PracticeExam1_FIN3000

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Baruch College, CUNY *

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3000

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Finance

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Apr 3, 2024

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Midterm Practice Questions 1) When Patricia sells her Apple stock at the same time that Brian purchases the same amount of Apple stock, Apple receives: A). the dollar value of the transaction. B). the dollar amount of the transaction, less brokerage fees. C). only the market value of the common stock. D). nothing. 2) "Double taxation" refers to: A). the fact that marginal tax rates are doubled for corporations. B). corporations paying taxes on both dividends and retained earnings. C). all partners paying equal taxes on profits. D). paying taxes on profits at the corporate level and dividends at the personal level. 3) Assume BDS acquired its main supplier, ABC. As a result of the acquisition, BDS finds that its operating profit margin increased but its ROA remained constant. A decrease in which one of these ratios is most apt to be the reason why the ROA did not increase with the increase in the operating profit margin? A). Asset turnover B). Market-to-book ratio C). Debt burden D). Leverage ratio 4) Financing for public corporations flows through: A). Financial markets and (or) financial intermediaries B). Derivative markets C). Financial intermediaries only D). Financial markets only 5) Which of the following is NOT a function of financial markets? A). Mitigate agency problem B). Provide information C). Risk transfer and diversification D). Transport Cash across time 6) Which of the following is a disadvantage to incorporating a business? A). Easier access to financial markets B). Becoming a permanent legal entity C). Limited liability D). Profits taxed at the corporate level and the shareholder level 7) Unlimited liability is faced by the owners of: A). corporations. B). sole proprietorships and general partnerships. C). partnerships and corporations. D). all forms of business organization 8) When the management of a business is conducted by individuals other than the

owners, the business is most likely to be a: A). partnership. B). sole proprietorship C). corporation. D). general partner. 9) Corporations are referred to as public companies when their: A). shares are held by the federal or state government. B). products or services are available to the public C). stock is publicly traded. D). shareholders have no tax liability. 10) The primary goal of corporate management should be to (choose the best description): A). maximize the firm's profits B). maximize the shareholders' wealth. C). maximize the number of shareholders. D). minimize the firm's costs. 11) Financing for public corporations flows through: A). derivatives markets. B). the financial markets, financial intermediaries, or both. C). financial intermediaries only D). the financial markets only 12) The primary distinction between securities sold in the primary and secondary markets is: A). whether the securities are new or already exist B). the profitability of the issuing corporation. C). the riskiness of the securities D). the price of the securities. 13) Long-term financing decisions commonly occur in the: A). secondary markets. B). option markets. C). capital markets. D). money markets. 14) Which of the following assets is likely to be considered the most liquid? A). Inventories B). Net fixed assets C). Accounts payable D). Marketable securities 15) If ROC is less than a firm's cost of capital, which of the following must be true? A). The firm's ROE is equal to zero. B). The firm's ROE is negative. C). The firm's EVA is positive. D). The firm's EVA is negative.

16) What would be the Shareholders’ equity fo r Sophie's Sofas given the following data? A). 117,500 B). 277,000 C). 145,000 D). 159,500 17) A firm’s income statement included the following data. The firm’s average tax rate was 20%. What was the firm’s net income? A). 24,800 B). 12,200 C). 8,800 D). 2,400 18) If the interest rate is r, what is the five-year factor d? A). 1/(1+r) ^5 B). r C). 1/r D). (1+r) ^5 19) ABC company is going to buy an equipment for using ten equal annual payments, beginning 10 years from today. If you think that the present value of this equipment is $10,000 and the interest rate is 10%, what is the annual payment? A. 3,837.45 B. 4,812.62 C. 3,184.71 D. 3,198.97 20) If the effective annual rate of interest is known to be 18% on a debt that has payments every two months, what is the annual percentage rate? A. 14.28% B. 16.78% C. 12.03% D. 20.43%

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