Problem 1. A partnership between a multinational company and a foreign investor in which contractually specified amounts of money and expertise are contributed by the participants for stated proportions of ownership and profit is a
a. multinational corporation
b. floating relationship.
c. joint venture.
d. consolidation.
Problem 2. The ________ is a significant economic force currently made up of 25 nations with a population of more than 295 million that permits free trade within the countries that make up this group
a. North American Free Trade Agreement (NAFTA)
b. Mercosur Group
c. Asian Economic Area Network (ASEAN)
d. European Union (EU)
Problem 3. The all-current-rate method is the method by which the functional currency-denominated financial statements of an MNC's subsidiary are translated into the parent company's currency. (T or F)
Problem 4. FASB No. 52 is a statement issued by the Financial Accounting Standards Board requiring American MNCs to first convert the financial statement accounts of foreign subsidiaries into the country's ________ currency and then translate the accounts into the parent firm's currency using the ________ method.
a. spot; historical rate
b. functional; all-current-rate
c. principal; average rate
d. forward rate; weighted average
Problem 5. If a person's required return does not change when risk increases, that person is said to be
a. risk-seeking
b. risk-indifferent
c. risk-averse.
d. risk-aware.
Problem 6. A common approach of estimating the variability of returns involving forecasting the pessimistic, most likely, and optimistic returns associated with the asset is called
a. marginal analysis
b. sensitivity analysis.
c. break-even analysis
d. financial statement analysis.
Problem 7. The lower the coefficient of variation, the greater the risk and therefore the higher the expected return. (T or F)
Problem 8. Which asset would the risk-averse financial manager prefer? (See below.)
Asset A B C D
Initial investment $15,000 $15,000 $15,000 $15,000
Annual rate of return
Pessimistic 8% 5% 3% 11%
Most likely 12% 12% 12% 12%
Optimistic 14% 13% 15% 14%
a. Asset A.
b. Asset B.
c. Asset C
d. Asset D
Problem 9. In partnerships, owners have unlimited liability and may have to cover debts of other less financially sound partners. (T or F)
Problem 10. The president or chief executive officer is elected by the firm's stockholders and has ultimate authority to guide corporate affairs and make general policy. (T or F)
Problem 11. Which of the following legal forms of organization is most expensive to organize?
a. Sole proprietorships.
b. Partnerships.
c. Corporations.
d. Limited partnership.
Problem 12. Which of the following legal forms of organization's income are taxed under individual income tax rate?
a. Sole proprietorships.
b. Partnerships.
c. Corporations.
d. Limited partnership.
Problem 13. In a corporation, the members of the board of directors are elected by the
a. chief executive officer.
b. creditors.
c. stockholders.
d. previous members appoint replacements
Problem 14. In a(n) ________, owners have limited liability with regard to the business. They are not personally liable for the malpractice of other owners
a. limited partnership
b. S-corporation
c. partnership
d. limited liability partnership
e. All of the above
Problem 15. Net working capital is defined as
a. A ratio measure of liquidity best used in cross-sectional analysis.
b. the portion of the firm's assets financed with short-term funds.
c. current liabilities minus current assets.
d. current assets minus current liabilities.
Problem 16. The cash conversion cycle is the amount of time that elapses from the point when the firm inputs materials and labor into the production process to the point when cash is collected from the sale of the resulting finished product. (T or F)
Problem 17. One major risk a firm assumes in an aggressive financing strategy is
a. the possibility that short-term funds may not be available when needed
b. the possibility that long-term funds may not be available when needed.
c. the possibility that collections will be slower than expected.
d. the possibility that it will run out of cash.
Problem 18. ________ are the major source of unsecured short-term financing for business firms.
a. Accounts receivable
b. Accruals
c. Notes payable
d. Accounts payable
Problem 19. 1/15 net 30 date of invoice translates as
a. a 1 percent cash discount may be taken if paid in 15 days; if no cash discount is taken, the balance is due in 30 days after the middle of the month.
b. a 1 percent cash discount may be taken if paid in 15 days; if no cash discount is taken, the balance is due 30 days after the invoice date.
c. a 1 percent cash discount may be taken if paid in 15 days; if no cash discount is taken, the balance is due 30 days after the end of the month.
d. a 1 percent discount may be taken on 15 percent of the purchase if the account is paid within 30 days after the end of the month.
Problem 20. Breakeven analysis is used by the firm to determine the level of operations necessary to cover all fixed operating costs and to evaluate the profitability associated with various levels of sales (T or F)
Problem 21. Perry purchased 100 shares of Ferro, Inc. common stock for $25 per share one year ago. During the year, Ferro, Inc. paid cash dividends of $2 per share. The stock is currently selling for $30 per share. If Perry sells all of his shares of Ferro, Inc. today, what rate of return would he realize? ___________
Problem 22. The College Copy Shop is in process of purchasing a high-tech copier. In their search, they have gathered the following information about two possible copiers A and B.
A B
Initial Investment $10,000 $10,000
Annual rate of return
Return Prob. Return Prob.
Pessimistic 11% 0.30 9% 0.30
Most likely 18 0.45 18 0.45
Optimistic 22 0.25 25 0.25
a. Compute expected rate of return for each copier.
b. Compute variance and standard deviation of rate of return for each copier.
c. Which copier should they purchase?
Problem 23 A firm has an average age of inventory of 60 days, an average collection period of 45 days, and an average payment period of 30 days. The firm's cash conversion cycle is ________ days.