Financial Management

271. The portfolio effect, with respect to the P/E ratio:

  1. has less of an influence than the projected growth rate
  2. may have as much of an effect as the projected growth rate
  3. has more of an effect than the projected growth rate
  4. should not be a consideration
Correct answer: (B)
may have as much of an effect as the projected growth rate

272. When an independent local producer uses a firm's technology in return for a royalty fee, the arrangement is called:

  1. a joint venture
  2. a licensing agreement
  3. an export arrangement
  4. a foreign subsidiary
Correct answer: (B)
a licensing agreement

273. The idea that the differences in returns earned in different countries affects exchange rates is referred to as:

  1. the interest rate parity theory
  2. the purchasing power parity theory
  3. the balance of payments parity theory
  4. none of the above are correct
Correct answer: (A)
the interest rate parity theory

274. Translation or accounting exposure primarily affects:

  1. foreign assets and liabilities
  2. domestic assets and liabilities
  3. reported earnings
  4. the repatriation of earnings.
Correct answer: (A)
foreign assets and liabilities

275. Capital is allocated by financial markets by:

  1. a lottery system between investment dealers
  2. pricing securities based on their risk and expected future cash flows
  3. by pricing risky securities higher than low-risk securities
  4. by a government risk-rating system based on AAA for low risk and CCC for high risk
Correct answer: (B)
pricing securities based on their risk and expected future cash flows

276. The three primary sources of capital to the firm are:

  1. net income, retained earnings, and bank loans
  2. bondholders, preferred shareholders, and common shareholders
  3. operating profits, extraordinary gains, dividends
  4. amortization cash flow, net income, and retained earnings
Correct answer: (B)
bondholders, preferred shareholders, and common shareholders

277. Net worth or the book value of the firm is computed:

  1. total assets minus shareholders' equity
  2. total assets minus the firm's liabilities
  3. preferred stock plus common stock plus retained earnings
  4. shareholders equity minus preferred stock
Correct answer: (D)
shareholders equity minus preferred stock

278. All of the following areas of cash flows are analyzed except:

  1. operations activities
  2. uses of funds
  3. investing activities
  4. financing activities
Correct answer: (B)
uses of funds

279. Return on assets is computed:

  1. net income/sales
  2. net income/total assets
  3. net income/current assets
  4. income before interest and taxes (EBIT)/total assets
Correct answer: (B)
net income/total assets

280. Which of the following does not cause a distortion in the reporting of income?

  1. The reporting of revenue.
  2. The treatment of non-recurring items.
  3. The tax-write off policy.
  4. The firm's dividend policy.
Correct answer: (D)
The firm's dividend policy.
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