Financial Management
271. The portfolio effect, with respect to the P/E ratio:
- has less of an influence than the projected growth rate
- may have as much of an effect as the projected growth rate
- has more of an effect than the projected growth rate
- 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:
- a joint venture
- a licensing agreement
- an export arrangement
- 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:
- the interest rate parity theory
- the purchasing power parity theory
- the balance of payments parity theory
- none of the above are correct
Correct answer: (A)
the interest rate parity theory
274. Translation or accounting exposure primarily affects:
- foreign assets and liabilities
- domestic assets and liabilities
- reported earnings
- the repatriation of earnings.
Correct answer: (A)
foreign assets and liabilities
275. Capital is allocated by financial markets by:
- a lottery system between investment dealers
- pricing securities based on their risk and expected future cash flows
- by pricing risky securities higher than low-risk securities
- 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:
- net income, retained earnings, and bank loans
- bondholders, preferred shareholders, and common shareholders
- operating profits, extraordinary gains, dividends
- 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:
- total assets minus shareholders' equity
- total assets minus the firm's liabilities
- preferred stock plus common stock plus retained earnings
- 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:
- operations activities
- uses of funds
- investing activities
- financing activities
Correct answer: (B)
uses of funds
279. Return on assets is computed:
- net income/sales
- net income/total assets
- net income/current assets
- 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?
- The reporting of revenue.
- The treatment of non-recurring items.
- The tax-write off policy.
- The firm's dividend policy.
Correct answer: (D)
The firm's dividend policy.