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1. UOP FIN 571 Final Exam Guide New
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Question 1 The underlying assumption of the dividend growth
model is that a stock is worth:
A. An amount computed as the next annual dividend divided
by
the required rate of return.
B. An amount computed as the next annual dividend divided
by
the market rate of return.
C. The same amount computed as any other stock that pays the
same current dividend and has the same required rate of
return.
D. The present value of the future income that the stock is
expected to generate.
E. The same amount to every investor regardless of their

2. • Question 2 You plan to invest $6,500 for three years at 4
percent simple interest. What will your investment be worth at
the end of the three years?
A. $6,941.11
B. $7,280.00
C. $7,311.62
D. $6,760.00
E. $7,250.00
• Question 3 A firm has a debt-equity ratio of.64, a pre tax cost
of debt of 8.5 percent, and a required return on assets of 12.6
percent, What is the cost of equity if you ignore taxes ?
A. 16.38%
B. 8.55%
C. 15.22%
D. 11.22%
E. 8.06%
• Question 4 What is the present value of $6,811 to be received
in one year if the discount rate is 6.5 percent ?
A. $6,395.31
B. $7,253.72
C. $6,023.58
D. $6,643.29
E. $6,671.13
• Question 5 Under the_method, the underwriter
buys the securities for less than the offering price and accepts
the risk of not selling the issue, while under the_
method, the underwriter does not purchase the shares but
merely acts as an agent.
A. Best efforts; firm commitment
B.Seasoned; unseasoned
C. Firm commitment; best efforts

3. D. Negotiated offer; competitive offer
E. Competitive offer; negotiated offer
Question 6 All else held constant, interest rate
risk will increase when the time to maturity:
A. Increase or the coupon rate increases.
B. Increase or the coupon rate decreases.
C. Decrease and the coupon rate equals zero.
D. Decrease or the coupon rate increases.
E. Decrease or the coupon rate decreases.
Question 7 The process of planning and
managing a firm's
long-term assets is called:
A. Agency cost analysis.
B. Working capital management.
C. Financial depreciation.
D. Capital structure.
E. Capital budgeting.
Question 8 An efficient capital market is one in
which:
A. Securities always offer a positive NPV.
B. Taxes are irrelevant.
C. All investments earn the market rate of
return.
D. Brokerage commissions are zero.
E. Security prices reflect all available
information.
Question 9 Which one of these statements is
correct concerning the cash cycle?
A. Increasing the accounts payable period
increases all cash
cycle.
B. A positive cash cycle is preferable to a

4. C. The cash cycle can exceed the operating cycle if the payables
period is equal to zero.
D. The longer the cash cycle, the more likely a firm will need
external financing.
E. A dopting a more liberal accounts receivable policy will tend
to decrease the cash cycle.
Question 10 The costs of avoiding a bankruptcy filing by a
financially distressed firm are classified as_costs.
A. Direct bankruptcy
B. Financial solvency
C. Flotation
D. Indirect bankruptcy
E. Capital structure
Question 11 Which one of the following is an example of a
nondiversifiable risk?
A. A well-respected president of a firm suddenly resigns
B. A well-respected chairman of the Federal Reserve Bank
suddenly resigns
C. A poorly managed firm suddenly goes out of business due to
lack of sales
D. A key employee suddenly resigns and accepts employment
with a key competitor
E. A well-managed firm reduces its work force and automates
several jobs
Question 12 One disadvantage of the corporate form of business
ownership is the:
A. Limited liability protection provided for all owners.
B. Unlimited life of the firm.
C. Difficulties encountered when changing ownership.

5. D. Double taxation of
profits.
E. Firms ability to raise
cash.Question 13 Which one of the following statements about
preferred stock is true?
A. There is no significant difference in the voting rights
granted to preferred and common shareholders.
B. If preferred dividends are non-cumulative, then
preferred dividends not paid in a particular year will be
carried forward
to the next year.
C. Preferred stock usually has a stated liquidating value of
$100
per share.
D. Unlike dividends paid on common stock. Dividends paid
on
preferred stock are a tax-deductible expenses.
E. Dividends on preferred stock payable during the next
twelve
months are considered to be a corporate liability.
Question 14 Book value :
A. Is adjusted to market value whenever the market value
exceeds the stated book value.
B. Is based on historical cost.
C. Is equivalent to market value for firms with fixed assets.
D. Generally tends to exceed market value when fixed
assets
are included.
E. Is more of a financial than an accounting valuation.
Question 15 The primary goal of financial management is to:
A. Avoid financial distress.
B. Maintain steady growth sales and net earnings.
C. Maximize the current value per share of the existing
stock.
D. Minimize operational costs and maximize firm efficiency.
E. Maximize current dividends per share of the existing
stock.

6. next dollar of taxable income earned ?
A. Deductible
B. Total
C. Marginal
D. Residual
E. Average
Question 17 Lois is purchasing an annuity that will pay $5,000
annually for 20 years, with the first annuity payment made on
the date of purchase. What is the value of the annuity on the
purchase date given a discount rate of 7 percent ?
A. $56,191.91
B. $52,970.07
C. 54,282.98
D. $66,916.21
E. 56,677.98
Question 18 The cash flow resulting from a firm's ongoing,
normal business activities is referred to as the:
A. Net capital spending.
B. Cash flow to investors.
C. Additions to net working capital.
D. Operating cash flow.
E. Cash flow to retained earnings.
Question 19 The market price of a bond increases when the:
A. Par value decreases.
B. Coupon rate decreases.
C. Discount rate decreases.
D. Face value decreases.
E. Coupon is paid annually rather than semiannually
Question 20 The excess return you earn by moving from a
relatively risk-free investment to a risky investment is called :

7. A. Arithmetic average return.
B. Geometric average return.
C. Time premium.
D. Risk premium.
E. Inflation premium.
Question 21 A firn has a total debt ratio of .
47. This means the firn has 47 cents in debt
for every:
A. $ 1 in fixed assets.
B. $ 53 in total equity.
C. $ 1 in total equity.
D. $ 1 in current assets.
E. $ 53 in total assets.
Question 22 A ll else equal, the contribution
must increase as:
A. Both the sales price and variable cost per
unit increase.
B. The variable cost per unit declines.
C. The fixed cost per unit declines.
D. Sales price per unit declines.
E. The sales price minus the fixed per unit
increases.
Question 23 A project has an initial cost of
$2,250.The cash inflows are $0,$500,$900,and
$700 for years 1 to 4, respectively. What is the
payback period ?
A. 3.92 years
B. 2.84 years
C. Never
D. 2.97 years
E. 3.98 years
Question 24 Ratios that measure a firm's
ability to pay its bills over the short run
without undue stress are known as:
A. Liquidity measures.
B. Asset management ratios.

8. C. Long-term solvency measures.
D. Profitability ratios.
E. Market value ratios.
Question 25 The discount rate that makes the
net present value of an investment exactly
equal to zero is called the:
A. Profitability index.
B. External rate of return.
C. Averages accounting return.
D. Equalizer.
E. Internal rate of return.
Question 26 An interest rate that is
compounded monthly, but is expressed as if the
rate were compounded annually, is called
the_rate.
A. Compound interest
B. Stated interest
C. Effective annual
D. Periodic interest
E. Daily interest
Question 27 Which one of the following
statements is false?
A. If sales are seasonal, the percentages shown
on an aging schedule will vary during the year.
B. Aging schedules are used to monitor accounts
receivable.
C. An aging schedule includes only overdue
accounts
D. Investments in accounts equal average daily
sales times
average collection period.
E. Collection efforts may involve legal action.
Question 28 Which one of these is a correct
definition ?
A. Long-term debt is defined as a residual claim

9. B. Current assets are assets with short lives, such as inventory,
C. Tangible assets are fixed assets such as patents.
D. Current liabilities are debts that must be repaid in 18
months or less.
E. Net working capital equals current assets plus current
liabilities.
Question 29 Futures contracts contrast with forward contracts
by:
A. Allowing the seller to deliver any day during the delivery
month.
B. Requiring contract fulfilment by the two originating
parties.
C. Providing an option for the buyer rather than an obligation.
D. Marking to the market on a weekly basis.
E. Allowing the parties to negotiate the contract size.
Question 30 The higher the inventory turnover, the:
A. Lesser the amount of inventory held by a firm.
B. Higher the inventory as a percentage of total assets.
C. Less time inventory items remain on the shelf.
D. Greater the inventory of inventory help by a firm.
E. Longer it takes firm to sell its inventory.

10. B. Current assets are assets with short lives, such as inventory,
C. Tangible assets are fixed assets such as patents.
D. Current liabilities are debts that must be repaid in 18
months or less.
E. Net working capital equals current assets plus current
liabilities.
Question 29 Futures contracts contrast with forward contracts
by:
A. Allowing the seller to deliver any day during the delivery
month.
B. Requiring contract fulfilment by the two originating
parties.
C. Providing an option for the buyer rather than an obligation.
D. Marking to the market on a weekly basis.
E. Allowing the parties to negotiate the contract size.
Question 30 The higher the inventory turnover, the:
A. Lesser the amount of inventory held by a firm.
B. Higher the inventory as a percentage of total assets.
C. Less time inventory items remain on the shelf.
D. Greater the inventory of inventory help by a firm.
E. Longer it takes firm to sell its inventory.