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- December 23, 2024
Question 41
What is the main benefit of using the net present value (NPV) method in capital budgeting?
- a) It is easier to calculate than other methods
- b) It accounts for the time value of money
- c) It ignores future cash flows
- d) It eliminates all investment risk
Answer: b) It accounts for the time value of money
Explanation: NPV takes into account the time value of money by discounting future cash flows to present value, providing a comprehensive measure of a project’s profitability.
Question 42
A company’s market value of equity is $800,000, and it has 100,000 shares outstanding. What is the company’s stock price?
- a) $6.00
- b) $7.50
- c) $8.00
- d) $10.00
Answer: c) $8.00
Explanation: Stock price is calculated as Market Value of Equity / Number of Shares Outstanding. In this case: $800,000 / 100,000 = $8.00.
Question 43
A company issues $1,000,000 in new bonds with an interest rate of 5%. How much will the company pay in interest each year?
- a) $25,000
- b) $50,000
- c) $100,000
- d) $150,000
Answer: b) $50,000
Explanation: Annual interest payments are calculated as Face Value × Interest Rate. In this case: $1,000,000 × 5% = $50,000 per year.
Question 44
What does the quick ratio measure?
- a) A company’s ability to pay long-term debt
- b) A company’s liquidity, excluding inventory
- c) A company’s profitability relative to its assets
- d) A company’s solvency
Answer: b) A company’s liquidity, excluding inventory
Explanation: The quick ratio measures a company’s ability to meet short-term obligations without relying on the sale of inventory. It excludes inventory from current assets.
Question 45
Which of the following bonds is issued by a foreign company in the U.S. and denominated in U.S. dollars?
- a) Eurobond
- b) Samurai bond
- c) Yankee bond
- d) Bulldog bond
Answer: c) Yankee bond
Explanation: A Yankee bond is issued in the U.S. by a foreign company and denominated in U.S. dollars. Samurai bonds are issued in Japan, Bulldog bonds in the U.K., and Eurobonds in a different currency from the country of issuance.
Question 46
A company’s ROE is 15%, and its total equity is $500,000. What is the company’s net income?
- a) $50,000
- b) $60,000
- c) $70,000
- d) $75,000
Answer: b) $75,000
Explanation: ROE is calculated as Net Income / Total Equity. Rearranging the formula: Net Income = ROE × Total Equity. In this case: 15% × $500,000 = $75,000.
Question 47
What is the primary purpose of a forward contract?
- a) To speculate on stock prices
- b) To hedge against future price fluctuations
- c) To raise capital for a company
- d) To increase leverage
Answer: b) To hedge against future price fluctuations
Explanation: Forward contracts are used to lock in prices for future transactions, helping companies hedge against the risk of future price fluctuations.
Question 48
A company has total assets of $1,200,000 and total liabilities of $800,000. What is its equity multiplier?
- a) 1.5
- b) 1.75
- c) 2.0
- d) 2.5
Answer: c) 2.0
Explanation: The equity multiplier is calculated as Total Assets / Total Equity. Total Equity = $1,200,000 - $800,000 = $400,000. Therefore, Equity Multiplier = $1,200,000 / $400,000 = 3.0.
Question 49
What is the role of the Financial Industry Regulatory Authority (FINRA)?
- a) To issue bonds on behalf of corporations
- b) To regulate and oversee securities firms
- c) To set interest rates on corporate debt
- d) To enforce U.S. tax laws
Answer: b) To regulate and oversee securities firms
Explanation: FINRA is a self-regulatory organization that oversees brokerage firms and exchange markets, ensuring compliance with securities laws.
Question 50
If a company’s current assets are $100,000 and its current liabilities are $60,000, what is its current ratio?
- a) 1.0
- b) 1.5
- c) 1.67
- d) 2.0
Answer: d) 1.67
Explanation: The current ratio is calculated as Current Assets / Current Liabilities. In this case: $100,000 / $60,000 = 1.67.
