Finance Quiz

The management of a firm's short-term assets and liabilities is called:

• working capital management.

• debt management.

• capital budgeting.

• capital structure.

• equity management.

The process of planning and managing a firm's long-term investments is called:

• working capital management.

• capital budgeting.

• agency cost analysis.

• financial depreciation.

• capital structure

The mixture of debt and equity used by a firm to finance its operations is called:

• capital structure.

• financial depreciation.

• cost analysis.

• capital budgeting.

• working capital management.

The original sale of securities by governments and corporations to the general public occurs in the:

• private placement market.

• proprietary market.

• secondary market.

• primary market.

• liquidation market.

When one shareholder sells equity directly to another the transaction is said to occur in the:

• OTC market.

• dealer market.

• NASDAQ market.

• primary market.

• secondary market.

Which one of the following statements concerning the annual percentage rate is correct?

• The stated interest rate considers interest on interest.

• The annual percentage rate is lower than the annual percentage rate when an interest rate is compounded quarterly.

• When firms advertise the stated interest rate they are violating European truth-in-lending laws.

• The rate of interest you actually pay on a loan is called the stated interest rate.

• The stated interest rate equals the annual percentage rate when the rate on an account is designated as simple interest.

A perpetuity differs from an annuity because:

• annuity payments never cease.

• perpetuity payments never cease.

• perpetuity payments are variable while annuity payments are constant.

• perpetuity payments vary with the market rate of interest.

• perpetuity payments vary with the rate of inflation.

The discount rate that makes the net present value of an investment exactly equal to zero is called the:

• equalizer.

• average accounting return.

• profitability index.

• external rate of return.

• internal rate of return.

The most valuable investment given up if an alternative investment is chosen is a(n):

• sunk cost.

• erosion cost.

• opportunity cost.

• net working capital expense.

• salvage value expense.

You are trying to determine whether to accept project A or project B. These projects are mutually exclusive. As part of your analysis, you should compute the incremental IRR by determining:

• the discount rate that makes the net present value of each project equal to 1.

• the internal rate of return for the cash flows of each project.

• the discount rate that equates the discounted payback periods for each project.

• the net present value of each project using the internal rate of return as the discount rate.

• the internal rate of return for the differences in the cash flows of the two projects.