of 2010 a machine is purchased with an estimated lifespan of five years.  .
    • A. 

      In 2010 expenditure and costs are incurred; the amounts differ.

    • B. 

      In 2010 expenditure and costs are incurred; the amounts are the same.

    • C. 

      In 2010 only expenditure is incurred.

    • D. 

      In 2010 only costs are incurred.

  • 31. 
    Which of the following events, taking place in December 2010, generates no costs in 2010.
    • A. 

      Payment of the 2011 interest on a loan.

    • B. 

      Payment of wages.

    • C. 

      Payment of fourth quarter 2010 rent.

    • D. 

      Making of a provision because of a law suit filed in 2010.

  • 32. 
    Which of the following statements is incorrect?
    • A. 

      Profit decreases as a result of private drawings.

    • B. 

      Repayment of a loan is not part of costs.

    • C. 

      Owner's equity is the difference between the value of assets and liabilities.

    • D. 

      Using too optimistic estimates in the preparation of financial statements is creative accounting.

  • 33. 
    January 2010 a company has accounts receivable of €25.000. In 2010 turnover is €150.000. The company receives payments of €165.000 from sales. Accounts receivable as at 31 December 2010 are:
    • A. 

      €10,000,-

    • B. 

      €25,000,-

    • C. 

      €40,000,-

    • D. 

      €150,000,-

  • 34. 
    • A. 

      €80,000,-

    • B. 

      €70,000,-

    • C. 

      €75,000,-

    • D. 

      €60,000,-

  • 35. 
    The total assets of the company in question 7  at 31 December 2010 are:
    • A. 

      €315,000,-

    • B. 

      €305,000,-

    • C. 

      €310,000,-

    • D. 

      €335,000,-

  • 36. 
    Which depreciation method allows depreciation in later years to be higher than depreciation in early years? 
    • A. 

      Depreciation on the basis of use.

    • B. 

      Straight line depreciation.

    • C. 

      Sum-of-the-years'-digits method.

    • D. 

      Declining balance method.

  • 37. 
    • A. 

      Depreciation on the basis of straight line depreciation is €500 higher in the third year then depreciation on the basis of sum-of-the-years’-digits.

    • B. 

      Depreciation on the basis of straight line depreciation is €500 lower in the third year then depreciation on the basis of sum-of-the-years’-digits.

    • C. 

      Depreciation on the basis of straight line depreciation is €1000 lower in the third year then depreciation on the basis of sum-of-the-years’-digits.

    • D. 

      Depreciation on the basis of straight line depreciation is €1000 higher in the third year then depreciation on the basis of sum-of-the-years’-digits.

  • 38. 
    • A. 

      In 2009 profit decreases by €20,000; in 2010 profit increases by €5,000; no consequences for profit in 2011.

    • B. 

      In 2009 profit decreases by €20.000; no consequences for profit in 2010; in 2011 profit increases by €5,000.

    • C. 

      In 2009 profit decreases by €20,000; in 2010 profit decreases by €15,000; no consequences for profit in 2011.

    • D. 

      No consequences for profit in 2009 and 2010; in 2011 profit decreases by €15,000.

  • 39. 
    At 1 January 2010 the owner’s equity in a company is €1.5 million. At 31 December 2010 the owner’s equity is €4 million. In 2010 €250.000 has been paid to shareholders as dividend. A share issue has raised €1 million new equity in 2010. The 2010 profit is
    • A. 

      €1,750,000,-

    • B. 

      €250,000,-

    • C. 

      €3,250,000,-

    • D. 

      €2,500,000,-

  • 40. 
    Which of the following statements is incorrect?
    • A. 

      Most new business are manufacturing business.

    • B. 

      In the EU there are over 20 million SMEs.

    • C. 

      One of the purposes of a business plan is to convince financiers to invest capital in the business.

    • D. 

      Good bookkeeping is necessary for a new business to survive.

  • 41. 
    Which of the following statements is incorrect?
    • A. 

      A new business will often be a public limited company.

    • B. 

      An entrepreneur can acquire additional capital by accepting a limited partner.

    • C. 

      A venture capital firm provides capital to new businesses.

    • D. 

      One of the problems for a new business in obtaining capital is that it has yet to prove itself.

  • 42. 
    A creditor who, in case of bankruptcy, does not get paid until after the other creditor are paid in full, has provided:
    • A. 

      A subordinated loan.

    • B. 

      A risk-avoiding loan.

    • C. 

      A bank loan.

    • D. 

      A government-guaranteed loan.

  • 43. 
    Which of the following does not belong to the four Ps?
    • A. 

      Planning.

    • B. 

      Place.

    • C. 

      Promotion.

    • D. 

      Product.

  • 44. 
    Under which circumstances, generally speaking, does an LLC offer a tax advantage over a sole proprietorship?
    • A. 

      When a large profit is made, which is retained in the company.

    • B. 

      When a small profit is made, which is retained in the company.

    • C. 

      When a large profit is made, which is paid out to the owner.

    • D. 

      When a small profit is made, which is paid out to the owner.

  • 45. 
    Investment plan and the financing plan result in:
    • A. 

      The opening balance sheet.

    • B. 

      The projected closing balance sheet.

    • C. 

      The projected profit and loss account.

    • D. 

      The projected cash flow.

  • 46. 
    A new business invests €20.000 in equipment and €40.000 in goods. The supplier of the goods provides a two-month trade credit. The annual rent of the business premises of €30.000 must be paid in advance at the start of the business. The entrepreneur has €25.000 saving tot invest in the business. The capital gap is:
    • A. 

      €25,000,-

    • B. 

      €50,000,-

    • C. 

      €90,000,-

    • D. 

      Nil

  • 47. 
    A projected profit and loss account and a projected cash flow are part of the financial statements in a business plan. Which item is entered in the projected profit and loss account but not entered in the projected cash flow?
    • A. 

      Depreciation.

    • B. 

      Paid interest.

    • C. 

      Wages and salaries.

    • D. 

      Repayment of a loan.

  • 48. 
    A new business requires major investments in the first year of operation. Moreover, its most important customers are government institutions, which are not expected to pay their bills in less than three months. Which statement is correct?
    • A. 

      Profit will be higher than cash flow.

    • B. 

      Profit will be lower than cash flow

    • C. 

      Profit will be equal to cash flow

    • D. 

      One cannot say anything about the difference between profit and cash flow in advance.

  • 49. 
    In the business plan of a sole proprietorship, what relationship exists between the expected profit and the owner’s equity?
    • A. 

      Owner’s equity at year’s end – owner’s equity at start + private contributions – private drawings = profit

    • B. 

      Owner’s equity at year’s end + owner’s equity at start - private contributions – private drawings = profit

    • C. 

      Owner’s equity at start – owner’s equity at start - private contributions + private drawings = profit

    • D. 

      Owner’s equity at start – owner’s equity at start + private contributions - private drawings = profit

  • 50. 
    A capital budgeting project can be characterized by:
    • A. 

      The revenue and expenses over the project period.

    • B. 

      The total payback period.

    • C. 

      The fixed assets and current assets invested in the project.

    • D. 

      The total invest made in the project.

  • 51. 
    • A. 

      €165,000,-

    • B. 

      €195,000,-

    • C. 

      €225,000,-

    • D. 

      €255,000,-

  • 52. 
    A five-year project requires an investment of €5 million at the start of the first year and a further €2.5 million at the start of the second year. The residual value at the end of the five-year period is €1 million. The cash flows (excluding investment and residual value) from the end of the first year to the fifth year are €2.5 million, €2.5 million, €1.5 million, €1.5 million and €0.5 million, respectively. The payback period is:
    • A. 

      Four years.

    • B. 

      Two years.

    • C. 

      Five years.

    • D. 

      Three years.

  • 53. 
    The cash flows of project A and project B are received at the end of the year. These cash flows are as follows:   T 0 T 1 T 2 T 3 A -1000 800 300 100 B -500 400 100 0 The company’s required payback period is two years. On the basis of payback period, the company will opt for: 
    • A. 

      Project A.

    • B. 

      Project B.

    • C. 

      Neither project, as neither is attractive.

    • D. 

      Neither project, an additional selection criterion is required.

  • 54. 
    A capital sum of €25.000 is deposited in a saving account for four years, earning 6% compound interest a year. The total future value after four years is: ANSWER WAS WRONG IN LIST. DONT KNOW.
    • A. 

      €31,561.92,-

    • B. 

      €31,632.98,-

    • C. 

      €31,000.00,-

    • D. 

      €29,246.46,-

  • 55. 
    How much should a private individual deposit in a savings account to secure €15.000 in four years’ time, at an annual compound interest of 5%?
    • A. 

      €12,340.54,-

    • B. 

      €12,500,-

    • C. 

      €12,328.91,-

    • D. 

      €12,957.56,-

  • 56. 
    In the net present value of a capital budgeting project is equal to zero, the internal rate of return:
    • A. 

      Is equal to the company’s WACC.

    • B. 

      Is higher to the company’s WACC

    • C. 

      Is lower to the company’s WACC

    • D. 

      Cannot be calculated.

  • 57. 
    • A. 

      16.67%

    • B. 

      33.33%

    • C. 

      66,67%

    • D. 

      8,33%

  • 58. 
    The following annual cash flows of the capital budgeting project are known: Year 0 -120 Year 1     40 Year 2     40 Year 3     40 Year 4     40 All amounts are paid or received at the end of the year. The investments do not have a residual value at the end of the project. The company’s WACC is 7,5% a year.  The internal rate of return of this project is:
    • A. 

      12.6%

    • B. 

      10.2%

    • C. 

      13.8%

    • D. 

      11.4%

  • 59. 
    The following annual cash flows of the capital budgeting project are known: Year 0 -120 Year 1     40 Year 2     40 Year 3     40 Year 4     40 All amounts are paid or received at the end of the year. The investments do not have a residual value at the end of the project. The company’s WACC is 7,5% a year.  The net present value of this project is:
    • A. 

      13.97

    • B. 

      11.43

    • C. 

      16.25

    • D. 

      19.71

  • 60. 
    The economic order quantity results in:
    • A. 

      Minimal sum of carrying costs and set-up costs.

    • B. 

      Minimal carrying costs.

    • C. 

      Minimal set-up costs.

    • D. 

      Minimal carrying costs as well as minimal set-up costs.

  • 61. 
    An increase in order quantity results in:
    • A. 

      An increase in annual production series.

    • B. 

      Lower average inventory levels.

    • C. 

      Both.

    • D. 

      Neither

  • 62. 
    Which of the following statements is correct?
    • A. 

      Carrying costs increase with order quantity increases.

    • B. 

      Ordering costs are inversely proportional to order quantity.

    • C. 

      Both.

    • D. 

      Neither.

  • 63. 
    The economic order quantity is dependent on:
    • A. 

      Sales, variable carrying costs and fixed ordering costs.

    • B. 

      Sales, fixed carrying costs and variable ordering costs.

    • C. 

      Reordering point, variable carrying costs and fixed ordering costs.

    • D. 

      Reordering point, fixed carrying costs and variable ordering costs.

  • 64. 
    Which of the following measures is not a credit management activity?
    • A. 

      Offering discounts for cash payment.

    • B. 

      Setting credit standards for potential customers.

    • C. 

      Determining a credit limit per customer.

    • D. 

      Sending payment reminders at the end of the credit period.

  • 65. 
    Business X has annual sales of €1.050.000, spread evenly across the year. 80% of products are sold on credit. The permitted credit period is two months. 10% of accounts receivable are uncollectible. A 2% discount is offered for cash payment. Which of the statements below is correct?
    • A. 

      Monthly sales on credit are €70,000,-.

    • B. 

      The accounts receivable balance is €140,000,-.

    • C. 

      The annual lose loss as a result of noncollectable receivables is €105,000,-.

    • D. 

      The annual discount made for cash payment is €21,000,-.

  • 66. 
    A long days sales outstanding is a sign that:
    • A. 

      The company’s customers are slow to pay their bills.

    • B. 

      The company’s customers pay their bills quickly.

    • C. 

      The company’s is slow to repay its short-term financial obligations to creditors.

    • D. 

      The company’s has an effective debt collection policy with regard to its accounts receivable.

  • 67. 
    Working capital management is concerned with:
    • A. 

      Keeping cash reserves at a minimum.

    • B. 

      Minimizing the working capital as a whole.

    • C. 

      Keeping the balance of accounts receivable at a minimum.

    • D. 

      Minimizing inventory levels.

  • 68. 
    Which of the statements below is incorrect?
    • A. 

      The cash flow forecast includes inventory quantities, not flow quantities.

    • B. 

      An investment in securities minimizing the risk of liquidity problems.

    • C. 

      A line of credit is a flexible source of capital, ideal for cash planning.

    • D. 

      The cash balance must be kept at a minimum from the point of view of profitability.

  • 69. 
    The cash requirements deduced from the cash flow forecast are generated by:
    • A. 

      The transactional motive.

    • B. 

      The precautionary motive.

    • C. 

      The speculative motive.

  • 70. 
    Which of the following is not an advantage of factoring?
    • A. 

      Improving liquidity.

    • B. 

      Minimizing the risk of non-payment.

    • C. 

      Simplifying the accounts receivable records.

    • D. 

      Minimizing debt recovery problems.

  • 71. 
    The book value of a business is determined by:
    • A. 

      Total assets minus total liabilities.

    • B. 

      The total of share capital and share premium reserve.

    • C. 

      The balance sheet total minus all reserves.

    • D. 

      The balance sheet total minus the total of all assets and all reserves.

  • 72. 
    A corporation pays out 4% stock dividend. This has which of the following consequences?
    • A. 

      The nominal issued share capital increases by 4%.

    • B. 

      The authorized share capital increases by 4%.

    • C. 

      The equity of the corporation increases 4%.

    • D. 

      The market value of the shares decreases by 4%.

  • 73. 
    A business decides to issue bonus shares. This has which of the following consequences?
    • A. 

      The book value per share decreases, while the book value of the business remains the same.

    • B. 

      The book value of the business and the book value per share decrease.

    • C. 

      The book value per share increases while the book value of the business remains the same.

    • D. 

      The book value of the business and the book value per share remain the same.

  • 74. 
    Venture capital consist of:
    • A. 

      Share capital acquires through private placement.

    • B. 

      The paid-up share capital of a corporation.

    • C. 

      Equity obtained through the sale of capital goods.

    • D. 

      The retained profit reserve of a corporation.

  • 75. 
    A subscription right is:
    • A. 

      A voucher entitling a shareholder to apply for shares.

    • B. 

      A remuneration paid by a business when issuing shares,

    • C. 

      A remuneration paid by the new shareholders to the company that is issuing shares.

    • D. 

      The issue price of the new shares minus the par value divided by the ratio between the numbers of old and new shares.

  • 76. 
    A rights issue is a share issue that:
    • A. 

      Entitles existing shareholders to buy new shares.

    • B. 

      Is fully convertible.

    • C. 

      Gives subscription rights holders the choice between shares or convertible bonds.

    • D. 

      Is more attractive than other types of share issue from a tax perspective.

  • 77. 
    • A. 

      10%

    • B. 

      4%

    • C. 

      16%

    • D. 

      8%

  • 78. 
    A business has produced the following balance sheet…… If the market rate is 8% and the business records an annual profit (after taxes) of €64.000, the book value of this business relative to the intrinsic value will be:
    • A. 

      Greater.

    • B. 

      The same.

    • C. 

      Smaller.

  • 79. 
    • A. 

      A lucrative choice if the bond yield has decreased

    • B. 

      A lucrative choice if the bond yield has increased

    • C. 

      A lucrative choice if early redemption is not possible.

    • D. 

      Never a lucrative choice.

  • 80. 
    Private loans have which of the following advantages over bond loans?
    • A. 

      The can be concluded with a limited number of people or institutions.

    • B. 

      They are easily marketable.

    • C. 

      They are considered long-term liabilities.

    • D. 

      The interest is fully deductible for tax purpose.

  • 81. 
    A bondholder wants to be sure of receiving full and timely principal and interest payments. Which of the following bond is the least risky?
    • A. 

      Mortgage bond.

    • B. 

      Junk bond.

    • C. 

      Convertible bond.

    • D. 

      Subordinated bond.

  • 82. 
    A holder of convertible bonds wants to convert his bonds into shares. This has the following consequences for the corporation:
    • A. 

      An increase in equity and a decrease in liabilities

    • B. 

      A decrease in both equity and a liabilities

    • C. 

      A increase in both equity and a liabilities

    • D. 

      An decrease in equity and a increase in liabilities

  • 83. 
    Statement 1: The term “provision” denotes profit retained to fund future replacement investments. Statement 2: Private loans are issued primarily by institutional investors and are not marketable.
    • A. 

      Statement 1 is incorrect, statement 2 is correct.

    • B. 

      Both statements are correct.

    • C. 

      Statement 1 is correct, statement 2 is incorrect.

    • D. 

      Both statements are incorrect.

  • 84. 
    Which of the following is not a short-term liability?
    • A. 

      Pre-paid amounts.

    • B. 

      Dividend to be paid.

    • C. 

      Buyer's credit received.

    • D. 

      Commercial paper.

  • 85. 
    A supplier has defined the following payment conditions: a discount of 2% for payments made within 20 days; a credit period of two months. The cost of capital for the trade credit is (rounded to one decimal): 
    • A. 

      16.3%

    • B. 

      12%

    • C. 

      12.2%

    • D. 

      16%

  • 86. 
    A buyer receives credit from his supplier. This is known as:
    • A. 

      Trade credit.

    • B. 

      Buyer's credit.

    • C. 

      Near banking.

  • 87. 
    A business extends buyer’s credit to a supplier. This will cause its capital requirement to:
    • A. 

      Increase.

    • B. 

      Remain the same.

    • C. 

      Decrease.

  • 88. 
    Compared with ordinary bonds, discount bonds are characterised by:
    • A. 

      Higher redemption value.

    • B. 

      Tax-free interest.

    • C. 

      Higher earnings in the form of shares.

    • D. 

      Higher annual interest earnings.

  • 89. 
    Commercial paper has which of the following advantages over a line of credit?
    • A. 

      It has lower interest payments.

    • B. 

      The business can claim tax relief on interest payments.

    • C. 

      The business has the option of paying the total debt in installments.

    • D. 

      It has a short duration of the certificate of indebtedness.

  • 90. 
    A medium-term note programme has which of the following advantages over a bond loan?
    • A. 

      Lower costs of issue.

    • B. 

      Lower interest rates.

    • C. 

      Risk borne by the bank supervising the issue.

    • D. 

      More investors can subscribe.

  • 91. 
    Financial leverage can be best described as:
    • A. 

      Using debt as a financing tool to increase the return on equity.

    • B. 

      Increasing the total assets turnover ratio.

  • 92. 
    Financial leverage occurs when:
    • A. 

      D = E

    • B. 

      D = 0

    • C. 

      ROA = ACD

    • D. 

      ROA = ROE

  • 93. 
    In 2006, corporation X has €500.000 in shareholders’ equity and €300.000 in liabilities. The average interest rate on the borrowed capital is 8%. The net profit (after tax) for 2006 is €40.000. The corporate tax rate is 30%. The leverage factor in this case is:
    • A. 

      0.6

    • B. 

      0.375

    • C. 

      0.625

    • D. 

      1.667

  • 94. 
    A company’s total equity exceeds its total liabilities. In this case:
    • A. 

      The business risk is greater than the financial risk.

    • B. 

      The leverage factor is greater than 1.

    • C. 

      The ROE is positively influenced by the financial leverage.

    • D. 

      The debt ratio is greater than 0.5.

  • 95. 
    A company has a total average shareholder’ equity of €5 million, average liabilities of €3 million (8% interest)  and a net profit of €480.000. The corporate tax rate is 40%. The return on the average total assets is:
    • A. 

      13%

    • B. 

      11%

    • C. 

      9%

    • D. 

      18%

  • 96. 
    An entrepreneur decides to use his cash reserves to invest in fixed assets. His solvency position will:
    • A. 

      Remain the same.

    • B. 

      Worsen.

    • C. 

      Improve.

  • 97. 
    Dynamic liquidity is expressed by:
    • A. 

      The cash flow forecast.

    • B. 

      The current ratio.

    • C. 

      The quick ratio.

    • D. 

      The net working capital.

  • 98. 
    A company decides to use its cash reserves to pay its trade accounts. This will cause the net working capital to:
    • A. 

      Remain the same.

    • B. 

      Decrease.

    • C. 

      Increase.

  • 99. 
    If the current ratio is less than 1:
    • A. 

      The fixed assets have been partially financed by current liabilities.

    • B. 

      The fixed assets exceed the current assets.

    • C. 

      The current assets exceed the current liabilities.

    • D. 

      The net working capital is positive.

  • 100. 
    An entrepreneur decides to pay off his bank loan by taking out a private loan. This will cause his liquidity to:
    • A. 

      Increase.

    • B. 

      Remain the same.

    • C. 

      Decrease.

  • 101. 
    A corporation decides to issue new shares and to use the proceeds to repay its long-term debts. The return on total assets will:
    • A. 

      Remain the same.

    • B. 

      Decrease.

    • C. 

      Increase.