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ECO 550 Final Exam – Strayer New
ECO 550 Week 10 Chapter 9 through 17 Final Exam
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ECO 550 Final Exam Solution
Chapter 9—Applications of Cost Theory
MULTIPLE CHOICE
1. Evidence from empirical studies of short-run cost-output relationships lends support to the:
a.
existence of a non-linear cubic total cost function
b.
hypothesis that marginal costs first decrease, then gradually increase over the normal operating range of the firm
c.
hypothesis that total costs increase quadratically over the ranges of output examined
d.
hypothesis that total costs increase linearly over the range of output examined
e.
none of the above
ANS: PTS: 1
2. The short-run cost function is:
a.
where all inputs to the production process are variable
b.
relevant to decisions in which one or more inputs to the production process are fixed
c.
not relevant to optimal pricing and production output decisions
d.
crucial in making optimal investment decisions in new production facilities
e.
none of the above
ANS: PTS: 1
3. Theoretically, in a long-run cost function:
a.
all inputs are fixed
b.
all inputs are considered variable
c.
some inputs are always fixed
d.
capital and labor are always combined in fixed proportions
e.
b and d
ANS: PTS: 1
4. 4. Break-even analysis usually assumes all of the following except:
a. a. in the short run, there is no distinction between variable and fixed costs.
b. b. revenue and cost curves are straight-lines throughout the analysis.
c. c. there appears to be perfect competition since the price is considered to remain the same regardless of quantity.
d. d. the straight-line cost curve implies that marginal cost is constant.
e. e. both c and d
ANS: PTS: 1
4. 5. What is another term meaning the degree of operating leverage?
a. a. The measure of the importance of fixed cost.
b. b. The operating profit elasticity.
c. c. The measure of business risk.
d. d. D.O.L.
e. e. All of the above.
ANS: PTS: 1
4. 6. In a study of banking by asset size over time, we can find which asset sizes are tending to become more prominent. The size that is becoming more predominant is presumed to be least cost. This is called:
a. a. regression to the mean analysis.
b. b. breakeven analysis.
c. c. survivorship analysis.
d. d. engineering cost analysis.
e. e. a Willie Sutton analysis.
ANS: PTS: 1
a. 7. George Webb Restaurant collects on the average $5 per customer at its breakfast & lunch diner. Its variable cost per customer averages $3, and its annual fixed cost is $40,000. If George Webb wants to make a profit of $20,000 per year at the diner, it will have to serve__________ customers per year.
b. a. 10,000 customers
c. b. 20,000 customers
d. c. 30,000 customers
e. d. 40,000 customers
f. e. 50,000 customers
ANS: PTS: 1
8. In determining the shape of the cost-output relationship only ____ depreciation is relevant.
a.
direct
b.
indirect
c.
usage
d.
time
e.
scheduled
ANS: PTS: 1
9. Which of the following is not a limitation of the survivor technique for measuring the optimum size of firms within an industry?
a.
since the technique does not employ actual cost data in the analysis, there is no way to assess the magnitude of the cost differentials between firms of varying size and efficiency.
b.
the managerial and entrepreneurial aspects of the production process are not included in the analysis
c.
because of legal factors, the long-run cost curve derived by this technique may be distorted and may not measure the cost curve postulated in economic theory
d.
a and b
e.
b and c
ANS: PTS: 1
10. The primary disadvantage of engineering methods for measuring cost functions is that they deal with the managerial and entrepreneurial aspects of the production process or plant.
a.
true
b.
false
ANS: PTS: 1
11. A linear total cost function implies that:
a.
marginal costs are constant as output increases
b.
average total costs are continually decreasing as output increases
c.
a and b
d.
none of the above
ANS: PTS: 1
12. A ____ total cost function implies that marginal costs ____ as output is increased.
a.
linear; increase linearly
b.
quadratic; increase linearly
c.
cubic; increase linearly
d.
a and b
e.
none of the above
ANS: PTS: 1
13. A ____ total cost function implies that marginal costs ____ as output is increased.
a.
linear; increase linearly
b.
quadratic; are constant
c.
cubic; increase linearly
d.
linear; are constant
e.
none of the above
ANS: PTS: 1
14. A ____ total cost function yields a U-shaped average total cost function.
a.
cubic
b.
quadratic
c.
linear
d.
a and b only
e.
a, b, and c
ANS: PTS: 1
15. In the linear breakeven model, the difference between selling price per unit and variable cost per unit is referred to as:
a.
variable margin per unit
b.
variable cost ratio
c.
contribution margin per unit
d.
target margin per unit
e.
none of the above
ANS: PTS: 1
16. Which of the following is not an assumption of the linear breakeven model:
a.
constant selling price per unit
b.
decreasing variable cost per unit
c.
fixed costs are independent of the output level
d.
a single product (or a constant mix of products) is being produced and sold
e.
all costs can be classified as fixed or variable
ANS: PTS: 1
17. In the linear breakeven model, the breakeven sales volume (in dollars) is equal to fixed costs divided by:
a.
unit selling price less unit variable cost
b.
contribution margin per unit
c.
one minus the variable cost ratio
d.
a and b only
e.
a, b, and c
ANS: PTS: 1
18. The degree of operating leverage is equal to the ____ change in ____ divided by the ____ change in ____.
a.
percentage; sales; percentage; EBIT
b.
unit; sales; unit; EBIT
c.
percentage; EBIT; percentage; sales
d.
unit; EBIT; unit; sales
e.
none of the above
ANS: PTS: 1
19. The linear breakeven model excludes ____ from the analysis.
a.
financing costs
b.
taxes
c.
contribution margin
d.
a and b only
e.
a, b, and c
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ECO 550 Week 11 Discussion Question – Strayer New
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Week 11 Discussion
Please give best or most enjoyable or interesting 1 or 2 parts of class for you.
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FIN 317 Week 11 Final Exam – Strayer
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Chapters 7 Through 15
Part 1: Chapters 7 Through 11
Part 2: Chapters 12 Through 15
CHAPTER 7
TYPES AND COSTS OF FINANCIAL CAPITAL
True-False Questions
1. The accounting emphasis on accrued revenue and expenses and depreciation is the same emphasis as that of finance managers.
2. Traditional accounting does not focus on the implicit cost of equity that is the required capital gains to complement dividends. However, evaluation methods exist to determine this value by financial managers.
3. Formal historical accounting procedures include explicit records of debt (interest and principal) and dividend capital costs.
4. Public financial markets are markets for the creation, sale and trade of illiquid securities having less standardized negotiated features.
5. A venture’s “riskiness” in terms of poor performance or failure is usually very high during the maturity stage of its life cycle.
6. A venture’s “riskiness” in terms of poor performance or failure is usually high to moderate during the rapid-growth stage of its life cycle.
7. First-round financing during a venture’s survival stage comes primarily from venture capitalists and investment banks.
8. Startup financing usually comes from entrepreneurs, business angels, and investment bankers.
9. Commercial banks provide liquidity-stage financing for ventures in the rapid-growth stage of their life cycles.
10. A venture’s “riskiness” in terms of the likelihood of poor performance or failure decreases as it moves from its development stage through to its rapid-growth stage.
11. A nominal interest rate is an observed or stated interest rate.
12. The “real interest rate” (RR) is the interest one would face in the absence of inflation, risk, illiquidity, and any other factors determining the appropriate interest rate.
13. The risk-free interest rate is the interest rate on debt that is virtually free of inflation risk.
14. Inflation premium is the rising prices not offset by increasing quality of goods being purchased.
15. “Default-risk” is the risk that a borrower will not pay the interest and/or the principal on a loan.
16. The “prime rate” is the interest rate charged by banks to their highest default risk business customers.
17. Bond ratings reflect the inflation risk of a firm’s bonds.
18. The relationship between real interest rates and time to maturity when default risk is constant is called the term structure of interest rates.
19. The graph of the term structure of interest rates, which plots interest rates to time to maturity is called the yield curve.
20. Liquidity premiums reflect the risk associated with firms that possess few liquid assets.
21. Subordinated debt is secured by a venture’s assets, while senior debt has an inferior claim to a venture’s assets.
22. Early-stage ventures tend to have large amounts of senior debt relative to more mature ventures.
23. Investment risk is the chance or probability of financial loss on one’s venture investment, and can be assumed by debt, equity, and founding investors.
24. A venture with a higher expected return relative to other ventures will necessarily have a higher standard deviation or returns.
25. Historically, large-company stocks have averaged higher long-term returns than small-company stocks.
26. The coefficient of variation measures the standard deviation of a venture’s return relative to its expected return.
27. Closely held corporations are those companies whose stock is traded over-the-counter.
28. Typically, the stocks of closely held corporations aren’t publicly traded.
29. Organized exchanges have physical locations where trading takes place, while the over-the-counter market is comprised of a network of brokers and dealers that interact electronically.
30. Market cap is determined by multiplying a firm’s current stock price by the number of shares outstanding.
31. The excess average return of long-term government bonds over common stock is called the market risk premium.
32. The weighted average cost of capital is simply the blended, or weighted cost of raising equity and debt capital.
33. Venture capital holding period returns (all stages) for the 10-year period ending in 2012 were about the same as the returns on the S&P 500 stocks.
Multiple-Choice Questions
1. Which one of the following markets involve liquid securities with standardized contract features such as stocks and bonds?
a. private financial market
b. derivatives market
c. commodities market
d. real estate market
e. public financial market
2. Which of the following markets involve direct two-party negotiations over illiquid, non-standardized contracts such as bank loans and direct placement of debt?
a. primary market
b. secondary market
c. options market
d. private financial market
e. public financial market
3. Which of the following is an example of rent on financial capital?
a. interest on debt
b. dividends on stock
c. collateral on equity
d. a and b
e. a, b, and c
4. Which of the following describes the observed or stated interest rate?
a. real rate
b. nominal rate
c. risk-free rate
d. prime rate
e. inflation rate
5. Which of the following describes the interest rate in addition to the inflation rate expected on a risk-free loan?
a. real rate
b. nominal rate
c. risk-free rate
d. prime rate
e. inflation rate
6. Which of the following describes the interest rate on debt that is virtually free of default risk?
a. real rate
b. nominal rate
c. risk-free rate
d. prime rate
e. inflation rate
7. Which of the following describes the interest rate charged by banks to their highest quality customers?
a. real rate
b. nominal rate
c. risk-free rate
d. prime rate
e. inflation rate
8. Which of the following is not a component in determining the cost of debt?
a. inflation premium
b. default risk premium
c. liquidity premium
d. maturity premium
e. interest rate premium
9. The additional interest rate premium required to compensate the lender for the probability that a borrower will not be able to repay interest and principal on a loan is known as?
a. inflation premium
b. default risk premium
c. liquidity premium
d. maturity premium
e. investment risk premium
10. The additional premium added to the real interest rate by lenders to compensate them for a debt instrument which cannot be converted to cash quickly at its existing value is called?
a. inflation premium
b. default risk premium
c. liquidity premium
d. maturity premium
e. investment risk premium
11. The added interest rate charged due to the inherent increased risk in long-term debt is called?
a. inflation premium
b. default risk premium
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FIN 320 Week 11 Final Exam – Strayer
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Chapters 9, 10, 12 Through 15 And 17 Through 22
9
Student: ___________________________________________________________________________
1.
Testing many different trading rules until you find one that would have worked in the past is called _______.
A.
data mining
B.
perceived patterning
C.
pattern searching
D.
behavioral analysis
2.
Models of financial markets that emphasize psychological factors affecting investor behavior are called _______.
A.
data mining
B.
fundamental analysis
C.
charting
D.
behavioral finance
3.
The trin statistic is a ______ indicator.
A.
sentiment
B.
flow of funds
C.
market structure
D.
fundamental
4.
The put/call ratio is a ______ indicator.
A.
sentiment
B.
flow of funds
C.
market structure
D.
fundamental
5.
Relative strength is ______ indicator.
A.
a fundamental
B.
an economic
C.
a technical
D.
an international
6.
Short interest is a ______ indicator.
A.
sentiment
B.
flow of funds
C.
market structure
D.
fundamental
7.
Moving averages are ______ indicators.
A.
sentiment
B.
flow of funds
C.
trend
D.
fundamental
8.
Market breadth is a ______ indicator.
A.
sentiment
B.
flow of funds
C.
technical
D.
fundamental
9.
The cumulative tally of the number of advancing stocks minus declining stocks is called the ______________.
A.
market breadth
B.
market volume
C.
trin ratio
D.
relative strength ratio
10.
A high amount of short interest is typically considered as a __________ signal, and contrarians may consider it as a _________ signal.
A.
bearish; bullish
B.
bullish; bearish
C.
bearish; false
D.
bullish; false
11.
Technical analysis focuses on _____________________.
A.
finding opportunities for risk-free investing
B.
finding repeating trends and patterns in prices
C.
changing prospects for earnings growth of particular firms or industries
D.
forecasting technical regulatory changes
12.
Behavioralists point out that even if market prices are ____________, there may be _______________.
A.
distorted; limited arbitrage opportunities
B.
distorted; fundamental efficiency
C.
allocationally efficient; limitless arbitrage opportunities
D.
distorted; allocational efficiency
13.
According to market technicians, it is time to sell stock in a head-and-shoulders formation when ___________.
A.
the price index pierces the left shoulder
B.
the price index pierces the right shoulder
C.
the price index pierces the head
D.
none of these options takes place
14.
When a stock price breaks through the moving average from below, this is considered to be ______.
A.
the starting point for a new moving average
B.
a bearish signal
C.
a bullish signal
D.
none of these options
15.
When the stock price falls below a moving average, a possible conclusion is that _____.
A.
market momentum has become positive
B.
market momentum has become negative
C.
there is no regular pattern for this stock's market momentum
D.
professional analysts' opinions are invalid until the stock price rises again
16.
Following a period of falling prices, the moving average will _____.
A.
be below the current price
B.
be above the current price
C.
be equal to the current price
D.
become more volatile than it had been before prices fell
17.
A moving average of stock prices _________________.
A.
always lies above the most recent price
B.
always lies below the most recent price
C.
is less volatile than the actual prices
D.
is more volatile than the actual prices
18.
When the housing bubble burst in 2007, it set off the worst financial crisis _____.
A.
in 25 years.
B.
in 40 years.
C.
in 50 years.
D.
in 75 years.
19.
A support level is ___________________.
A.
a level beyond which the market is unlikely to rise
B.
a level below which the market is unlikely to fall
C.
an equilibrium price level justified by characteristics such as earnings and cash flows
D.
the peak of a market wave or cycle
20.
According to Kondratieff, the macro economy moves in a series of waves that recur at intervals of approximately _________________.
A.
18 months
B.
4 years
C.
8 years
D.
50 years
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FIN 350 Week 11 Quiz – Strayer
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Quiz 10 Chapter 22 and 23
Finance Company Operations
1. ____ finance companies concentrate on purchasing credit contracts from retailers and dealers.
a.
Consumer
b.
Sales
c.
Commercial
d.
None of the above
2. Which of the following is not a source of finance company funds to support operations?
a.
loans from banks
b.
commercial paper
c.
federal funds
d.
bonds
3. When a finance company's assets are ____ interest rate sensitive than its liabilities and when interest rates are expected to ____, bonds can provide long-term financing at a rate that is completely insulated from rising market rates.
a.
less; increase
b.
less; decrease
c.
more; increase
d.
more; decrease
4. Finance companies differ from commercial banks, savings institutions, and credit unions in that they
a.
normally do not obtain funds from deposits.
b.
focus on financing acquisitions by companies.
c.
focus on providing residential mortgages.
d.
use most of their funds to purchase stocks.
5. Which of the following is not a main source of funds for finance companies?
a.
bank loans
b.
commercial paper issues
c.
bonds
d.
capital
6. Finance companies are more likely to issue bonds when their assets are presently ____ interest-rate sensitive than their liabilities, and when interest rates are expected to ____.
a.
more; decrease
b.
less; increase
c.
more; increase
d.
less; decrease
7. If finance companies were confident about projections of ____ interest rates, they may consider using the funds obtained from issuing bonds to offer loans with ____ rates.
a.
declining; variable
b.
rising; fixed
c.
rising; variable
d.
A and B
8. Finance companies would prefer to increase their long-term debt most once interest rates
a.
have declined.
b.
have increased.
c.
were stable for several years.
d.
were projected to decline.
9. The main competition for finance companies in the consumer loan market comes from
a.
pension funds.
b.
life insurance companies and property and casualty insurance companies.
c.
commercial banks and savings and institutions.
d.
mutual funds.
10. When finance companies purchase a firm's receivables at a discount, and are responsible for processing and collecting the balances of these accounts, they act as a
a.
leasing agent.
b.
lessor.
c.
lessee.
d.
factor.
11. When a finance company purchases equipment for use by another business, the finance company provides financing in the form of
a.
factoring.
b.
leasing.
c.
a banker's acceptance.
d.
a letter of credit.
12. Finance companies are exempt from state regulations.
a. True
b. False
13. Finance companies are not subject to state regulations on intrastate business.
a. True
b. False
14. Finance companies are subject to
a.
a maximum limit on loan size.
b.
ceiling interest rates on loans provided.
c.
a maximum length on loan maturity.
d.
regulations on intra-state banking.
e.
all of the above
15. If finance companies with a greater rate-sensitivity of liabilities than assets wanted to reduce interest-rate risk, they could
a.
shorten their average asset life.
b.
lengthen their average asset life.
c.
shorten the maturity of debt that they issue.
d.
make greater use of fixed-rate loans.
16. Overall, the liquidity risk of finance companies is higher than that of other financial institutions.
a. True
b. False
17. Compared to other lending financial institutions, finance companies have a ____ loan delinquency rate, and the average rate charged on loans is ____ on average.
a.
lower; lower
b.
lower; higher
c.
higher; higher
d.
higher; lower
18. A wholly owned subsidiary whose primary purpose is to finance sales of the parent company's products and services, provide wholesale financing to distributors of the parent company's products, and purchase receivables of the parent company is a
a.
captive finance subsidiary.
b.
factor.
c.
leasing agent.
d.
captive factoring agent.
19. Which of the following statements is incorrect?
a.
A captive finance subsidiary's purpose is to finance sales of the parent company's products and services.
b.
An operating agreement between the parent and the captive specifies the type of receivables that qualify for same and specific services provided by the parent.
c.
A captive can be used to finance distributor or dealer inventories until a sale occurs.
d.
A captive is rarely used to finance products leased to others.
20. ____ provide loans to firms that cannot obtain financing from commercial banks.
a.
Consumer finance companies
b.
Sales finance companies
c.
Commercial finance companies
d.
None of the above
21. Which of the following is not a use of finance company funds?
a.
consumer loans
b.
business loans
c.
commercial paper
d.
real estate loans
e.
All of the above are uses of finance company funds.
22. Finance companies commonly act as ____ for accounts receivable; that is, they purchase a firm's receivables at a discount and are responsible for processing and collecting the balances of these accounts.
a.
brokers
b.
dealers
c.
market makers
d.
factors
e.
none of the above
23. Most finance companies are commonly exposed to all forms of risk below except ____ risk.
a.
exchange rate
b.
interest rate
c.
liquidity
d.
credit
24. Changes in economic growth are ____ related to a finance company's cash flows, and changes in the risk-free rate are ____ related to a finance company's cash flows.
a.
positively; negatively
b.
negatively; positively
c.
negatively; negatively
d.
positively; positively
25. Finance companies participate in the ____ market to reduce interest rate risk.
a.
money
b.
bond
c.
options
d.
swap
26. Many consumer finance companies also provide personal loans, directly to individuals to finance purchases of large household items.
a. True
b. False
27. Business finance companies focus on loans to very large businesses.
a. True
b. False
28. Consumer finance companies sometimes provide Business finance companies to individuals.
a. True
b. False
29. Although commercial paper is available only for short-term financing, finance companies can continually roll over their issues to create a permanent source of funds.
a. True
b. False
�� 30. After interest rates increase, finance companies tend to use more long-term debt to lock in the cost of funds over an extended period of time.
a. True
b. False
31. Some finance companies offer credit card loans through a particular retailer.
a. True
b. False
32. The main competition for finance companies in the consumer loan market comes from pension funds and insurance companies.
a. True
b. False
33. The value of a finance company can be modeled as the present value of its future cash flows.
a. True
b. False
34. The most important risk for finance companies is ____ risk.
a.
settlement
b.
accounting
c.
credit
d.
exchange rate
35. Finance companies can accumulate capital by doing all of the following except
a.
retaining earnings.
b.
issuing stock.
c.
issuing commercial paper.
d.
Finance companies can build their capital base by doing all of the above.
36. Consumer finance companies primarily focus on for
a.
consumer loans.
b.
consumer advising.
c.
consumer regulation.
d.
none of the above
37. Finance companies are regulated by the states but are not subject to regulation by an agency of the federal government.
a. True
b. False
38. Historically, captive finance subsidiaries were associated with:
a.
the automobile industry.
b.
the oil and gas industry.
c.
the textile industry.
d.
department stores.
Chapter 23—Mutual Fund Operations
1. Which of the following statements is incorrect?
a.
Mutual funds serve as a key financial intermediary.
b.
Managers of mutual funds do not analyze economic and industry trends.
c.
Because of their diversification, management expertise, and liquidity, mutual funds have grown at a rapid pace.
d.
Some mutual funds offer check-writing privileges.
2. No-load mutual funds are normally promoted by ____. Load funds are promoted by ____.
a.
registered representatives of a brokerage firm; registered representatives of a brokerage firm
b.
registered representatives of a brokerage firm; the mutual fund of concern
c.
the mutual fund of concern; registered representatives of a brokerage firm
d.
the mutual fund of concern; the mutual fund of concern
3. To cover managerial expenses, mutual funds typically charge
a.
management fees of less than 2 percent of total assets per year.
b.
commissions of typically 8 to 10 percent of transaction market value per year.
c.
management fees of typically more than 10 percent of total assets per year.
d.
commissions of typically 3 to 5 percent of the transaction market value per year.
4. Mutual funds that are willing to repurchase their shares from investors at any time are referred to as
a.
closed-end funds.
b.
load mutual funds.
c.
no-load mutual funds.
d.
open-end mutual funds.
5. ____ funds do not normally repurchase their shares from investors.
a.
Closed-end
b.
Load mutual
c.
No-load mutual
d.
Open-end mutual
6. Most closed-end funds invest in
a.
stock and bonds.
b.
money market securities.
c.
gold.
d.
derivatives.
7. Exchange-traded funds are like open-end funds in the sense that
a.
their shares are traded on an exchange, and their share price changes throughout the day.
b.
they have a fixed number of shares.
c.
they are not actively managed.
d.
none of the above
8. Hedge funds differ from open-end mutual funds in the sense that
a.
they require a much smaller initial investment.
b.
they are open to additional investments at any time.
c.
their investors cannot sell shares back to the fund at any time they desire.
d.
they invest in very limited set of securities.
9. Shares of open-end mutual funds are purchased and sold on exchanges.
a. True
b. False
10. Mutual funds
a.
are unregulated.
b.
are required to disclose the names of their portfolio managers in the prospectus.
c.
are not required to disclose any information about their past performance.
d.
are exempt from all taxes.
11. Which of the following is not disclosed in the prospectus?
a.
the minimum amount of investment required
b.
the investment objective of the funds
c.
the fees incurred by the mutual fund
d.
all of the above are disclosed
12. The net asset value of a mutual fund is estimated once every week.
a. True
b. False
13. Mutual funds with ____ expense ratios tend to ____ others that have a similar investment objective.
a.
lower; underperform
b.
higher; outperform
c.
lower; outperform
d.
A and B
14. A front-end load is a withdrawal fee assessed when you withdraw money from the mutual fund.
a. True
b. False
15. Money market funds invest mostly in
a.
stocks.
b.
long-term bonds.
c.
real estate.
d.
short-term securities.
16. If investors sell their mutual fund shares after the net asset value of the fund increases, the return is called
a.
share price appreciation.
b.
capital gains distribution.
c.
dividends.
d.
split net asset value.
17. Mutual funds composed of stocks that have potential for very high growth, but may also be unproven, are called
a.
income funds.
b.
capital appreciation funds.
c.
specialty funds.
d.
dividend funds.
18. Mutual funds composed of bonds that offer periodic coupon payments are
a.
income funds.
b.
specialty funds.
c.
dividend funds.
d.
growth funds.
19. Mutual funds whose bonds have a ____ average time to maturity are ____ sensitive to interest rate fluctuations.
a.
longer; less
b.
shorter; less
c.
shorter; more
d.
A and C
20. The net asset value of international stock mutual funds ____ as the dollar strengthens against foreign currencies. (Assume no change in the prices of foreign stocks.)
a.
increases
b.
decreases
c.
is unaffected
d.
can increase or decrease depending on the dollar's degree of strength
21. Mutual funds that include some non-U.S. stocks and U.S. stocks are called ____ funds.
a.
global
b.
foreign
c.
combined
d.
mixed
22. A mutual fund consisting only of stocks of firms that are in a specific industry is an example of a ____ fund.
a.
specialty
b.
growth
c.
capital appreciation
d.
growth and income
23. The majority of mutual fund assets are in the form of
a.
common stocks.
b.
preferred stocks.
c.
U.S. government bonds.
d.
municipal bonds.
24. If a mutual fund distributes at least ____ percent of its taxable income to shareholders, the fund is exempt from taxes on dividends, interest, and capital gains distributed to shareholders.
a.
25
b.
50
c.
75
d.
90
25. When the redemptions of money market mutual fund shares exceeds sales of shares, the fund accommodates the amount of excessive redemptions by
a.
selling some of the assets contained in the portfolio.
b.
issuing stock.
c.
issuing bonds.
d.
borrowing from banks.
26. Money market fund assets include all of the following, except
a.
stocks.
b.
repurchase agreements.
c.
Treasury bills.
d.
CDs.
27. If money market funds definitely expect interest rates to increase, they will ____ their average asset maturity.
a.
not adjust
b.
shorten
c.
lengthen
d.
shorten (if the expected change is small) or lengthen (if the expected change is large)
28. Money market funds are normally perceived to have ____ interest rate risk, and ____ default risk.
a.
low; high
b.
high; high
c.
high; low
d.
low; low
29. Equity real estate investment trusts invest
a.
in mortgage and construction loans.
b.
directly in properties.
c.
in common stocks issued by construction companies.
d.
in common stocks issued by real estate brokerage firms.
30. Because ____ real estate investment trusts essentially represent a fixed income portfolio, their market value will ____ as interest rates increase.
a.
equity; increase
b.
equity; decrease
c.
mortgage; increase
d.
mortgage; decrease
31. When interest rates decline, investors who want to earn a high return may tend to ____ in stock mutual funds, and ____ deposits in depository institutions.
a.
reduce; reduce
b.
reduce; increase
c.
increase; reduce
d.
increase; increase
32. The composition of asset allocation funds
a.
is focused completely on one type of security as specified by the particular mutual fund.
b.
is fixed and not altered by the mutual fund managers.
c.
A and B
d.
none of the above
33. A mutual fund prospectus does not contain
a.
minimum amount of investment required.
b.
return on the fund since its inception.
c.
investment objective of the mutual fund.
d.
exposure of the mutual fund to various types of risk.
e.
fees incurred by the mutual fund.
34. The ____ of a mutual fund indicates the value per share.
a.
net asset value
b.
gross asset value
c.
net stock value
d.
net bond value
e.
none of the above
35. Mutual funds whose funds are promoted strictly by the mutual fund of concern are called
a.
closed-end funds.
b.
load mutual funds.
c.
no-load mutual funds.
d.
open-end mutual funds.
36. Mutual funds that are composed of bonds that offer periodic coupon payments are called ____ mutual funds.
a.
tax-free
b.
income
c.
high-yield
d.
growth
e.
none of the above
37. ____ are most likely to invest in mortgages.
a.
Stock mutual funds
b.
Bond mutual funds
c.
Load funds
d.
Closed-end funds
38. Hedge funds that exceed a specified size must register with the
a.
Securities and Exchange Commission (SEC).
b.
Federal Reserve.
c.
Office of Thrift Supervision.
d.
Federal Mutual Fund Board.
39. According to SEC regulations, the majority of the members on a mutual fund's board of directors must be
a.
employed by the fund.
b.
outsiders (not employed by the fund).
c.
certified public accountants.
d.
certified financial analysts.
40. An expense ratio represents ____ divided by the fund's ____.
a.
annual fees charged to investors; 12b-1 fees
b.
annual fees charged to investors; net asset value
c.
initial sales charge (load); 12b-1 fees
d.
initial sales charge (load); net asset value
41. The most common investment by closed-end funds is in
a.
derivatives.
b.
bonds.
c.
money market securities.
d.
international equity securities.
42. ____ are beneficial for investors who want to invest in tax-exempt securities.
a.
Municipal bond funds
b.
Growth and income funds
c.
International and global funds
d.
Money market funds
43. When the demand for a particular closed-end fund is ____, the fund is likely priced at a ____.
a.
high; discount
b.
low; discount
c.
high; premium
d.
B and C are correct
44. Which of the following statements is incorrect?
a.
Commercial paper is commonly purchased by money market funds.
b.
From an investor's perspective, money market funds usually have a low level of credit risk.
c.
Money market funds tend to have low interest rate risk compared to bond funds.
d.
If mutual fund managers expect interest rates to decrease in the future, they should use funds generated from maturing securities today to purchase new securities with shorter maturities.
45. The number of exchange-traded funds has declined over the last several years because the cost of managing them was excessive.
a. True
b. False
46. Exchange-traded funds can be purchased on margin.
a. True
b. False
47. Investors can sell exchange-traded funds short.
a. True
b. False
48. Mutual fund managers seek securities that have much liquidity so that they could easily sell them in the secondary market at any time.
a. True
b. False
49. Closed-end funds are closed to new investment but allow redemptions by shareholders.
a. True
b. False
50. Closed-end fund managers must hold more cash than mutual fund managers.
a. True
b. False
51. Index mutual funds are not traded throughout the day, while exchange-traded funds are.
a. True
b. False
52. Venture capital funds typically invest in stocks of publicly-traded companies.
a. True
b. False
53. Many businesses that go public are partially backed by venture capital before the IPO.
a. True
b. False
54. Private equity funds use most of their money to invest in stocks of publicly-traded companies.
a. True
b. False
55. Vulture funds are a type of private equity fund that purchase distressed assets of a firm that is in or near bankruptcy.
a. True
b. False
56. Hedge funds commonly engage in short selling.
a. True
b. False
57. ____ are not exchange-traded funds.
a.
Spiders
b.
Growth mutual funds
c.
Diamonds
d.
Sector Spiders
58. Which of the following statements is incorrect?
a.
ETFs are like index mutual funds because the share price adjusts over time in response to the change in the index level.
b.
Both ETFs and index mutual funds pay dividends in the form of additional shares to investors.
c.
The portfolio management of both ETFs and index mutual funds is very complex.
d.
ETFs can be traded throughout the day.
59. Funds that are designed to mimic particular stock indexes and are traded on a stock exchange are known as
a.
index mutual funds.
b.
exchange-traded funds.
c.
money market funds.
d.
none of the above
60. Exchange traded funds can be
a.
traded throughout the day.
b.
purchased on margin.
c.
sold short.
d.
all of the above
61. ____ trade at one-tenth of the S&P 500 value.
a.
Spiders
b.
Cubes
c.
Diamonds
d.
World Equity Benchmark Shares
62. Mutual funds must register with the U.S. Treasury and provide to interested investors a prospectus that discloses details about the components of the funds and risks involved.
a. True
b. False
63. The net asset value (NAV) is estimated each day by first determining the market value of all securities comprising the mutual fund.
a. True
b. False
64. Portfolio managers are hired by the mutual fund to invest in a portfolio of securities that satisfies the desires of investors.
a. True
b. False
65. The expenses incurred by a mutual fund are billed separately to investors, and are not included in the fund's net asset value (NAV).
a. True
b. False
66. A front-end load is a withdrawal fee assessed when you withdraw money from the mutual fund.
a. True
b. False
67. Large mutual funds can exert some control over the management of firms because they commonly represent the largest shareholders.
a. True
b. False
68. Investors who feel capable of making their own investment decisions often prefer to invest in load funds.
a. True
b. False
69. The term "mutual funds" is normally used to represent closed-end funds, and does not include open-end funds.
a. True
b. False
70. Exchange-traded funds differ from open-end funds in that their share price is adjusted only at the end of every day.
a. True
b. False
71. Capital appreciation funds are suited for investors who are more willing to risk a possible loss in value.
a. True
b. False
72. The returns on international stock mutual funds are affected only by foreign companies' stock prices, and are independent of currency movements.
a. True
b. False
73. Index funds are becoming increasingly unpopular because most mutual fund managers consistently outperform indexes.
a. True
b. False
74. A mutual fund's performance is usually unrelated to market conditions.
a. True
b. False
75. The SEC requires that a majority of the directors of a mutual fund board be independent (not employed by the fund).
a. True
b. False
76. Diversification among types of mutual funds usually does little to reduce the volatility of returns on the overall investment.
a. True
b. False
77. Closed-end funds may sometimes engage in a stock repurchase, in which they purchase shares on the exchange where the shares are listed.
a. True
b. False
78. Because money market funds contain instruments with short-term maturities, their market values are not very sensitive to movements in market interest rates.
a. True
b. False
79. Equity REITs are sometimes purchased to hedge against inflation, as rents and property values tend to rise with inflation.
a. True
b. False
80. Equity REITs essentially represent fixed-income portfolios. Thus, their market values will be influenced by interest rate movements.
a. True
b. False
81. Hedge funds are more heavily regulated than mutual funds.
a. True
b. False
82. Which of the following is not true regarding mutual funds?
a.
They are a key financial intermediary.
b.
They provide an important service to individual investors seeking to invest funds.
c.
Most mutual funds use experienced portfolio managers, so investors do not have to manage the portfolio themselves.
d.
They provide a way for individual investors to diversify, but most individual investors are unable to afford the purchase of mutual fund shares.
83. Which of the following statements is incorrect?
a.
Exchange-traded funds (ETFs) are designed to mimic particular stock indexes and are traded on a stock exchange.
b.
Unlike a closed-end fund, an ETF has a fixed number of shares.
c.
ETFs differ from most open-end and closed-end funds in that they are not actively managed.
d.
One disadvantage of ETFs is that each purchase of additional shares must be done through the exchange where they are traded.
84. A mutual fund prospectus does not contain the
a.
minimum amount of investment required.
b.
investment objective of the mutual fund.
c.
exposure of the mutual fund to various types of risk.
d.
return on the fund since its inception.
e.
fees incurred by the mutual fund.
85. The ____ of a mutual fund represents the price at which shares can be purchased from a mutual fund.
a.
gross asset value
b.
net asset value
c.
net stock value
d.
net bond value
86. Which of the following is incorrect about money market funds (MMFs)?
a.
The credit risk of MMFs is normally perceived to be lower than that of corporate bonds.
b.
MMFs have higher interest rate risk than bond funds.
c.
MMFs normally generate positive returns over time
d.
All of the above are correct.
87. ____ are most likely to invest in mortgages.
a.
Stock mutual funds
b.
Real estate investment trusts (REITs)
c.
Load funds
d.
Closed-end funds
e.
None of the above
88. Mutual funds are not required to disclose which of the following in the prospectus?
a.
the names of the portfolio managers
b.
the length of time that the portfolio managers have been employed by the fund in that position
c.
the performance record in recent years
d.
the number of investors currently investing in the mutual fund
e.
Mutual funds are required to disclose all of the above in a prospectus
89. Which of the following is not a way in which mutual funds generate returns for their shareholders?
a.
They can pass on any earned income as dividend payments to shareholders.
b.
They distribute the capital gains resulting from the sale of securities within the fund.
c.
The mutual fund price appreciates.
d.
All of the above are ways in which a mutual fund generates returns to its shareholders.
90. A(n) ____ fund contains a sales charge.
a.
load
b.
no-load
c.
closed-end
d.
open-end
e.
none of the above
91. ____ funds are open to investment from investors at any time.
a.
Load
b.
No-load
c.
Open-end
d.
Closed-end
e.
None of the above
92. Which of the following statements is incorrect?
a.
Investors can purchase shares directly from an open-end fund at any time.
b.
The number of shares of an open-end fund is always changing.
c.
Open-end funds typically maintain some cash on hand in case investments exceed redemptions.
d.
There are many different categories of open-end mutual funds.
93. ____ funds focus on a group of companies sharing a particular characteristic.
a.
Specialty
b.
Growth and income
c.
Closed-end
d.
Capital appreciation
e.
None of the above
94. Bond portfolios with some bonds rated below Baa by Moody's or BBB by Standard and Poor's, available for investors desiring high return and willing to incur high risk, are called ____ funds.
a.
growth
b.
capital appreciation
c.
junk bond
d.
bond
e.
none of the above
95. Which of the following statements is incorrect?
a.
A mutual fund is usually run by an investment company.
b.
Although many mutual funds have grown substantially over time, their expense ratios have generally increased over time.
c.
For each mutual fund, all expenses charged and reflected in the expense ratio are always valid.
d.
The SEC requires that a majority of the directors of a mutual fund board be independent.
96. Money market funds commonly invest in
a.
stocks.
b.
real estate.
c.
commercial paper.
d.
U.S. Treasury bonds.
e.
none of the above
97. Which of the following is not true with respect to venture capital funds?
a.
They typically invest in young, growing firms that need equity funding but are not ready or willing to go public.
b.
More than half of all VC investing is in businesses that are being created.
c.
Venture capital funds tend to focus on technology firms, which have the potential for high returns but also exhibit a high level of risk.
d.
Because VC funds invest in fairly safe ventures, a low percentage of their ventures fail.
e.
All of the above are correct with respect to venture capital funds.
98. ____ funds sell shares to wealthy individuals and financial institutions and use the proceeds to invest in securities.
a.
Growth
b.
Open-end
c.
Capital appreciation
d.
Hedge
e.
Specialty
99. Exchange-traded funds distribute their capital gains to their shareholders, who must pay tax on the gains.
a. True
b. False
100. Shares of exchange-traded funds can be sold _________, and shares of open-end mutual funds can be sold _________.
a.
at any time during trading hours; at any time via private trading networks
b.
only at the end of the day; at any time during trading hours
c.
at any time via private trading networks; at any time during trading hours
d.
at any time during trading hours; only at the end of the day
101. The average annual fee on actively managed exchange-traded funds is ________, which is _________.
a.
zero.
b.
lower than the typical annual fee on open-end mutual funds.
c.
higher than the typical annual fee on open-end mutual funds.
d.
the same as the typical annual fee on open-end mutual funds.
102. An investor who believes that technology stocks will perform well but does not want to select individual technology stocks might invest in:
a.
Spiders.
b.
WEBs.
c.
Cubes.
d.
Diamonds.
103. If interest rates are expected to ________, mortgage real investment trusts (REITs) ___________.
a.
decline; become less attractive
b.
rise; become less attractive
c.
rise; are not affected
d.
decline; are not affected
104. Investors who invest in a hedge fund of funds essentially pay two layers of management fees.
a. True
b. False
105. Hedge funds commonly use financial leverage, which can:
a.
magnify their returns and magnify their losses.
b.
magnify their returns and limit their losses.
c.
reduce their risk and limit their losses.
d.
magnify their returns and not affect their risk.
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FIN 535 Week 11 Final Exam – Strayer New
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Chapters 8 Through 21
Chapter 8—Relationships among Inflation, Interest Rates, and Exchange Rates
1. Assume a two-country world: Country A and Country B. Which of the following is correct about purchasing power parity (PPP) as related to these two countries?
a.
If Country A's inflation rate exceeds Country B's inflation rate, Country A's currency will weaken.
b.
If Country A's interest rate exceeds Country B's inflation rate, Country A's currency will weaken.
c.
If Country A's interest rate exceeds Country B's inflation rate, Country A's currency will strengthen.
d.
If Country B's inflation rate exceeds Country A's inflation rate, Country A's currency will weaken.
2. Given a home country and a foreign country, purchasing power parity (PPP) suggests that:
a.
a home currency will depreciate if the current home inflation rate exceeds the current foreign interest rate.
b.
a home currency will appreciate if the current home interest rate exceeds the current foreign interest rate.
c.
a home currency will appreciate if the current home inflation rate exceeds the current foreign inflation rate.
d.
a home currency will depreciate if the current home inflation rate exceeds the current foreign inflation rate.
3. The international Fisher effect (IFE) suggests that:
a.
a home currency will depreciate if the current home interest rate exceeds the current foreign interest rate.
b.
a home currency will appreciate if the current home interest rate exceeds the current foreign interest rate.
c.
a home currency will appreciate if the current home inflation rate exceeds the current foreign inflation rate.
d.
a home currency will depreciate if the current home inflation rate exceeds the current foreign inflation rate.
4. Because there are a variety of factors in addition to inflation that affect exchange rates, this will:
a.
reduce the probability that PPP shall hold.
b.
increase the probability that PPP shall hold.
c.
increase the probability the IFE will hold.
d.
B and C
5. Because there are sometimes no substitutes for traded goods, this will:
a.
reduce the probability that PPP shall hold.
b.
increase the probability that PPP shall hold.
c.
increase the probability the IFE will hold.
d.
B and C
6. According to the IFE, if British interest rates exceed U.S. interest rates:
a.
the British pound's value will remain constant.
b.
the British pound will depreciate against the dollar.
c.
the British inflation rate will decrease.
d.
the forward rate of the British pound will contain a premium.
e.
today's forward rate of the British pound will equal today's spot rate.
7. Given a home country and a foreign country, the international Fisher effect (IFE) suggests that:
a.
the nominal interest rates of both countries are the same.
b.
the inflation rates of both countries are the same.
c.
the exchange rates of both countries will move in a similar direction against other currencies.
d.
none of the above
8. Given a home country and a foreign country, purchasing power parity suggests that:
a.
the inflation rates of both countries will be the same.
b.
the nominal interest rates of both countries will be the same.
c.
A and B
d.
none of the above
9. If interest rates on the euro are consistently below U.S. interest rates, then for the international Fisher effect (IFE) to hold:
a.
the value of the euro would often appreciate against the dollar.
b.
the value of the euro would often depreciate against the dollar.
c.
the value of the euro would remain constant most of the time.
d.
the value of the euro would appreciate in some periods and depreciate in other periods, but on average have a zero rate of appreciation.
10. If the international Fisher effect (IFE) did not hold based on historical data, then this suggests that:
a.
some corporations with excess cash can lock in a guaranteed higher return on future foreign short-term investments.
b.
some corporations with excess cash could have generated profits on average from covered interest arbitrage.
c.
some corporations with excess cash could have generated higher profits on average from foreign short-term investments than from domestic short-term investments.
d.
most corporations that consistently invest in foreign short-term investments would have generated the same profits (on average) as from domestic short-term investments.
11. Under purchasing power parity, the future spot exchange rate is a function of the initial spot rate in equilibrium and:
a.
the income differential.
b.
the forward discount or premium.
c.
the inflation differential.
d.
none of the above
12. According to the international Fisher effect, if U.S. investors expect a 5% rate of domestic inflation over one year, and a 2% rate of inflation in European countries that use the euro, and require a 3% real return on investments over one year, the nominal interest rate on one-year U.S. Treasury securities would be:
a.
2%.
b.
3%.
c.
−2%.
d.
5%.
e.
8%.
13. According to the international Fisher effect, if investors in all countries require the same real rate of return, the differential in nominal interest rates between any two countries:
a.
follows their exchange rate movement.
b.
is due to their inflation differentials.
c.
is zero.
d.
is constant over time.
e.
C and D
14. Assume that U.S. and British investors require a real return of 2%. If the nominal U.S. interest rate is 15%, and the nominal British rate is 13%, then according to the IFE, the British inflation rate is expected to be about ____ the U.S. inflation rate, and the British pound is expected to ____.
a.
2 percentage points above; depreciate by about 2%
b.
3 percentage points above; depreciate by about 3%
c.
3 percentage points below; appreciate by about 3%
d.
3 percentage points below; depreciate by about 3%
e.
2 percentage points below; appreciate by about 2%
15. Assume U.S. and Swiss investors require a real rate of return of 3%. Assume the nominal U.S. interest rate is 6% and the nominal Swiss rate is 4%. According to the international Fisher effect, the franc will ____ by about ____.
a.
appreciate; 3%
b.
appreciate; 1%
c.
depreciate; 3%
d.
depreciate; 2%
e.
appreciate; 2%
16. Assume that the U.S. and Chile nominal interest rates are equal. Then, the U.S. nominal interest rate decreases while the Chilean nominal interest rate remains stable. According to the international Fisher effect, this implies expectations of ____ than before, and that the Chilean peso should ____ against the dollar.
a.
lower U.S. inflation; depreciate
b.
lower U.S. inflation; appreciate
c.
higher U.S. inflation; depreciate
d.
higher U.S. inflation; appreciate
17. According to the international Fisher effect, if Venezuela has a much higher nominal rate than other countries, its inflation rate will likely be ____ than other countries, and its currency will ____.
a.
lower; strengthen
b.
lower; weaken
c.
higher; weaken
d.
higher; strengthen
18. If interest rate parity holds, then the one-year forward rate of a currency will be ____ the predicted spot rate of the currency in one year according to the international Fisher effect.
a.
greater than
b.
less than
c.
equal to
d.
answer is dependent on whether the forward rate has a discount or premium
19. The Fisher effect is used to determine the:
a.
real inflation rate.
b.
real interest rate.
c.
real spot rate.
d.
real forward rate.
20. Latin American countries have historically experienced relatively high inflation, and their currencies have weakened. This information is somewhat consistent with the concept of:
a.
interest rate parity.
b.
locational arbitrage.
c.
purchasing power parity.
d.
the exchange rate mechanism.
21. Assume that the inflation rate in Singapore is 3%, while the inflation rate in the U.S. is 8%. According to PPP, the Singapore dollar should ____ by ____%.
a.
appreciate; 4.85
b.
depreciate; 3,11
c.
appreciate; 3.11
d.
depreciate; 4.85
22. The inflation rate in the U.S. is 3%, while the inflation rate in Japan is 10%. The current exchange rate for the Japanese yen (¥) is $0.0075. After supply and demand for the Japanese yen has adjusted in the manner suggested by purchasing power parity, the new exchange rate for the yen will be:
a.
$0.0076.
b.
$0.0073.
c.
$0.0070.
d.
$0.0066.
23. Assume that the U.S. inflation rate is higher than the New Zealand inflation rate. This will cause U.S. consumers to ____ their imports from New Zealand and New Zealand consumers to ____ their imports from the U.S. According to purchasing power parity (PPP), this will result in a(n) ____ of the New Zealand dollar (NZ$).
a.
reduce; increase; appreciation
b.
increase; reduce; appreciation
c.
reduce; increase; depreciation
d.
reduce; increase; appreciation
24. The following regression analysis was conducted for the inflation rate information and exchange rate of the British pound:
Regression results indicate that a0 = 0 and a1 = 2. Therefore:
a.
purchasing power parity holds.
b.
purchasing power parity overestimated the exchange rate change during the period under examination.
c.
purchasing power parity underestimated the exchange rate change during the period under examination.
d.
purchasing power parity will overestimate the exchange rate change of the British pound in the future.
25. Which of the following is indicated by research regarding purchasing power parity (PPP)?
a.
PPP clearly holds in the short run.
b.
Deviations from PPP are reduced in the long run.
c.
PPP clearly holds in the long run.
d.
There is no relationship between inflation differentials and exchange rate movements in the short run or long run.
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FIN 540 Week 11 Final Exam – Strayer NEW
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Chapters 24 Through 30
CHAPTER 24—BANKRUPTCY, REORGANIZATION, AND LIQUIDATION
TRUE/FALSE
1. A central question that must be addressed in bankruptcy proceedings is whether the firm's inability to meet scheduled interest payments results from a temporary cash flow problem or from a potentially permanent problem caused by falling asset values.
2. In the event of bankruptcy under the federal bankruptcy laws, debtholders have a prior claim to a firm's income and assets before both common and preferred stockholders. Moreover, in a bankruptcy all debtholders are treated equally as a single class of claimants.
3. The basic doctrine of fairness under bankruptcy provisions states that claims must be recognized in the order of their legal and contractual priority.
4. The primary test of feasibility in a reorganization is whether the firm's fixed charges after reorganization can be covered by its projected cash flows.
5. Bankruptcy plays no role in settling labor disputes and product liability suits. Such issues are outside the bounds of bankruptcy law and are covered by other statutes.
6. Bankruptcy laws have been used to help reach settlements in major product liability lawsuits. By using financial projections to show that contingent claims against the company jeopardize its existence, agreements are reached, partially satisfying claimants, and allowing the firm to continue operating.
7. Even if a firm's cash flow projections indicate that it will soon be unable to meet its interest payments, a bankruptcy case cannot begin until the firm actually defaults on a scheduled payment.
8. One of the actions that can be taken in bankruptcy under the standard of feasibility is to replace existing management with a new team if the quality of management is judged to have been substandard.
MULTIPLE CHOICE
9. Chapter 7 of the Bankruptcy Act is designed to do which of the following?
a.
Establish the rules of reorganization for firms with projected cash flows that eventually will be sufficient to meet debt payments.
b.
Ensure that the firm is viable after emerging from bankruptcy.
c.
Allow the firm to negotiate with each creditor individually.
d.
Provide safeguards against the withdrawal of assets by the owners of the bankrupt firm and allow insolvent debtors to discharge all of their obligations and to start over unhampered by a burden of prior debt.
e.
Protect shareholders against creditors.
10. Which of the following statements is most CORRECT?
a.
Federal bankruptcy law deals only with corporate bankruptcies. Municipal and personal bankruptcy are governed solely by state laws.
b.
All bankruptcy petitions are filed by creditors seeking to protect their claims against firms in financial distress. Thus, all bankruptcy petitions are involuntary as viewed from the perspective of the firm's management.
c.
Chapters 11 and 7 are the most important bankruptcy chapters for financial management purposes. If a reorganization plan cannot be worked out under Chapter 11, then the company will be liquidated as prescribed in Chapter 7 of the Act.
d.
"Restructuring" a firm's debt can involve forgiving a certain portion of the debt, but it cannot call for changing the debt's maturity or its contractual interest rate.
e.
Our bankruptcy laws were enacted in the 1800s, revised in the 1930s, and have remained unaltered since that time.
11. Which of the following statements is most CORRECT?
a.
The primary test of feasibility in a reorganization is whether every claimant agrees with the reorganization plan.
b.
The basic doctrine of fairness states that all debtholders must be treated equally.
c.
Since the primary issue in bankruptcy is to determine the sharing of losses between owners and creditors, the "public interest" is not a relevant concern.
d.
While a firm is in bankruptcy, the existing management is always allowed to retain control, though the court will monitor its actions closely.
e.
To a large extent, the decision to dissolve a firm through liquidation versus keeping it alive through reorganization depends on a determination of the value of the firm if it is rehabilitated versus the value of its assets if they are sold off individually.
12. What would be the priority of the claims as to the distribution of assets in a liquidation under Chapter 7 of the Bankruptcy Act? 1 is the highest claim, 5 is the lowest.
(1)
Trustees' costs to administer and operate the firm.
(2)
Common stockholders.
(3)
General, or unsecured, creditors.
(4)
Secured creditors, who have a claim to the proceeds from the sale of specific property pledged to secure a loan.
(5)
Taxes due to federal and state governments.
a.
5, 4, 1, 3, 2
b.
4, 1, 5, 3, 2
c.
5, 1, 4, 2, 3
d.
1, 5, 4, 3, 2
e.
1, 4, 3, 5, 2
CHAPTER 25—PORTFOLIO THEORY AND ASSET PRICING MODELS
TRUE/FALSE
1. The slope of the SML is determined by the value of beta.
2. If you plotted the returns of Selleck & Company against those of the market and found that the slope of your line was negative, the CAPM would indicate that the required rate of return on Selleck's stock should be less than the risk-free rate for a well-diversified investor, assuming that the observed relationship is expected to continue in the future.
3. If the returns of two firms are negatively correlated, then one of them must have a negative beta.
4. A stock with a beta equal to −1.0 has zero systematic (or market) risk.
5. It is possible for a firm to have a positive beta, even if the correlation between its returns and those of another firm are negative.
6. In portfolio analysis, we often use ex post (historical) returns and standard deviations, despite the fact that we are interested in ex ante (future) data.
7. If investors are risk averse and hold only one stock, we can conclude that the required rate of return on a stock whose standard deviation is 0.21 will be greater than the required return on a stock whose standard deviation is 0.10. However, if stocks are held in portfolios, it is possible that the required return could be higher on the low standard deviation stock.
8. The CAPM is a multi-period model which takes account of differences in securities' maturities, and it can be used to determine the required rate of return for any given level of systematic risk.
9. The SML relates required returns to firms' systematic (or market) risk. The slope and intercept of this line can be influenced by managerial actions.
10. The Y-axis intercept of the SML indicates the return on an individual asset when the realized return on an average (b = 1) stock is zero.
11. We will almost always find that the beta of a diversified portfolio is less stable over time than the beta of a single security.
12. Arbitrage pricing theory is based on the premise that more than one factor affects stock returns, and the factors are specified to be (1) market returns, (2) dividend yields, and (3) changes in inflation.
MULTIPLE CHOICE
13. You have the following data on three stocks:
Stock
Standard Deviation
Beta
A
0.15
0.79
B
0.25
0.61
C
0.20
1.29
As a risk minimizer, you would choose Stock ____ if it is to be held in isolation and Stock ____ if it is to be held as part of a well-diversified portfolio.
a.
A; B.
b.
B; C.
c.
C; A.
d.
C; B.
e.
A; A.
14. Which is the best measure of risk for an asset held in isolation, and which is the best measure for an asset held in a diversified portfolio?
a.
Standard deviation; correlation coefficient.
b.
Beta; variance.
c.
Coefficient of variation; beta.
d.
Beta; beta.
e.
Variance; correlation coefficient.
15. Which of the following is NOT a potential problem with beta and its estimation?
a.
Sometimes, during a period when the company is undergoing a change such as toward more leverage or riskier assets, the calculated beta will be drastically different than the "true" or "expected future" beta.
b.
The beta of "the market," can change over time, sometimes drastically.
c.
Sometimes the past data used to calculate beta do not reflect the likely risk of the firm for the future because conditions have changed.
d.
There is a wide confidence interval around a typical stock's estimated beta.
e.
Sometimes a security or project does not have a past history which can be used as a basis for calculating beta.
16. Stock A's beta is 1.5 and Stock B's beta is 0.5. Which of the following statements must be true about these securities? (Assume market equilibrium.)
a.
Stock B must be a more desirable addition to a portfolio than Stock A.
b.
Stock A must be a more desirable addition to a portfolio than Stock B.
c.
The expected return on Stock A should be greater than that on Stock B.
d.
The expected return on Stock B should be greater than that on Stock A.
e.
When held in isolation, Stock A has greater risk than Stock B.
17. For markets to be in equilibrium (that is, for there to be no strong pressure for prices to depart from their current levels),
a.
The past realized rate of return must be equal to the expected rate of return; that is, .
b.
The required rate of return must equal the realized rate of return; that is, r = .
c.
All companies must pay dividends.
d.
No companies can be in danger of declaring bankruptcy.
e.
The expected rate of return must be equal to the required rate of return; that is, = r.
18. Which of the following statements is CORRECT?
a.
The slope of the CML is (M − rRF)/bM.
b.
All portfolios that lie on the CML to the right of M are inefficient.
c.
All portfolios that lie on the CML to the left of M are inefficient.
d.
The slope of the CML is (M − rRF)/M.
e.
The Capital Market Line (CML) is a curved line that connects the risk-free rate and the market portfolio.
19. In a portfolio of three different stocks, which of the following could NOT be true?
a.
The riskiness of the portfolio is greater than the riskiness of one or two of the stocks.
b.
The beta of the portfolio is less than the betas of each of the individual stocks.
c.
The beta of the portfolio is greater than the beta of one or two of the individual stocks' betas.
d.
The beta of the portfolio cannot be equal to 1.
e.
The riskiness of the portfolio is less than the riskiness of each of the stocks if they were held in isolation.
20. You have the following data on (1) the average annual returns of the market for the past 5 years and (2) similar information on Stocks A and B. Which of the possible answers best describes the historical betas for A and B?
Years
Market
Stock A
Stock B
1
0.03
0.16
0.05
2
−0.05
0.20
0.05
3
0.01
0.18
0.05
4
−0.10
0.25
0.05
5
0.06
0.14
0.05
a.
bA> +1; bB = 0.
b.
bA = 0; bB = −1.
c.
bA< 0; bB = 0.
d.
bA< −1; bB = 1.
e.
bA> 0; bB = 1.
21. Which of the following statements is CORRECT?
a.
The typical R2 for a stock is about 0.94 and the typical R2 for a portfolio is about 0.6.
b.
The typical R2 for a stock is about 0.3 and the typical R2 for a large portfolio is about 0.94.
c.
The typical R2 for a stock is about 0.94 and the typical R2 for a portfolio is also about 0.94.
d.
The typical R2 for a stock is about 0.6 and the typical R2 for a portfolio is also about 0.6.
e.
The typical R2 for a stock is about 0.3 and the typical R2 for a portfolio is also about 0.3.
22. Which of the following statements is CORRECT?
a.
The characteristic line is the regression line that results from plotting the returns on a particular stock versus the returns on a stock from a different industry.
b.
The slope of the characteristic line is the stock's standard deviation.
c.
The distance of the plot points from the characteristic line is a measure of the stock's market risk.
d.
The distance of the plot points from the characteristic line is a measure of the stock's diversifiable risk.
e.
"Characteristic line" is another name for the Security Market Line.
23. Which of the following statements is CORRECT?
a.
Richard Roll has argued that it is possible to test the CAPM to see if it is correct.
b.
Tests have shown that the risk/return relationship appears to be linear, but the slope of the relationship is greater than that predicted by the CAPM.
c.
Tests have shown that the betas of individual stocks are stable over time, but that the betas of large portfolios are much less stable.
d.
The most widely cited study of the validity of the CAPM is one performed by Modigliani and Miller.
e.
Tests have shown that the betas of individual stocks are unstable over time, but that the betas of large portfolios are reasonably stable over time.
24. Assume an economy in which there are three securities: Stock A with rA = 10% and A = 10%; Stock B with rB = 15% and B = 20%; and a riskless asset with rRF = 7%. Stocks A and B are uncorrelated (rAB = 0). Which of the following statements is most CORRECT?
a.
The expected return on the investor's portfolio will probably have an expected return that is somewhat below 10% and a standard deviation (SD) of approximately 10%.
b.
The expected return on the investor's portfolio will probably have an expected return that is somewhat below 15% and a standard deviation (SD) that is between 10% and 20%.
c.
The investor's risk/return indifference curve will be tangent to the CML at a point where the expected return is in the range of 7% to 10%.
d.
Since the two stocks have a zero correlation coefficient, the investor can form a riskless portfolio whose expected return is in the range of 10% to 15%.
e.
The expected return on the investor's portfolio will probably have an expected return that is somewhat above 15% and a standard deviation (SD) of approximately 20%.
25. You hold a portfolio consisting of a $5,000 investment in each of 20 different stocks. The portfolio beta is equal to 1.12. You have decided to sell a coal mining stock (b = 1.00) at $5,000 net and use the proceeds to buy a like amount of a mineral rights company stock (b = 2.00). What is the new beta of the portfolio?
a.
1.1139
b.
1.1700
c.
1.2311
d.
1.2927
e.
1.3573
26. Your mother's well-diversified portfolio has an expected return of 12.0% and a beta of 1.20. She is in the process of buying 100 shares of Safety Corp. at $10 a share and adding it to her portfolio. Safety has an expected return of 15.0% and a beta of 2.00. The total value of your current portfolio is $9,000. What will the expected return and beta on the portfolio be after the purchase of the Safety stock?
rpbp
a.
11.69%; 1.22
b.
12.30%; 1.28
c.
12.92%; 1.34
d.
13.56%; 1.41
e.
14.24%; 1.48
27. Suppose that (1) investors expect a 4.0% rate of inflation in the future, (2) the real risk-free rate is 3.0%, (3) the market risk premium is 5.0%, (4) Talcott Inc.'s beta is 1.00, and (5) its realized rate of return has averaged 15.0% over the last 5 years. Calculate the required rate of return for Talcot Inc.
a.
10.29%
b.
10.83%
c.
11.40%
d.
12.00%
e.
12.60%
28. A stock you are holding has a beta of 2.0 and the stock is currently in equilibrium. The required rate of return on the stock is 15% versus a required return on an average stock of 10%. Now the required return on an average stock increases by 30.0% (not percentage points). The risk-free rate is unchanged. By what percentage (not percentage points) would the required return on your stock increase as a result of this event?
a.
36.10%
b.
38.00%
c.
40.00%
d.
42.00%
e.
44.10%
29. Calculate the required rate of return for the Wagner Assets Management Group, which holds 4 stocks. The market's required rate of return is 15.0%, the risk-free rate is 7.0%, and the Fund's assets are as follows:
Stock
Investment
Beta
A
$ 200,000
1.50
B
300,000
−0.50
C
500,000
1.25
D
1,000,000
0.75
a.
10.67%
b.
11.23%
c.
11.82%
d.
12.45%
e.
13.10%
30. Consider the information below for Postman Builders Inc. Suppose that the expected inflation rate and thus the inflation premium increase by 2.0 percentage points, and Postman acquires risky assets that increase its beta by the indicated percentage. What is the firm's new required rate of return?
Beta:
1.50
Required return (rs)
10.20%
RPM:
6.00%
Percentage increase in beta:
20%
a.
14.00%
b.
14.70%
c.
15.44%
d.
16.21%
e.
17.02%
31. Assume that the market is in equilibrium and that stock betas can be estimated with historical data. The returns on the market, the returns on United Fund (UF), the risk-free rate, and the required return on the United Fund are shown below. Based on this information, what is the required return on the market, rM?
Year
Market
UF
2008
−9%
−14%
2009
11%
16%
2010
15%
22%
2011
5%
7%
2012
−1%
−2%
rRF: 7.00%;
rUnited: 15.00%
a.
10.57%
b.
11.13%
c.
11.72%
d.
12.33%
e.
12.95%
32. You are given the following returns on "the market" and Stock F during the last three years. We could calculate beta using data for Years 1 and 2 and then, after Year 3, calculate a new beta for Years 2 and 3. How different are those two betas, i.e., what's the value of beta 2 − beta 1? (Hint: You can find betas using the Rise-Over-Run method, or using your calculator's regression function.)
Year
Market
Stock F
1
6.10%
6.50%
2
12.90%
−3.70%
3
16.20%
21.71%
a.
7.89
b.
8.30
c.
8.74
d.
9.20
e.
9.66
PROBLEM
33. Security A has an expected return of 12.4% with a standard deviation of 15%, and a correlation with the market of 0.85. Security B has an expected return of −0.73% with a standard deviation of 20%, and a correlation with the market of −0.67. The standard deviation of rM is 12%.
a.
To someone who acts in accordance with the CAPM, which security is more risky, A or B? Why? (Hint: No calculations are necessary to answer this question; it is easy.)
b.
What are the beta coefficients of A and B? Calculations are necessary.
c.
If the risk-free rate is 6%, what is the value of rM?
34. You plan to invest in Stock X, Stock Y, or some combination of the two. The expected return for X is 10% and X = 5%. The expected return for Y is 12% and Y = 6%. The correlation coefficient, rXY, is 0.75.
a.
Calculate rp and p for 100%, 75%, 50%, 25%, and 0% in Stock X.
b.
Use the values you calculated for rp and p to graph the attainable set of portfolios. Which part of the attainable set is efficient? Also, draw in a set of hypothetical indifference curves to show how an investor might select a portfolio comprised of Stocks X and Y. Let an indifference curve be tangent to the efficient set at the point where rp = 11%.
c.
Now suppose we add a riskless asset to the investment possibilities. What effects will this have on the construction of portfolios?
d.
Suppose rM = 12%, M = 4%, and rRF = 6%. What would be the required and expected return on a portfolio with P = 10%?
e.
Suppose the correlation of Stock X with the market, rXM, is 0.8, while rYM = 0.9. Use this information, along with data given previously, to determine Stock X's and Stock Y's beta coefficients.
f.
What is the required rate of return on Stocks X and Y? Do these stocks appear to be in equilibrium? If not, what would happen to bring about an equilibrium?
35. Stock A has an expected return rA = 10% and A = 10%. Stock B has rB = 14% and B = 15%. rAB = 0. The rate of return on riskless assets is 6%.
a.
Construct a graph that shows the feasible and efficient sets, giving consideration to the existence of the riskless asset.
b.
Explain what would happen to the CML if the two stocks had (a) a positive correlation coefficient or (b) a negative correlation coefficient.
c.
Suppose these were the only three securities (A, B, and riskless) in the economy, and everyone's indifference curves were such that they were tangent to the CML to the right of the point where the CML was tangent to the efficient set of risky assets. Would this represent a stable equilibrium? If not, how would an equilibrium be produced?
CHAPTER 26—REAL OPTIONS
TRUE/FALSE
1. Real options exist when managers have the opportunity, after a project has been implemented, to make operating changes in response to changed conditions that modify the project's cash flows.
2. Real options are options to buy real assets, like stocks, rather than interest-bearing assets, like bonds.
3. The option to abandon a project is a real option, but a call option on a stock is not a real option.
4. Real options are most valuable when the underlying source of risk is very low.
5. Real options affect the size, but not the risk, of a project's expected cash flows.
MULTIPLE CHOICE
6. Whether to invest in a project today or to postpone the decision until next year is a decision facing the CEO of the Aaron Co. The project has a positive expected NPV, but its cash flows could be less than expected, in which case the NPV could be negative. No competitors are likely to invest in a similar project if Aaron decides to wait. Which of the following statements best describes the issues that Aaron faces when considering this investment timing option?
a.
The more uncertainty about the future cash flows, the more logical it is for Aaron to go ahead with this project today.
b.
Since the project has a positive expected NPV today, this means that its expected NPV will be even higher if it chooses to wait a year.
c.
Since the project has a positive expected NPV today, this means that it should be accepted in order to lock in that NPV.
d.
Waiting would probably reduce the project's risk.
e.
The investment timing option does not affect the cash flows and will therefore have no impact on the project's risk.
7. Which one of the following is an example of a "flexibility" option?
a.
A company has an option to close down an operation if it turns out to be unprofitable.
b.
A company agrees to pay more to build a plant in order to be able to change the plant's inputs and/or outputs at a later date if conditions change.
c.
A company invests in a project today to gain knowledge that may enable it to expand into different markets at a later date.
d.
A company invests in a jet aircraft so that its CEO, who must travel frequently, can arrive for distant meetings feeling less tired than if he had to fly commercial.
e.
A company has an option to invest in a project today or to wait a year.
8. Which of the following is NOT a real option?
a.
The option to buy shares of stock if its price goes up.
b.
The option to expand into a new geographic region.
c.
The option to abandon a project.
d.
The option to switch the type of fuel used in an industrial furnace.
e.
The option to expand production if the product is successful.
9. Which of the following will NOT increase the value of a real option?
a.
An increase in the volatility of the underlying source of risk.
b.
An increase in the risk-free rate.
c.
An increase in the cost of obtaining the real option.
d.
A decrease in the probability that a competitor will enter the market of the project in question.
e.
Lengthening the time in which a real option must be exercised.
10. Which of the following is most CORRECT?
a.
Real options change the risk, but not the size, of projects' expected cash flows.
b.
Real options are likely to reduce the cost of capital that should be used to discount a project's expected cash flows.
c.
Very few projects actually have real options.
d.
Real options are less valuable when there is a lot of uncertainty about the true values future sales and costs.
e.
Real options change the size, but not the risk, of projects' expected cash flows.
11. Ashgate Enterprises uses the NPV method for selecting projects, and it does a reasonably good job of estimating projects' sales and costs. However, it never considers real options that might be associated with projects. Which of the following statements is most likely to describe its situation?
a.
Its estimated capital budget is probably too large due to its failure to consider abandonment and growth options.
b.
Failing to consider abandonment and flexibility options probably makes the optimal capital budget too large, but failing to consider growth and timing options probably makes the optimal capital budget too small, so it is unclear what impact not considering real options has on the overall capital budget.
c.
Failing to consider abandonment and flexibility options probably makes the optimal capital budget too small, but failing to consider growth and timing options probably makes the optimal capital budget too large, so it is unclear what impact not considering real options has on the overall capital budget.
d.
Real options should not have any effect on the size of the optimal capital budget.
e.
Its estimated capital budget is probably too small, because projects' NPVs are often larger when real options are taken into account.
12. Refer to Exhibit 26.1. Since the project is considered to be quite risky, a 20% cost of capital is used. What is the project's expected NPV, in thousands of dollars?
a.
$336.15
b.
$373.50
c.
$415.00
d.
$461.11
e.
$507.22
13. Refer to Exhibit 26.1. Calculate the project's coefficient of variation. (Hint: Use the expected NPV.)
a.
5.87
b.
6.52
c.
7.25
d.
7.97
e.
8.77
14. Refer to Exhibit 26.2. Assuming that all cash flows are discounted at 10%, if NPC chooses to wait a year before proceeding, how much will this increase or decrease the project's expected NPV in today's dollars (i.e., at t = 0), relative to the NPV if it proceeds today?
a.
$77.23
b.
$85.81
c.
$95.34
d.
$105.94
e.
$116.53
15. Refer to Exhibit 26.2. Calculate the effect of waiting on the project's risk, using the same data. By how much will delaying reduce the project's coefficient of variation? (Hint: Use the expected NPV.)
a.
2.23
b.
2.46
c.
2.70
d.
2.97
e.
3.27
16. Refer to Exhibit 26.3. Based on the above data, what is the project's net present value?
a.
−$1,312,456
b.
−$1,104,607
c.
−$875,203
d.
$105,999
e.
$321,788
17. Refer to Exhibit 26.3. If Garner-Wagner goes ahead with this project today, it will obtain knowledge that will give rise to additional opportunities 5 years from now (at t = 5). The company can decide at t = 5 whether or not it wants to pursue these additional opportunities. Based on the best information available today, there is a 35% probability that the outlook will be favorable, in which case the future investment opportunity will have a net present value of $6 million at t = 5. There is a 65% probability that the outlook will be unfavorable, in which case the future investment opportunity will have a net present value of −$6 million at t = 5. Garner-Wagner does not have to decide today whether it wants to pursue the additional opportunity. Instead, it can wait to see what the outlook is. However, the company cannot pursue the future opportunity unless it makes the $3 million investment today. What is the estimated net present value of the project, after consideration of the potential future opportunity?
a.
−$1,104,607
b.
−$875,203
c.
$199,328
d.
$561,947
e.
$898,205
18. Refer to Exhibit 26.4. Based on the above information, what is the Z−90's expected net present value?
a.
−$6,678
b.
−$3,251
c.
$15,303
d.
$20,004
e.
$45,965
19. Refer to Exhibit 26.4. Now assume that one year from now SI will know if the Z−45 has become the industry standard. Also assume that after receiving the cash flows at t = 1, SI has the option to abandon the project, in which case it will receive an additional $100,000 at t = 1 but no cash flows after t = 1. Assuming that the cost of capital remains at 12%, what is the estimated value of the abandonment option?
a.
$0
b.
$2,075
c.
$4,067
d.
$8,945
e.
$10,745
CHAPTER 27—PROVIDING AND OBTAINING CREDIT
TRUE/FALSE
1. The credit period is the amount of time it takes to do a credit search on a potential customer.
2. Credit standards refer to the financial strength and importance of a potential customer to the firm required in order to qualify for credit.
3. The collection process, although sometimes difficult, is a fairly inexpensive component of doing business.
4. The collection process, although sometimes difficult, is also expensive in terms of out-of-pocket expenses.
5. Cash discounts are mostly used to get new customers in the door since existing customers almost always use the delayed payment terms.
6. When deciding whether to offer a discount for cash payment, a firm must balance the profits from additional sales with the lost revenues from the discount.
7. The primary reason to monitor aggregate accounts receivable is to see if customers, on average, are paying more slowly.
8. DSO analysis of accounts receivable is the most robust way to see if customers are, on average, paying more slowly, because it is unaffected by seasonal changes in sales.
9. If sales are seasonal, the days sales outstanding will fluctuate from month to month, even if the amount of time customers take to pay remains unchanged.
10. The percentage aging schedule of accounts receivable is the most robust way to see if customers are, on average, paying more slowly, because it is unaffected by seasonal changes in sales.
11. The uncollected balances schedule is constructed at the end of a quarter by dividing the dollar amount of remaining receivables from each month in that quarter by that month's sales.
MULTIPLE CHOICE
1. A firm's credit policy consists of which of the following items?
a.
Credit period, cash discounts, credit standards, collection policy.
b.
Credit period, cash discounts, receivables monitoring, collection policy.
c.
Cash discounts, credit standards, receivables monitoring, collection policy.
d.
Credit period, receivables monitoring, credit standards, collection policy.
e.
Credit period, cash discounts, credit standards, receivables monitoring.
2. Which of the following is not correct?
a.
A more aggressive collection policy will reduce bad debt expenses, but may also decrease sales.
b.
Collection policy usually has little impact on sales since collecting past-due accounts occurs only after the customer has already purchased.
c.
Typically a firm will turn over an account to a collection agency only after it has tried several times on its own to collect the account.
d.
A lax collection policy will frequently lead to an increase in accounts receivable.
e.
Collection policy is how a firm goes about collecting past-due accounts.
3. Which of the following is not correct for a firm with seasonal sales and customers who all pay promptly at the end of 30 days?
a.
The quarterly uncollected balances schedule will be the same in each quarter.
b.
The level of accounts receivable will be constant from month to month.
c.
The ratio of accounts receivable to sales will vary from month to month.
d.
The level of accounts receivable at the end of each quarter will be the same.
e.
DSO will vary from month to month.
4. Which of the following statements is most correct?
a.
It is possible for a firm to overstate profits by offering very lenient credit terms which encourage additional sales to financially "weak" firms. A major disadvantage of such a policy is that it is likely to increase uncollectible accounts.
b.
A firm with excess production capacity and relatively low variable costs would not be inclined to extend more liberal credit terms to its customers than a firm with similar costs that is operating close to capacity.
c.
Firms use seasonal dating primarily to decrease their DSO.
d.
Seasonal dating with terms 2/15, net 30 days, with April 1 dating, means that if the original sale took place on February 1st, the customer can take the discount up until March 15th, but must pay the net invoice amount by April 1st.
e.
If credit sales as a percentage of a firm's total sales increases, and the volume of credit sales also increases, then the firm's accounts receivable will automatically increase.
5. Which one of the following aspects of banks is considered most relevant to businesses when choosing a bank?
a.
Competitive cost of services provided.
b.
Size of the bank's deposits.
c.
Experience of personnel.
d.
Loyalty and willingness to assume lending risks.
e.
Convenience of location.
6. Refer to Exhibit 27.1. How large are your brother's monthly payments?
a.
$6,250
b.
$7,000
c.
$7,500
d.
$5,250
e.
$6,875
7. Refer to Exhibit 27.1. What is the nominal annual add-on interest rate on this loan?
a.
10.00%
b.
16.47%
c.
18.83%
d.
20.00%
e.
24.00%
8. Suppose that you're planning a vacation and borrow $2,000 from a bank for one year at a stated annual interest rate of 14 percent, with interest prepaid (a discounted loan). Also, assume that the bank requires you to maintain a compensating balance equal to 20 percent of the initial loan value. What effective annual interest rate are you being charged?
a.
14.00%
b.
8.57%
c.
16.28%
d.
21.21%
e.
28.00%
9. Faircross Farms harvests its crops four times annually and receives payment for its crop 90 days after it is picked and shipped. However, planting, irrigating, and harvesting must be done on a nearly continual schedule. The firm uses 90-day bank notes to finance its operations. The firm arranges an 11 percent discount interest loan with a 20 percent compensating balance four times annually. What is the effective annual interest rate of these discount loans?
a.
11.00%
b.
15.94%
c.
11.46%
d.
13.75%
e.
12.72%
10. Gladys Turner borrowed $12,000 from the bank using a 10.19 percent "add-on", one-year installment loan, payable in four equal quarterly payments. What is the effective annual rate of interest?
a.
9.50%
b.
10.19%
c.
15.99%
d.
16.98%
e.
20.38%
11. The Arthos Group needs to borrow $200,000 from its bank. The bank has offered the company a 12-month installment loan (monthly payments) with 9 percent add-on interest. What is the effective annual rate (EAR) of this loan?
a.
16.22%
b.
17.97%
c.
17.48%
d.
18.67%
e.
18.00%
12. The Somerset Bank offered Blakemore Inc. the following loan alternatives in response to its request for a $75,000, 1-year loan.
Alternative 1:
7 percent discount interest, with a 10 percent compensating balance.
Alternative 2:
8 percent simple interest, with interest paid monthly.
What is the effective annual rate on the cheaper loan?
a.
8.00%
b.
7.23%
c.
7.67%
d.
8.43%
e.
8.30%
13. Harris Flooring Inc. is planning to borrow $12,000 from the bank for new sanding machines. The bank offers the choice of a 12 percent discount interest loan or a 10.19 percent add-on, one-year installment loan, payable in 4 equal quarterly payments. What is the effective rate of interest on the 12 percent discounted loan?
a.
10.7%
b.
12.0%
c.
12.5%
d.
13.6%
e.
14.1%
14. Maxwell Gardens requires a $100,000 annual loan in order to pay laborers to tend and harvest its organic vegetable crop. Maxwell borrows on a discount interest basis at a nominal annual rate of 11 percent. If Maxwell must actually receive $100,000 net proceeds to finance its crop, then what must be the face value of the note?
a.
$111,000
b.
$100,000
c.
$112,360
d.
$89,000
e.
$108,840
15. Sunnydale Organics, Inc. harvests crops in roughly 90-day cycles based on a 360-day year. The firm receives payment from its harvests sometime after shipment. Due in part to the firm's rapid growth, it has been borrowing to finance its harvests using 90-day bank notes on which the firm pays 12 percent discount interest. If the firm requires $60,000 in proceeds from each note, what must be the face value of each note?
a.
$61,856
b.
$67,531
c.
$60,000
d.
$68,182
e.
$67,423
16. Danby Design Inc. has approached the bank with its plan to borrow $12,000. The bank offers the choice of a 12 percent discount interest loan or a 10.19 percent add-on, one-year installment loan, payable in 4 equal quarterly payments. What is the approximate (nominal) rate of interest on the 10.19 percent add-on loan?
a.
5.10%
b.
10.19%
c.
12.00%
d.
20.38%
e.
30.57%
17. Refer to Exhibit 27.2. What would be the incremental bad losses if the change were made?
a.
$315,000
b.
$260,500
c.
−$260,500 (bad debt losses would decline)
d.
−$315,000 (Bad debt losses would decline)
e.
$0 (no change would occur)
18. Refer to Exhibit 27.2. What would be the incremental cost of carrying receivables if this change were made?
a.
$108,750
b.
−$116,250 (carrying costs would decline)
c.
$157,900
d.
−$225,000 (carrying costs would decline)
e.
$260,500
19. Refer to Exhibit 27.2. What are the incremental pre-tax profits from this proposal?
a.
$181,250
b.
$271,750
c.
$256,250
d.
$206,500
e.
$231,250
20. Refer to Exhibit 272.3. What would be the cost to Van Doren of the discounts taken?
a.
$116,750
b.
−$108,750
c.
$155,000
d.
$225,000
e.
$260,500
21. Refer to Exhibit 27.3. What would be the incremental bad debt losses if the change were made?
a.
$130,000
b.
$250,000
c.
−$250,000 (bad debt losses would decline)
d.
−$130,000 (bad debt losses would decline)
e.
$620,000
22. Refer to Exhibit 27.3. What would be the incremental cost of carrying receivables if the change were made?
a.
−$108,750 (carrying costs would decline)
b.
$116,250
c.
$157,900
d.
−$225,000 (carrying costs would decline)
e.
$260,000
23. Refer to Exhibit 27.3. What are the incremental pre-tax profits from this proposal?
a.
$283,750
b.
$250,500
c.
$303,250
d.
$493,750
e.
$288,250
24. Darren's Hair Products, Inc. purchases supplies from a single supplier on terms of 1/10, net 20. Currently, Darren takes the discount, but she believes she could extend the payment to 40 days without any adverse effects if she decided not to take the discount. Darren needs an additional $50,000 to support an expansion of fixed assets. This amount could be raised by making greater use of trade credit or by arranging a bank loan. The banker has offered to loan the money at 12 percent discount interest. Additionally, the bank requires an average compensating balance of 20 percent of the loan amount. Darren already has a commercial checking account at this bank that could be counted toward the compensating balance, but the required compensating balance amount is twice the amount that Darren would otherwise keep in the account. Which of the following statements is most correct?
a.
The cost of using additional trade credit is approximately 36 percent.
b.
Considering only the explicit costs, Darren should finance the expansion with the bank loan.
c.
The cost of expanding trade credit using the approximation formula is less than the cost of the bank loan. However, the true cost of the trade credit when compounding is considered is greater than the cost of the bank loan.
d.
The effective cost of the bank loan is decreased from 17.65 percent to 15.38 percent because Darren would hold a cash balance of one-half the compensating balance amount even if the loan were not taken.
e.
If Darren had transaction balances that exceeded the compensating balance requirement, the effective cost of the bank loan would be 12.00 percent.
25. Tillyard Inc. requires a $25,000 1-year loan. The bank offers to make the loan, and it offers you three choices: (1) 15 percent simple interest, annual compounding; (2) 13 percent nominal interest, daily compounding (360-day year); (3) 9 percent add-on interest, 12 end-of-month payments. The first two loans would require a single payment at the end of the year, the third would require 12 equal monthly payments beginning at the end of the first month. What is the difference between the highest and lowest effective annual rates?
a.
1.12%
b.
2.48%
c.
3.60%
d.
4.25%
e.
5.00%
26. Campbell Computing Inc. currently has sales of $1,000,000, and its days sales outstanding is 30 days. The financial manager estimates that offering longer credit terms would (1) increase the days sales outstanding to 50 days and (2) increase sales to $1,200,000. However, bad debt losses, which were 2 percent on the old sales, would amount to 5 percent on the incremental sales only (bad debts on the old sales would stay at 2 percent). Variable costs are 80 percent of sales, and Campbell has a 15 percent receivables financing cost. What would the annual incremental pre-tax profit be if Bass extended its credit period?
a.
−$20,000
b.
−$10,000
c.
$0
d.
$10,000
e.
$20,000
27. No Tree Too Tall, Inc. is planning to borrow $12,000 from the bank. The bank offers the choice of a 12 percent discount interest loan or a 10.19 percent add-on, one-year installment loan, payable in 4 equal quarterly payments. What is the effective rate of interest on the 10.19 percent add-on loan?
a.
9.50%
b.
10.19%
c.
15.22%
d.
16.99%
e.
22.05%
CHAPTER 28—ADVANCED ISSUES IN CASH MANAGEMENT AND INVENTORY CONTROL
TRUE/FALSE
1. The cash balances of most firms consist of transactions, compensating, precautionary, and speculative balances. We can produce a total desired cash balance by calculating the amount needed for each purpose and then summing them together.
2. The easier a firm's access to borrowed funds the higher its precautionary balances will be, in order to protect against sudden increases in interest rates.
3. For some firms, holding highly liquid marketable securities is a substitute for holding cash because a marketable securities portfolio can accomplish the same objective as cash.
4. A just-in-time system is designed to stretch accounts payable as long as possible.
5. If a company increases its safety stock, then its EOQ will go up.
6. If a company increases its safety stock, then its average inventory will go up.
MULTIPLE CHOICE
7. Which of the following would cause average inventory holdings to decrease, other things held constant?
a.
The purchase price of inventory items decreases by 50 percent.
b.
The carrying price of an item decreases (as a percent of purchase price).
c.
The sales forecast is revised downward by 10 percent.
d.
Interest rates fall.
e.
Fixed order costs double.
8. During times of inflation, which of these inventory accounting methods is best for cash flow?
a.
LIFO, because the most expensive goods are recorded as being sold first, resulting in a higher cost of goods sold and a lower reported net income.
b.
Specific identification, because it correctly identifies the actual item sold and so the actual cost is recorded on the income statement.
c.
Weighted average, because it smoothes the reported cost of goods sold over time.
d.
It doesn't matter which you use since cash flow is unaffected by the choice of inventory identification method.
e.
FIFO, because the cheapest goods are recorded as being sold first, resulting in lower cost of goods sold and higher reported net income.
9. Which of the following is true of the Baumol model? Note that the optimal cash transfer amount is C*.
a.
If the total amount of cash needed during the year increases by 20%, then C* will increase by 20%.
b.
If the average cash balance increases by 20%, then the total holding costs will increase by 20%.
c.
If the average cash balance increases by 20% the total transactions costs will increase by 20%.
d.
The optimal transfer amount is the same for all companies.
e.
If the fixed costs of selling securities or obtaining a loan (cost per transaction) increase by 20%, then C* will increase by 20%.
10. Which of the following is true of the EOQ model? Note that the optimal order quantity, Q, will be called EOQ.
a.
If the annual sales, in units, increases by 20%, then EOQ will increase by 20%.
b.
If the average inventory increases by 20%, then the total carrying costs will increase by 20%.
c.
If the average inventory increases by 20% the total order costs will increase by 20%.
d.
The EOC is the same for all companies.
e.
If the fixed per order cost increases by 20%, then EOQ will increase by 20%.
11. Halliday Inc. receives a $2 million payment once a year. Of this amount, $700,000 is needed for cash payments made during the next year. Each time Halliday deposits money in its account, a charge of $2.00 is assessed to cover clerical costs. If Halliday can hold marketable securities that yield 5 percent, and then convert these securities to cash at a cost of only the $2 deposit charge, what is the total cost for one year of holding the minimum cost cash balance according to the Baumol model?
a.
$7,483
b.
$187
c.
$3,741
d.
$374
e.
$748
12. Humphrey's Housing has been practicing cash management for some time by using the Baumol model for determining cash balances. Some time ago, the model called for an average balance (C*/2) of $500; at that time, the rate on marketable securities was 4 percent. A rapid increase in interest rates has driven the interest rate up to 9 percent. What is the appropriate average cash balance now?
a.
$200
b.
$333
c.
$414
d.
$500
e.
$666
13. Gemini Inc.'s optimal cash transfer amount, using the Baumol model, is $60,000. The firm's fixed cost per cash transfer of marketable securities to cash is $180, and the total cash needed for transactions annually is $960,000. On what opportunity cost of holding cash was this analysis based?
a.
19.2%
b.
10.4%
c.
6.3%
d.
12.1%
e.
9.6%
14. Gemini Inc.'s optimal cash transfer amount, using the Baumol model, is $60,000. The firm's fixed cost per cash transfer of marketable securities to cash is $180. In addition, the total estimated cash costs (transfers and carrying cost) for the firm, based on 16 transactions per year, are $5,760. On what opportunity cost of holding cash was this analysis based?
a.
19.2%
b.
10.4%
c.
6.3%
d.
12.1%
e.
9.6%
15. Suppose Stanley's Office Supply purchases 50,000 boxes of pens every year. Ordering costs are $100 per order and carrying costs are $0.40 per box. Moreover, management has determined that the EOQ is 5,000 boxes. The vendor now offers a quantity discount of $0.20 per box if the company buys pens in order sizes of 10,000 boxes. Determine the before-tax benefit or loss of accepting the quantity discount. (Assume the carrying cost remains at $0.40 per box whether or not the discount is taken.)
a.
$1,000 loss
b.
$1,000 benefit
c.
$500 loss
d.
$500 benefit
e.
$0 (The change would not affect profits.)
16. Each year, Holly's Best Salad Dressing, Inc. (HBSD) purchases 50,000 gallons of extra virgin olive oil. Ordering costs are $100 per order, and the carrying cost, as a percentage of inventory value, is 80 percent. The purchase price to HBSD is $0.50 per gallon. Management currently orders the EOQ each time an order is placed. No safety stock is carried. The supplier is now offering a quantity discount of $0.03 per gallon if HBSD orders 10,000 gallons at a time. Should HBSD take the discount?
a.
From a cost standpoint, HBSD is indifferent.
b.
No, the cost exceeds the benefit by $500.
c.
No, the cost exceeds the benefit by $1,000.
d.
Yes, the benefit exceeds the cost by $500.
e.
Yes, the benefit exceeds the cost by $1,120.
17. New England Charm, Inc. specializes in selling scented candles. The company has established a policy of reordering inventory every 30 days. A recently employed MBA has considered New England's inventory problem from the EOQ model viewpoint. If the following constitute the relevant data, how does the current policy compare with the optimal policy?
Ordering cost
= $10 per order
Carrying cost
= 20% of purchase price
Purchase price
= $10 per unit
Total sales for year
= 1,000 units
Safety stock
= 0
a.
Total costs will be the same, since the current policy is optimal.
b.
Total costs under the current policy will be less than total costs under the EOQ by $10.
c.
Total costs under the current policy exceed those under the EOQ by $3.
d.
Total costs under the current policy exceed those under the EOQ by $10.
e.
Cannot be determined due to insufficient information.
18. Refer to Exhibit 28.1. According to the Baumol model, what is the optimal transaction size for transfers from marketable securities to cash?
a.
$7,071
b.
$38,357
c.
$70,711
d.
$102,956
e.
$87,000
19. Refer to Exhibit 28.1. According to the Baumol model, what should be Duckett's average cash balance?
a.
$35,356
b.
$3,536
c.
$22,157
d.
$70,711
e.
$42,918
20. Refer to Exhibit 28.1. What will be the total cost to Duckett of maintaining the optimal average cash balance, as determined by the Baumol model?
a.
$35,356
b.
$7,071
c.
$18,493
d.
$70,711
e.
$53,190
21. Refer to Exhibit 28.2. What is the economic ordering quantity for chips?
a.
12,088
b.
3,175
c.
6,243
d.
13,675
e.
8,124
22. Refer to Exhibit 28.2. If Cartwright holds a safety stock equal to a 30-day supply of chips, what is its average inventory level?
a.
12,088
b.
3,175
c.
15,750
d.
13,675
e.
8,124
23. Refer to Exhibit 28.2. Assume that Cartwright holds a safety stock equal to a 30-day supply of chips. What is the maximum amount of inventory that will have on hand at any time, that is, what will be the inventory level right after a delivery is made?
a.
9,216
b.
3,175
c.
6,243
d.
13,675
e.
8,124
24. Refer to Exhibit 28.2. How many orders should Cartwright place during the year?
a.
12
b.
25
c.
30
d.
40
e.
60
25. Refer to Exhibit 28.2. If the lead time for placing an order is 5 days, and Cartwright holds a safety stock equal to a 30-day supply of chips, then at what inventory level should an order be placed?
a.
15,570
b.
3,175
c.
12,250
d.
13,675
e.
8,124
26. Refer to Exhibit 28.2. If Cartwright holds a safety stock equal to a 30-day supply of chips, what is Cartwright's minimum cost of ordering and carrying inventory?
a.
$28,500
b.
$15,950
c.
$68,440
d.
$34,220
e.
$47,693
27. Refer to Exhibit 28.3. What is the firm's EOQ?
a.
26,833
b.
30,040
c.
43,987
d.
13,563
e.
21,456
28. Refer to Exhibit 28.3. What is Palmer's minimum costs of ordering and holding inventory?
a.
$6,254
b.
$10,733
c.
$11,560
d.
$13,563
e.
$19,825
29. Refer to Exhibit 28.3. Now, suppose the manufacturer offers a discount of 0.5 percent for orders of a least 40,000 gallons. Should Palmer increase its ordering quantity to take the discount?
a.
Yes; it will save $827 if it takes the discount.
b.
No; it will lose $827 if it takes the discount.
c.
Yes; it will save $14,400 if it takes the discount.
d.
Yes; it will save $13,573 if it takes the discount.
e.
No; it will lose $13,573 if it takes the discount.
WEB CHAPTER 29—PENSION PLAN MANAGEMENT
TRUE/FALSE
1. Under a defined contribution plan, employees agree to contribute some percentage of their salaries, up to 20 percent, to the firm's pension fund.
2. If employees have a right to receive pension benefits even if they leave the company prior to retirement, their pension rights are said to be vested.
3. From a pure cost standpoint, a firm with a defined contribution plan would be more likely to hire older workers than a firm with a defined benefit plan.
4. The performance measurement of stock portfolio managers must recognize the risk inherent in the investment portfolio. One way to incorporate risk into performance measurement is to examine the portfolio's alpha, which measures the vertical distance of the portfolio's return above or below the Security Market Line.
MULTIPLE CHOICE
5. Which of the following statements about pension plans if any, is incorrect?
a.
Under a defined benefit plan, the employer agrees to give retirees a specifically defined benefit, such as $500 per month or 50 percent of the employee's final salary.
b.
A portable pension plan is one that an employee can carry from one employer to another.
c.
An employer's obligation is satisfied under a defined contribution plan when it makes the required contributions to the plan. The risk of inadequate investment returns is borne by the employee.
d.
If assets exceed the present value of benefits, the pension plan is fully funded.
e.
A defined contribution plan is, in effect, a savings plan that is funded by employers, although many plans also permit additional contributions by employees.
6. Which of the following statements about defined contribution plans is incorrect?
a.
In general, employees can choose the investment vehicle under a defined contribution plan. Thus, highly risk-averse employees can choose low-risk investments, while more risk-tolerant employees can choose high-risk investments.
b.
In a defined contribution plan, the employer must make larger-than-average contributions to the pension plan when investment returns have been below expectations.
c.
Defined benefit plans are used more often by large corporations than by small companies.
d.
The PBGC insures a portion of pension benefits.
e.
A defined contribution plan places the risk of poor pension portfolio performance on the employee.
7. Which of the following statements about pension plan portfolio performance is incorrect?
a.
Alpha analysis, which relies on the Capital Asset Pricing Model, considers the risk of the portfolio when measuring performance.
b.
Peer comparison examines the relative performance of portfolio managers with similar investment objectives.
c.
A portfolio annual return of 12 percent from one investment advisor is not necessarily better than a return of 10 percent from another advisor.
d.
In managing the retiree portfolio, fund managers often use immunization techniques such as alpha analysis to eliminate, or at least significantly reduce, the risk associated with changing interest rates.
e.
Pension fund sponsors must evaluate the performance of their portfolio managers periodically as a basis for future asset allocations.
8. Ms. Lloyd, who is 25 and expects to retire at age 60, has just been hired by the Chambers Corporation. Ms. Lloyd's current salary is $30,000 per year, but her wages are expected to increase by 5 percent annually over the next 35 years. Chambers has a defined benefit pension plan in which workers receive 2 percent of their final year's wages for each year of employment. Assume a world of certainty. Further, assume that all payments occur at year-end. What is Ms. Lloyd's expected annual retirement benefit, rounded to the nearest thousands of dollars?
a.
$35,000
b.
$57,000
c.
$89,000
d.
$116,000
e.
$132,000
9. Kumar Consulting operates several stock investment portfolios that are used by firms for investment of pension plan assets. Last year, one portfolio had a realized return of 12.6 percent and a beta coefficient of 1.15. The average T-bond rate was 7 percent and the realized rate of return on the S&P 500 was 12 percent. What was the portfolio's alpha?
a.
−0.75%
b.
−0.15%
c.
0%
d.
0.15%
e.
0.75%
10. Arnold Rossiter is a 40-year-old employee of the Barrington Company who will retire at age 60 and expects to live to age 75. The firm has promised a retirement income of $20,000 at the end of each year following retirement until death. The firm's pension fund is expected to earn 7 percent annually on its assets and the firm uses 7% to discount pension benefits. What is Barrington's annual pension contribution to the nearest dollar for Mr. Rossiter? (Assume certainty and end-of-year cash flows.)
a.
$2,756
b.
$3,642
c.
$4,443
d.
$4,967
e.
$5,491
WEB CHAPTER 30—FINANCIAL MANAGEMENT IN NOT-FOR-PROFIT BUSINESSES
TRUE/FALSE
1. The primary goal of investor-owned firms is shareholder wealth maximization, while the primary goal of not-for-profit firms is typically stated in terms of some mission; for example, to provide health care services to the communities served.
2. Not-for-profit firms have fund capital in place of equity capital. Since fund capital does not have to provide a return to stockholders, the appropriate cost of fund capital in a cost of capital estimate is zero.
3. Since not-for-profit firms do not pay taxes, they receive no tax benefits whatsoever from using debt financing.
4. The net present social value model formally recognizes that not-for-profit firms must consider the social value along with the financial value of proposed new projects.
MULTIPLE CHOICE
5. Which of the following statements about project risk analysis in not-for-profit firms is incorrect?
a.
A project's corporate beta measures the contribution of the project to the overall corporate risk of the firm.
b.
A project's corporate beta is found (at least conceptually) by regressing returns on the project against returns on the market portfolio.
c.
A project's corporate beta is defined as (P/F)rPF, where P is the standard deviation of the project's returns, F is the standard deviation of the firm's returns, and rPF is the correlation among the two sets of returns.
d.
In practice, it is usually difficult, if not impossible, to directly measure a project's corporate risk, so project risk analysis typically focuses on stand-alone risk.
e.
The market risk of a project is not relevant to not-for-profit firms.
6. Which of the following statements about municipal bond financing is most correct?
a.
Whereas the vast majority of Treasury and corporate bonds are held by institutions, no municipal bonds are held by individual investors.
b.
The primary attraction of municipal bonds to individual investors is their high before-tax yields.
c.
Municipal bonds usually pay higher coupon rates than corporate bonds with similar ratings.
d.
Municipal bonds are risk-free.
e.
In contrast to corporate bonds, municipal bond issues are not required to be registered with the Securities and Exchange Commission.
7. Which of the following statements about a not-for-profit firm's ownership is most correct?
a.
The residual earnings (profits) of not-for-profit firms can be distributed to the firm's top managers.
b.
Not-for-profit firms are exempt from federal taxes, but they must pay state and local taxes, including property taxes.
c.
Upon liquidation of a not-for-profit firm, the proceeds from the sale of its assets are distributed, on a pro rata basis, to the firm's employees.
d.
None of the profits are used for private inurement.
e.
Not-for-profit firms are governed by a board of trustees whose members are elected by the community at large.
8. Which of the following statements about a not-for-profit firm's cost of capital estimate is most correct?
a.
The capital structure weights for a not-for-profit firm are set at 50/50, because such firms can raise $1 of debt financing for each dollar of retained earnings.
b.
The cost of tax-exempt debt issued by not-for-profit firms is increased ("grossed up") by 1 − T in the WACC estimate to reflect the fact that such firms do not pay taxes.
c.
Equity (fund) capital has a cost that is roughly equivalent to the cost of retained earnings to similar investor-owned companies.
d.
Not-for-profit firms have a zero cost of capital.
e.
Since a not-for-profit firm has no shareholders, its WACC estimate does not include a cost of equity (fund capital) estimate.
9. Which of the following statements about a not-for-profit firm's fund capital is most correct?
a.
The sole source of fund capital is the excess of revenues over expenses.
b.
Fund capital has a zero opportunity cost.
c.
Fund capital can only come from donations.
d.
Fund capital does not change over time.
e.
Fund capital is equivalent to equity capital in investor-owned firms.
10. Which of the following statements about a not-for-profit firm's sources of capital is most correct?
a.
Fund capital is obtained by retaining earnings⎯if all earnings are paid out as dividends, no fund capital is created.
b.
Preferred stock is never used by not-for-profit firms.
c.
Not-for-profit firms are not allowed to raise capital by borrowing.
d.
Not-for-profit firms usually have high dividend payouts.
e.
Since not-for-profit firms are tax exempt, there is no tax advantage to debt capital.
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HRM 500 Week 11 Discussion Questions – Strayer New
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Week 11 D1
Determine two ways to apply what you learned in this course in your current or a future position.
Week 11 D2
Assess how your own theories of consumer behavior have matured or changed since the beginning of this course.
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HRM 510 Week 11 Final Exam – Strayer New
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Chapters 8 Through 19
CHAPTER 8AFFIRMATIVE ACTION
Online Quiz Questions
MULTIPLE CHOICE QUESTIONS
1. Affirmative action is:
a. a quota system for minorities to overcome past discrimination
b. illegal
c. legal only if court ordered
d. none of these
2. Executive Order 11246 requires:
a. compliance with all other Executive Orders
b. inclusion of an anti-discrimination clause in a contractor’s contract
c. that publicly-traded companies hire women and persons of color
d. none of these
3. If the parties to a discrimination suit agree to settle, they may enter into:
a. a long term supplier contract
b. a court battle
c. conciliation services
d. a consent decree
4. Regarding “reverse” discrimination, it is correct to say that:
a. It is a controversial subject.
b. Usually a white person believes he was passed over because of affirmative action.
c. It has been the subject of lawsuits.
d. All of these
5. According to the EEOC guidelines, a good Affirmative Action Plan requires all of these EXCEPT:
a. a reasonable basis for concluding that action is appropriate
b. a reasonable self-analysis
c. reasonable action
d. a reasonable review of applicant files
6. Match each term to its correct definition.
Affirmative action a management tool designed to ensure equal employment opportunity
Strict scrutiny the most stringent form of judicial review of government actions
Self-analysis analyzing one’s workforce and identifying problem areas
Compelling governmental interest an abiding interest which stands as a defense to a constitutional challenge
Underutilization this is demonstrated when the percentage of women and minorities in the employer’s workforce is less than the percentage of such persons with the necessary skills for the job
CHAPTER 8
AFFIRMATIVE ACTION
MULTIPLE CHOICE QUESTIONS
1. When individual job titles are listed for each department in order of pay level and demographic information is provided for each job, this is called a/an:
a. workforce analysis
b. organizational profile
c. job group analysis
d. organizational display
2. Affirmative action:
a. is primarily applied to hiring decisions
b. is limited to African-Americans and women
c. includes any formal or informal efforts to improve the employment opportunities of African-Americans and women
d. all of the above
e. none of the above
3. Written affirmative action plans, submitted to the OFCCP, are required of contractors or
subcontractors:
a. with 10 employees and $10,000 in federal contracts
b. with 25 employees and $25,000 in federal contracts
c. with 50 employees and $50,000 in federal contracts
d. with 100 employees and $100,000 in federal contracts
e. none of the above, all companies doing federal contract work must have written affirmative action plan that is submitted to the OFCCP
4. Which of the following is a law requiring certain employers to engage in affirmative action?
a. Title VII of the Civil Rights Act
b. The Rehabilitation Act
c. California’s Proposition 209
d. all of the above
e. none of the above
5. Which of the following is not considered to be a reasonable part of a valid affirmative
action plan?
a. all employment test scores are validated
b. a stated plan to hire a particular number of black, white, male, female…etc. employees in order to remedy an existing imbalance or injustice
c. wide communication of job availability
d. active enforcement of anti-discrimination policies
e. active enforcement of anti-harassment policies
6. Consent decrees:
a. sometimes require affirmative action as a part of the settlement in a discrimination case
b. are issued by judges after a jury verdict following a lawsuit
c. require employers to agree to hire specified numbers of women and/or persons of color
d. all of the above
e. none of the above
7. In Johnson v. Transportation Agency, Santa Clara County, a female employee was promoted to the position of road dispatcher, despite the fact that a male candidate had scored two points higher on an interview. The county had an affirmative action plan and the plan was taken into account in making the promotion decision. The Supreme Court ruled that:
a. the employer did not violate Title VII because it had an affirmative action plan requiring it to hire a woman for the position
b. the employer did not violate Title VII because it had an affirmative action plan that addressed the proven underutilization of women in a moderate, flexible way
c. the employer violated Title VII because, despite its affirmative action plan, it was not free to hire a less qualified candidate because of her sex
d. the employer violated Title VII because there was no evidence of underutilization of women in the county workforce, requiring affirmative action
e. none of the above
8. A school district had to decide which of two equally qualified, equally senior employees to lay off. Invoking its affirmative action plan, the district retained an African-American and laid off the white teacher. The court would rule that:
a. Title VII was violated because there was no evidence that African-Americans were underutilized as teachers and affirmative action cannot be used to make layoff decisions
b. Title VII was violated because diversity is not a compelling government interest necessitating consideration of race
c. Title VII was not violated because using race as a “tie-breaker” is a lawful form of affirmative action
d. Title VII was not violated because the school district demonstrated that the layoff was the only way to maintain a faculty that reflected the racial composition of the student body
e. Title VII was not violated because the layoff was only temporary and did not excessively burden the white teacher
9. To survive a constitutional challenge, a public employer’s affirmative action plan that uses racial preferences must:
a. explain why the racial inequities occurred
b. be permanently implemented
c. be narrowly tailored
d. be approved by Congress
e. all of the above
10. In order to prove that underutilization exists, it must be shown:
a. by the four-fifths rule, that women or persons of color are disproportionately absent from a position
b. that women or persons of color are underrepresented in the employer’s workforce relative to their availability in the relevant labor market
c. that intentional discrimination is the reason that women and persons of color are not adequately represented in the employer’s workforce
d. all of the above
e. none of the above
11. Vietnam era veterans are included as a protected group under affirmative action:
a. when employers enter into federal contracts or subcontracts worth $10,000 or more
b. when employers enter into federal contracts or subcontracts worth $25,000 or more
c. when employers enter into federal contracts or subcontracts worth $50,000 or more
d. automatically in any federal contract regardless of size
12. In Lomack v. City of Newark, the newly elected mayor decided to eliminate all single-race fire companies to improve morale. Dozens of firefighers were involuntarily transferred based on their race, and several sued, alleging a violation of Title VII. At the time, the city was operating under a consent decree requiring that it undertake certain measures to hire minority firefighters. What did the court decide, and what was its reasoning?
a. because of the consent decree, the city was compelled to diversify its fire companies, so the transfers complied with affirmative action, and did not violate Title VII
b. because its overall goal was to treat all firefighters equally, the transfers did not violate Title VII
c. even though the consent decree required certain affirmative steps to hire minority firefighters, it was permissible under Title VII
d. the decisions to transfer were based on race, in violation of Title VII, and the consent decree did not require or condone such transfers
13. In Reilly v. TXU Corp, an employee sought promotion to manager. Requirements for the job included a graduate business degree and 5 to 7 years of sourcing-related experience. The employee met the requirements, and received the highest score on a panel interview. Shortly after, the promoting manager received an inquiry from an African American woman. The HR Department determined that the woman was qualified, even though she did not have 5 years of sourcing experience. She received the promotion, and the employee sued. Which of the following statements is true?
a. the African-American woman was qualified, and met the requirements for the position
b. the hiring manager’s decision may have been influenced by the fact that she was in charge of the firm’s diversity program, but had no minority employees working for her
c. the employee and the African-American woman scored similarly on the interview
d. all of the above
e. none of the above
f. b and c only
14. Your company sells office supplies, and your CEO has finally succeeded in acquiring a contract to provide supplies to the federal government for the next year. This is a huge client for your company, worth in excess of $3 million dollars. Aside from increasing purchasing and production, what does your company need to do?
a. agree to hire a certain percentage of persons of color and women before the contract takes effect
b. prepare an affirmative action plan
c. not discriminate in your workplace
d. all of these
e. b and c
15. Court-imposed affirmative action is:
a. common
b. uncommon
c. non-existent; all affirmative action is voluntary
d. none of these
16. “Reverse” discrimination means:
a. establishing quotas for the hiring of women and persons of color
b. disparate treatment
c. disparate impact
d. none of these
17. Your firm’s contract to sell office supplies to the federal government requires that you hire only subcontractors who agree not to discriminate, and include a nondiscrimination clause in their contracts with you. You’ve done a thorough investigation of the firms out there who could fulfill your needs for particular office supplies, and there is one who is significantly less expensive than all of the others. However, that firm has a well-known reputation for discriminating against African-Americans. Your profit margin is already quite small for this project, and you worry about making any money at all. Which of the following is/are acceptable option(s), and why?
a. hire the firm that’s cheaper, even though they discriminate, because they’ll agree to put the clause in their contract, and that’s all you need; besides, you can’t afford to lose the government business
b. don’t hire the firm that’s cheaper, because it would disqualify your firm from the government contract if the government found out
c. talk to the firm that’s cheaper, and try to persuade them to actually comply with a non-discrimination standard; then monitor the situation to ensure that they do, because its in both your interests
d. negotiate with other, non-discriminating suppliers on their prices to see if you can match the price of the discriminating supplier
e. b, c and d
18. Your friend and former college roommate, David, has just been hired to manage a small, family-owned business because the owner has fallen ill, and none of his children are yet ready to assume leadership of the business. David has hiring and firing authority (except for the owner’s children), and wants to expand and diversify the sales staff, by hiring women and persons of color. There are 3 openings. What would be your best advice to him to accomplish his goals?
a. David should hire the only qualified women and/or persons of color, in order to achieve diversity
b. David should prepare an affirmative action plan, after doing a self-analysis which establishes an underutilization of women and persons of color in the relevant labor market, and then advertise the open positions
c. David should hire the first qualified candidates he finds, regardless of gender or race
d. none of these would be good advice
19. Affirmative action may be used on behalf of all of the following groups EXCEPT:
a. African-Americans
b. women
c. Pacific Islanders
d. disabled persons
e. none; affirmative action may be used for all of these groups
20. Regarding Affirmative Action plans, which of the following is true?
a. it may be used to remedy a “manifest imbalance”
b. the imbalance must meet the four-fifths rule
c. the imbalance must have resulted from past discrimination
d. all of these are true
ESSAY QUESTIONS
1. Why is each of the following good legal advice?
a. Federal contractors and sub-contractors with at least 50 employees and contracts worth at least $50,000 must develop written affirmative action plans addressing employment of women and minorities and submit them to the OFCCP within 120 days of their contracts commencing.
.
b. Employers wishing to consider protected class characteristics in order to enhance the utilization of women and persons of color must have valid affirmative action plans in place.
c. Employers should maximize the use of improvements in recruitment, selection, training, development, and organizational climate before considering hiring and promotion preferences.
d. Affirmative action must never be used as a basis for making discipline and termination decisions.
e. All affirmative action plans should include the results of a reasonable self-study, an analysis of underutilization establishing the basis for affirmative action, and reasonable actions to improve the utilization of women and persons of color.
2. There is a perception among some that affirmative action results in quotas and reverse discrimination. Discuss the justification for affirmative action and whether affirmative action indeed results in quotas and reverse discrimination.
CHAPTER 9HARASSMENT
Online Quiz Questions
MULTIPLE CHOICE QUESTIONS
1. Regarding harassment, which of the following statements is true?
a. Sexual harassment is the only kind of harassment.
b. Sexual harassment is the most common type of harassment.
c. The liability of the employer is the same no matter the type of harassment.
d. b and c
2. The necessary elements to establish a claim of harassment include all of the following EXCEPT:
a. The harassment was based on a protected class characteristic.
b. The harassment resulted in tangible employment action or created a hostile environment.
c. The harassment was welcome.
d. All of these are necessary elements of the claim.
3. Hostile environment claims can result from:
a. verbal conduct
b. physical conduct
c. displays of images
d. all of these
4. Employer liability for harassment may be avoided if:
a. The harassment resulted in a tangible employment action.
b. The employer took reasonable care to prevent and correct harassment.
c. The employee did not take advantage of corrective opportunities.
d. b and c
5. An employer’s remedies for a claim of harassment may include all of these EXCEPT:
a. immediate temporary action on receipt of a complaint of harassment
b. long-term remedial measures depending on the outcome of the investigation
c. a fair investigation, not one with a pre-determined outcome
d. a transfer of the harassed employee
6. Match each term to its correct definition.
severe or pervasive a hostile environment created by a serious one-time event or a frequent, continuing series of events at work
unwelcome not solicited or provoked
hostile environment this interferes with a person’s work performance
vicarious liability pursuant to this principle, the employer is liable for the acts of a harassing employee
investigation an examination of the circumstances surrounding events described in an harassment complaint
CHAPTER 9
HARASSMENT
MULTIPLE CHOICE QUESTIONS
1. Which of the following is true of harassment?
a. almost all harassment cases involve sexual harassment
b. harassment is legally actionable because it is a form of discrimination
c. harassment claims are rarely brought by men
d. a and b
e. all of the above
2. Which of the following is a necessary element of a sexual harassment claim?
a. the harasser intended to inflict emotional distress and embarrassment on the victim
b. the sex of the harasser differed from the sex of the victim
c. the harassment was unwelcome
d. the harasser made a sexual advance or requested a sexual favor
e. all of the above
3. In the case of “equal opportunity harassers” who harass both men and women, the courts tend to rule:
a. for the harasser, because the harassment is not because of sex
b. for the harasser, because harassment is not proven in that circumstance
c. for the victim of the harassment, because the harassment is because of sex
d. for the victim of the harassment, because harassment is proven generally
4. In the case in which a woman ended an affair with her male supervisor, and began to receive poor performance appraisals from him, the court ruled on her Title VII harassment claim:
a. for the woman, based on sexual harassment
b. for the woman, because of the affair
c. for the employer and supervisor because the poor performance appraisals were not the result of harassment, but of the relationship having gone sour
d. for the employer and supervisor because the poor performance appraisals were the result of the woman’s poor work performance
5. Regarding the “severe” or “pervasive” standard for assessing harassment cases, which of the following statements is NOT true?
a. to prove harassment, the plaintiff must show that the conduct complained of was both severe and pervasive, unless it occurred outside work
b. to prove harassment, the plaintiff must show that the conduct complained of was severe or pervasive
c. the degree of severity required is in inverse proportion to its pervasiveness
d. none of these
6. Which of the following is true regarding the role of conduct outside of the workplace in harassment cases?
a. employers cannot be held liable based on harassing conduct that occurs outside of the workplace
b. the sexual activities of persons who allege harassment will be examined in order to determine whether the treatment received was unwelcome
c. the marital statuses of the plaintiff and the alleged harasser will be taken into account in determining whether harassment occurred
d. all of the above
e. none of the above
7. Employers are vicariously liable for harassment when:
a. a hostile environment is created by a top official
b. harassment by a supervisor results in a tangible employment action
c. a supervisor creates a hostile environment and the employer does not have a sexual harassment policy or reporting procedure
d. all of the above
e. none of the above
8. Which of the following is part of the “affirmative defense” available to employers in certain hostile environment cases
a. the employer exercised reasonable care to prevent and correct promptly any harassment
b. the employer knew or should have known about the harass
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HRM 522 Week 11 Final Exam – Strayer New
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Chapters 7 Through 12
Chapter 7
1.Expertpowerusuallystemsfrom
a.a superior'scredibilitywithhis orhersubordinates.
b.thebeliefthatacertainpersonhastherightto exertinfluenceandthatcertainothershaveanobligationto acceptit.
c.a person'sabilitytoinfluencethe behaviorofothersbyofferingthemsomethingdesirable. d.aperson'sabilitytopenalizetheactionsor behaviorof another.
e.aperson'sperceptionsthathisorhergoalsorobjectivesaresimilarto another's.
2.Whichofthe followingstatementsaboutpoweristrue?
a.Thefivebasesofpoweraremutuallyexclusive.
b.Peoplegenerallyuseonlyonebaseofpowertoeffectchangeinothers.
c.Expertpowerexistswhenonepersontakesactionsthatwillleadthatpersonandotherstoachievetheir mutualobjectives.
d.Powercan beusedtomotivateindividualsethicallyorunethically. e.Theuseofpoweris unethical.
3.Anorganizationthatdelegatesdecision-makingauthorityas fardownthechainof commandas possibleandhas relativelyfewformalrulesis
a.centralized.
b.decentralized. c.flat.
d.tall.
e.ethical.
4.Whichofthefollowingis notacharacteristicofanethicalcorporateculture?
a.Managementandthe boarddemonstratetheircommitmenttostrongcontrolsthroughtheircommunications andactions.
b.Everyemployeeisencouragedandrequiredtohavehands-oninvolvementinthe internalcontrolsystem. c.Managementconductsitselfin awaythatis notconsistentwiththecodeofconduct.
d.Employeesare expectedtobeinthe communicationloopthroughresolutionsandcorrectiveactions.
e.Employeeshavetheabilitytoreportpolicyexceptionsanonymouslytoany memberoftheorganization.
5.Althoughbothstructurescancreateopportunitiesforunethicalconduct,whichorganizationalstructuretendstobe moreethical?
a.Tall b.Flat
c.Centralized
d.Decentralized
e.All organizationalstructuresareequallyethical.
6.Theabilitytoinfluencethe behaviorofothersbyofferingthemsomethingdesirableisbestdescribedas a.coercivepower.
b.rewardpower. c.expertpower.
d.legitimatepower. e.referentpower.
7.Anadvantageof thedecentralizedorganizationisthat
a.thefocusison formalrules,policies,andproceduresbackedup withelaboratecontrolsystems. b.thereis ahighlevelofbureaucracy.
c.eachworkerknowshisorherjobandwhatisspecificallyexpectedaswellashowtocarryoutdesignated tasks.
d.itisadaptableandcanquicklyrespondtoexternalchange. e.thereisminimalupwardcommunication.
8.Whendevelopinganethicalculture,therehastobea(n)
elementbecauseeveryorganizationhasemployees
thatwilltrytotakeadvantageifthereisan opportunityformisconduct. a.rules-based
b.statementofmission c.ethical
d.compliance e.punitive
9.The apatheticorganizationalcultureexhibits
a.highconcernfor peoplebutminimalconcernfor performance. b.littleconcernforpeoplebutahighconcernforperformance.
c.minimalconcernforpeopleandperformance. d.highconcernforpeopleandperformance.
e.noconcernformaintaininga cohesiveorganizationalculture.
10.Theexactingorganizationalcultureisinterestedin
a.performancebuthaslittleconcernforemployees. b.investors'impressionsofprofitability.
c.maintaininga strongcorporateculture. d.employeesandperformance.
e.employees'impressions.
11.Associatingwithotherswhoareunethicalandwhohavetheopportunitytoactunethicallycanleadtoalearning processknownas
a. compliance. b. misconduct. c.opportunity.
d.differentialequations.
e.differentialassociation.
12.Whichof thefollowingstatementsaboutcorporatecultureisfalse?
a.Corporateculturerefersto thepatternsandrulesthatgovernthebehaviorofanorganizationandits employees,particularlythe sharedvalues,beliefs,andcustoms.
b.Thevaluesandethicalbeliefsthatactuallyguidethefirm'semployeestendnotto bethesameonesthat managementstatesasdefiningthefirm'sculture.
c.Corporatecultureincludesthebehavioralpatterns,concepts,values,ceremonies,andritualsthattakeplacein anorganization.
d.Thecultureofanorganizationmaybeexplicitlystatedorunspoken.
e.Failuretomonitorormanageanorganization'sculturemayfosterunethicalbehavior.
13.Noformaldresscodes,workinglate,participationinextracurricularactivities,gestures,andlegendsrepresent a.a complacentworkplace.
b.codesofethics.
c.a firm'sorganizationalchart.
d.formalexpressionsofanorganization'sculture.
e.informalexpressionsofanorganization'sculture.
14.Aculturalauditmaybeusedtoidentify a.ho =
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HSA 590 Midterm and Final Exam – Strayer NEW
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Chapter 1 Through 12
Chapter 1
WHAT IS RESEARCH?
Multiple-Choice Questions
*1. To be considered true research, a project must:
a. gather together a body of existing information and communicate it in a clear and
concise way.
b. uncover obscure or esoteric information and bring it to the consideration of the broader research community.
c. gather and interpret information in a systematic fashion so as to increase understanding of some phenomenon.
d. produce definitive conclusions regarding the subject of study.
**2. Which of the following examples illustrates research the way it is defined in your textbook?
a. Sally is writing a paper about the effects of the Harry Potter books on the reading habits of fourth graders in the United States and United Kingdom. She goes to a research library to find information to include in her paper.
b. Ian wants to know why the population of songbirds has declined in recent years in the Sutton Wilderness Area. He carefully collects soil and water samples, systematically surveys the entire area for predators, and then sits down to make sense of his findings.
c. Leonard is starting a woodworking business and is not sure how to calculate the cost of his labor so he can be both profitable and fair to the customers. He asks several established business owners how they calculate labor changes.
d. Bill is doing a report on the sonnets of Shakespeare. He carefully reads a number of sonnets and then carefully reads scholarly reviews of those same sonnets written by various Shakespeare scholars. He synthesizes all of this information in his report.
*3. Which of the following is defined as an organized body of concepts and principles intended to explain a particular phenomenon?
a. Theory
b. Inference
c. Hypothesis
d. Interpretation
*4. Which of the following is defined as a reasonable guess, or a logical supposition, for explaining the phenomenon under investigation?
a. Theory
b. Inference
c. Hypothesis
d. Interpretation
*5. The process of formal research begins with the identification of:
a. research hypotheses.
b. a feasible research plan.
c. available participants.
d. a research problem.
*6. The purpose of formal research is to:
a. prove or disprove the study hypotheses.
b. support or fail to support the study hypotheses.
c. identify alternative hypotheses.
d. move beyond the need for hypotheses.
*7. Assumptions come into play:
a. in regard to nearly every aspect of every research study.
b. in qualitative research but not in quantitative research.
c. when research is not well thought out.
d. rarely, if ever.
*8. Well-designed research manages to minimize or avoid:
a. assumptions.
b. predictions.
c. theory.
d. bias.
*9. Researchers ______ their phenomenon of interest on the basis of data analysis.
a. make inferences about
b. know facts about
c. define
d. identify
*10. A primary function of the methodology is to:
a. guide and control the acquisition of data.
b. extract meaning from the data that have been gathered.
c. both a and b
d. neither a nor b
*11. Three of the following come into play as the researcher analyzes the data. Which one does NOT?
a. The study hypothesis/hypotheses
b. Preferences for certain outcomes
c. The logical reasoning process
d. Assumptions
*12. A well-designed and well-conducted study:
a. answers questions of importance in the field.
b. raises questions of importance to the field.
c. answers some questions and raises other questions.
*13. Reading the professional literature in the field of interest:
a. will enhance an individual’s ability to design and conduct high-quality research.
b. will stifle creativity and constrain the individual to the status quo.
c. will make little difference to the quality and impact of the individual’s work.
d. is necessary only for the leaders in the field.
*14. One indication that a piece of information is of high quality is that the information:
a. is found on the Internet.
b. is found in a juried (or refereed) research report.
c. resulted from a project that received corporate funding.
d. is the firsthand account of a personal experience.
Essay Questions
15. Your chapter states: “Research is, by its nature, cyclical or, more exactly, helical.” Explain why “cyclical” is an appropriate description of the research process. Then explain why “helical” is a better description.
16. Describe an example of the word research being used inappropriately. Be clear about how your example deviates from the definition of research offered in the chapter.
17. Graduate professors like to insist that the completion of thesis or dissertation research is not merely an “academic exercise” or final hurdle to obtaining the desired degree. Explain at least one personal benefit that the individual derives from completing a high- quality thesis or dissertation. Then explain at least one societal benefit that follows from the individual’s completion of a high-quality thesis or dissertation.
18. In the most rigorous tests of hypotheses, the researcher sets out to fail to support the hypothesis. Why is the attempt to fail to support a more rigorous test of the hypothesis than an attempt to support it?
Chapter 2
TOOLS OF RESEARCH
Multiple-Choice Questions
*1. A ______ is a specific mechanism or strategy the researcher uses to collect,
manipulate, or interpret data.
a. research tool
b. research methodology
c. statistical test
d. theory
*2. Research methodology refers to:
a. the general approach the researcher takes to conducting a research project.
b. a specific device the researcher uses to collect data.
c. the specific theoretical basis of the research project.
d. the statistical tests to be employed in a research project.
**3. Sam wants to find high-quality research reports related to attribution theory that have been published in professional journals. Sam’s best approach would be to:
a. consult the library catalog.
b. consult an online or electronic database.
c. search the World Wide Web.
d. browse the shelves in the library.
**4. Sonya is a college freshman who has just been assigned her first research paper, and she doesn’t know how to get started finding information. Sonya should:
a. search the World Wide Web.
b. consult an online or electronic database.
c. consult a reference librarian.
d. browse the shelves in the library.
*5. ______ allows a researcher to receive news in an area of special interest and discuss that news with others.
a. A search engine
b. E-mail
c. A list server
d. A Web browser
*6. ______ allows researchers to personally correspond practically instantly with other users around the world.
a. A search engine
b. E-mail
c. A list server
d. A Web browser
**7. John wants to begin using e-mail. Which of the following steps is NOT necessary for John to get started as an email user?
a. Request an e-mail account
b. Obtain necessary software from the e-mail provider and load it onto a computer
c. Learn to use a Web browser to explore the Internet
d. Learn how to access and use the e-mail provider’s services
*8. Three of the following statements about measurement in the research setting are accurate. Which one is NOT accurate?
a. The purpose of measurement is to systematically limit the data in a way that makes it quantifiable.
b. Measurement is applied by researchers only to insubstantial phenomena.
c. Measurement is a tool that aids researchers in interpreting their observations.
d. Systematic measurement assists researchers in obtaining objectivity in their researcher.
*9. An ordinal scale of measurement:
a. assigns a name to a category.
b. is tied to an absolute zero.
c. incorporates equal units of measurement.
d. communicates greater than and less than relationships.
*10. An interval level of measurement:
a. assigns a name to a category.
b. communicates rank-order information.
c. incorporates equal units of measurement.
d. is tied to an absolute zero.
*11. A ratio scale of measurement:
a. assigns a name to a category.
b. communicates rank-order information.
c. is especially appropriate for opinion data.
d. is tied to an absolute zero.
**12. The main difference between an interval and a ratio scale is that only one of them:
a. includes an absolute zero.
b. uses equal units of measurement.
c. supports the use of statistical analyses.
d. is used in research with human subjects.
**13. Professor Harris is constructing a demographic questionnaire for use in a research project. One question asks students to report how politically conservative they are. It includes a 7-point scale where 1 is “not at all conservative” and 7 is “extremely conservative.” This is an example of a/an:
a. nominal scale.
b. ordinal scale.
c. interval scale.
d. ratio scale.
**14. Professor Harris is constructing a demographic questionnaire for use in a research project. One question asks students to report their highest level of education by choosing from these options: “some high school,” “completed high school,” “some college,” or “completed 4-year college degree.” This is an example of a/an:
a. nominal scale.
b. ordinal scale.
c. interval scale.
d. ratio scale.
**15. Professor Harris is constructing a demographic questionnaire for use in a research project. One question asks students to report their age in years. This is an example of a/an:
a. nominal scale.
b. ordinal scale.
c. interval scale.
d. ratio scale.
**16. Professor Harris is constructing a demographic questionnaire for use in a research project. One question asks students to report whether they are
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LEG 500 Week 11 Discussion Questions – Strayer NEW
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Week 11 DQ
"Course Wrap-Up" Please respond to the following:
· Looking back on all the lessons learned in this course, discuss the one that surprised or interested you the most. Explain what made it so surprising or interesting.
· Thinking about the subjects addressed in this course, predict what will be the focus of this course 10 years from now. Explain your rationale.
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LEG 500 Week 11 Final Exam – Strayer NEW
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Chapters 1 Through 9
LAW & ETHICS IN THE BUSINESS ENVIRONMENT
CHAPTER 1
Law, Ethics, Business: An Introduction
Questions
1. Select the best definition of ethics:
a set of rules for behavior.
a menu of options regarding what we must do.
a menu of options regarding what we should do.
standards that must be met to avoid penalty.
2. Laws must be static and unyielding in order to provide stability for a society.
a. True
b. False
3. Choose the statement regarding duty to rescue that is false:
There is no general duty to rescue an individual.
Individual freedom of dictates that a person should not be forced to act.
Under a liberal–communitarian approach, citizens owe a duty to the state to rescue other citizens.
When one taunts another person who then puts themselves in danger in response to the teasing, the teaser has a duty to rescue the person teased.
4. All of the following are considered exceptions to the general rule that there is no duty to rescue except:
a. Pre-existing duty: For example, lifeguards have signed contracts agreeing to rescue people in exchange for pay and benefits.
b. Witnessing an accident: This creates a duty to step in and help the injured.
c. Employer: A duty exists to help an employee injured while working for that employer.
d. Endangerment: If one puts another in danger, they are obligated to rescue the person put in danger.
5. Which of the following views would be consistent with the free market ethics approach advocated by Milton Friedman?
Outsourcing to other countries is wrong because it is detrimental to the overall US economy.
When making decisions, corporate managers should consider the interests of all the corporation’s stakeholders.
The only social responsibility of business is to increase profits in a legal and ethical manner.
Automating processes and replacing workers is unethical since it does not serve a greater good.
6. Which of the following statements best illustrates the view of “utilitarianism”?
I. From each according to his abilities, to each according to his needs.
II. The risk reasonably to be perceived defines the duty to be obeyed and risks imports relation; it is risk to another or to others within the range of apprehension.
III. An action is right when maximizing welfare and total well-being.
IV. Individuals should pursue his or her own self-interest, even at the expense of others.
I only
III only
I and II
I, II, and III
7. According to deontological thinker Kant:
I. It is only acceptable to lie when done to protect an innocent person.
II. The level of respect owed to another is based on one’s relationship to that person.
III. It is wrong to use another person unless mutual benefit is attached.
IV. Once chosen, actions will be repeated whenever the same situation arises.
a. I and III
b. II and IV
c. III and IV
d. I, III, and IV
8. Virtue ethics:
a. focuses on what human beings are capable of being.
b. develop from learning how to make choices in difficult situations.
c. accepts that individuals rarely reach moral excellence.
d. are based on the concept that a person’s ethical beliefs are developed in childhood and do not change.
9. The Ethic of Care is:
a. A set of rules that explain how to prioritize those people affected by a decision so that a utilitarian analysis can be done successfully.
b. A set of universal principles, which applied evenly to all decisions will result in fairness and equity in ethical decisions.
c. The idea that we should all make decisions under the assumption that we don’t know our station in life, that we could be the person most negatively impacted by the decision.
d. A set of principles that encourage decision makers to look at human relationships as a primary motivator for a decision.
10. Assuming a business ethical dilemma, which statement best illustrates Gilligan approach suggested in her theory of “The Ethics of Care”?
individual rights and justice for all
applies only to women and not men
care and responsibility to others
obedience to independent moral rules or duties
11. Which of the following statements is INCORRECT regarding the rights of shareholders?
I. voting power on major issues and ownership in a portion of the company
II. right to transfer ownership and dividend entitlement
III. hire and fire management and select and appoint a chief executive
I and II
I, II, and III
I only
III only
12. According to Citizens United v. Federal Election Commission, which of the following is not a reason to allow corporations the right to spend money and advertise for political candidates?
a. Political speech is the most important, and most protected, speech that exists. It is crucial to the democratic process that political speech be encouraged and heard.
b. The immense wealth of a corporation allows it to be the most accurate in providing messages to people.
c. Independent expenditure by corporations do not give rise to corruption or the appearance of corruption.
d. Rapid changes in technology suggest laws restricting political speech should not be upheld.
13. Corporate director or officer decisions to dedicate corporate funds for social causes is called:
a. Corporate Social Responsibility (CSR)
b. Social Activism (SA)
c. Business Engagement in Environmental Situations (BEES)
d. Strategic Investment in Stakeholder Issues (SISI)
14. Which of the following statements regarding Benefit Corporations is true?
a. Benefit corporations are required to identify one or more specific benefit purposes.
b. Directors of benefit corporations are protected from all lawsuits from both shareholders and beneficiaries of the corporation’s public benefit purpose.
c. Benefit corporations are incorporated under state law with the intent to be profitable.
d. All of these statements regarding benefit corporations are true.
Essay Questions
15. Describe the difference between the law and ethics.
16. From where do ethical preferences originate?
17. Discuss how multinational corporations can be both a benefit and a detriment to society.
18. Explain why laws exist that do not impose a duty to rescue.
19. Describe the philosophy of noted economist, Milton Friedman, on the issue of “free market ethics.”
20. Discuss the differences in utilitarianism and virtue ethics in making a decision.
21. Discuss the similarities and differences between a traditional corporation and a benefit corporation.
CHAPTER 2
The Duty of Loyalty: Whistleblowing
Questions
22. Select the best definition of whistleblower:
the sole goal of modern ethics training
originated from the Latin "qui tam pro domino regequam pro sic ipso in hoc parte sequitur" meaning "who as well for the king as for himself sues in this matter."
a narrow exception under the general rule of at-will employment
people who report unethical or illegal activities under the control of their employers
23. Under the legal doctrine of “employment at will” an employee can be lawfully terminated from her job for:
V. wearing a shirt that clashes with her suit
VI. any non-discriminatory reason
VII. complaining about illegal activity in the workplace
VIII. only for good cause
a. I only
b. II only
c. I and II
d. III and IV
24. Exceptions to the rule of employment-at-will include which of the following?
I. organization of unions
II. passage of Sarbanes Oxley Act
III. raising of public policy issues
IV. promise of implied-contract or covenant-of-good-faith
I only
II only
I and II
I, II, III, IV
25. The Food Safety Modernization Act:
I. offers some protections for whistleblowers
II. covers vegetables, seafood and dairy
III. covers eggs and poultry
IV. gives the FDA power to make mandatory recalls
I and II only
I, III and IV only
I, II and IV only
I, II, III, IV
26. Ag Gag would criminalize:
undercover video recordings showing animal cruelty
recordings of public health violations occurring in agricultural facilities
Both a. and b.
Neither a. nor b.
27. The National Labor Relations Board has stated that the right to discuss working conditions freely and without fear of retaliation should exist at the work site. However, the Board believes the same right does not exist online.
True
False
28. The Constitution does not always protect free-speech rights for what public employees say on the job. Which of the following is true?
When a citizen enters government service, the citizen need not accept certain limitations on his or her freedom.
Public employees may speak out on matters of public concern and have First Amendment protection but not when they speak out in the course of their official duties.
As public employees speak out and receive First Amendment protection, there
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MGT 500 Final Exam – Strayer New
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MGT 500 Week 11 Final Exam Solution – Perfect Score
Chapter 1—Innovative Management for a Changing World
TRUE/FALSE
1. The nature of management is to control and dictate others in an organization.
ANS: PTS: 1 DIF: 2 REF: 3-4
NAT: AACSB Analytic | Motivation Concepts TYP: F
2. Managers need a new approach that relies less on command and control and more on communication and coordination, in the new world of work.
ANS: PTS: 1 DIF: 2 REF: 4
NAT: AACSB Communication | Environmental Influence TYP: F
3. In today’s turbulent and hypercompetitive global environment, managers must help their companies innovate more than ever.
ANS: PTS: 1 DIF: 2 REF: 4
NAT: AACSB Analytic | Creation of Value TYP: F
4. The late famed management theorist Peter Drucker is often credited with creating the modern study of management.
ANS: PTS: 1 DIF: 2 REF: 5
NAT: AACSB Analytic | Leadership Principles TYP: F
5. Managers get things done by coordinating and motivating other people.
ANS: PTS: 1 DIF: 2 REF: 6
NAT: AACSB Analytic | Leadership Principles TYP: F
6. The attainment of organizational goals through planning, organizing, leading and controlling reflects the essence of the management process.
ANS: PTS: 1 DIF: 1 REF: 6
NAT: AACSB Analytic | Leadership Principles TYP: F
7. Where the organization wants to be in the future and how to get there defines controlling.
ANS: PTS: 1 DIF: 1 REF: 7
NAT: AACSB Analytic | Leadership Principles TYP: F
8. Organizing means defining goals for future organizational performance and deciding on the tasks and resources needed to attain them.
ANS: PTS: 1 DIF: 2 REF: 7
NAT: AACSB Analytic | Leadership Principles TYP: F
9. Leading is the use of influence to motivate employees to achieve organizational goals.
ANS: PTS: 1 DIF: 1 REF: 8
NAT: AACSB Analytic | Leadership Principles TYP: F
10. The use of influence to motivate employees to achieve organizational goals defines organizing.
ANS: PTS: 1 DIF: 1 REF: 8
NAT: AACSB Analytic | Leadership Principles TYP: F
11. How an organization goes about accomplishing a plan is a key part of the management function of controlling.
ANS: PTS: 1 DIF: 1 REF: 8
NAT: AACSB Analytic | Leadership Principles TYP: F
12. Using influence to motivate employees describes the management function of leading.
ANS: PTS: 1 DIF: 1 REF: 8
NAT: AACSB Analytic | Leadership Principles TYP: F
13. The use of influence to motivate employees to achieve the organization's goals refers to controlling.
ANS: PTS: 1 DIF: 1 REF: 8
NAT: AACSB Analytic | Leadership Principles TYP: F
14. Organizing means creating a shared culture and values.
ANS: PTS: 1 DIF: 2 REF: 8
NAT: AACSB Analytic | Leadership Principles TYP: F
15. Controlling involves monitoring employee's activities and taking corrective action as necessary.
ANS: PTS: 1 DIF: 1 REF: 8
NAT: AACSB Analytic | Leadership Principles TYP: F
16. An organization is a social entity that is goal directed and deliberately structured.
ANS: PTS: 1 DIF: 1 REF: 9
NAT: AACSB Analytic | Creation of Value TYP: F
17. In the definition of an organization, deliberately structured means being made up of two or more people and designed to achieve some outcomes.
ANS: PTS: 1 DIF: 1 REF: 9
NAT: AACSB Analytic | Creation of Value TYP: F
18. Efficiency refers to the degree to which the organization achieves a stated objective.
ANS: PTS: 1 DIF: 1 REF: 9
NAT: AACSB Analytic | Creation of Value TYP: F
19. Efficiency can be calculated as the amount of resources used to produce a product or service.
ANS: PTS: 1 DIF: 1 REF: 9
NAT: AACSB Analytic | Creation of Value TYP: F
20. To perform effectively, all managers must possess conceptual, human, and technical skills, though the degree of each skill necessary at different levels of an organization may vary.
ANS: PTS: 1 DIF: 2 REF: 10
NAT: AACSB Analytic | HRM TYP: F
21. All managers have to pay attention to costs and according to research, the best way to improve organizational effectiveness is by severe cost cutting.
ANS: PTS: 1 DIF: 2 REF: 10
NAT: AACSB Analytic | Strategy TYP: F
22. Human skill is the cognitive ability to see the organization as a whole system and the relationships among its parts.
ANS: PTS: 1 DIF: 2 REF: 10
NAT: AACSB Reflective Thinking | Leadership Principles TYP: F
23. Only the top managers in organizations need conceptual skills since it involves planning.
ANS: PTS: 1 DIF: 2 REF: 10
NAT: AACSB Analytic | HRM TYP: F
24. A manager's ability to work with and through other people and to work effectively as a group member is called human skills.
ANS: PTS: 1 DIF: 1 REF: 11
NAT: AACSB Analytic | HRM TYP: F
25. Technical skills are most important at lower organizational levels while human skills become more important as managers move up the organizational hierarchy.
ANS: PTS: 1 DIF: 2 REF: 11
NAT: AACSB Analytic | HRM TYP: F
26. Technical skills are utilized in the understanding and proficiency of general tasks.
ANS: PTS: 1 DIF: 1 REF: 11
NAT: AACSB Analytic | HRM TYP: F
1
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MGT 510 Midterm and Final Exam – Strayer NEW
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Chapters 1 Through 15
Chapter 1 Multinational Management in a Changing World
MULTIPLE CHOICE
1. Businesses of all sizes are increasingly looking for global opportunities because
a.
Trade barriers are falling.
b.
Money is flowing more freely across countries.
c.
The world is becoming one interconnected economy.
d.
All of the above.
AACSB Analytic, Strategy
PTS: 1
2. Globalization is
a.
The trend of businesses expanding beyond their domestic boundaries.
b.
Increasing average temperature over the globe.
c.
The increased use of global satellite communication systems.
d.
A strategy of developing unique products for each nation in the world.
AACSB Reflective thinking, Environmental influence
PTS: 1
3. Which of the following would not be considered a basic source of globalization?
a.
Similar customer needs
b.
Falling of trade barriers
c.
Advances in communication technology
d.
Differentiation among countries
AACSB Reflective Thinking, Environmental influence
PTS: 1
4. Multinational management is
a.
A strategy of developing similar strategies for different countries.
b.
The trend of business expanding beyond local boundaries.
c.
The formulation and design of management systems to successfully take advantage of international opportunities and respond to international threats.
d.
None of the above
AACSB Reflective thinking, Strategy
PTS: 1
5. According to the text, the multinational company
a.
Is required to be a public corporation.
b.
Is any company that engages in any business function across borders.
c.
Must sell overseas to be a true multinational.
d.
Must be large.
AACSB Reflective thinking, Strategy
PTS: 1
6. Which of the following is not a classification of economic systems noted in the text?
a.
Domestic economies
b.
Transition economies
c.
LDCs
d.
Emerging markets
AACSB Reflective thinking, Environmental influence
PTS: 1
7. Transition economies are
a.
Mature economies with substantial per capita GDP and international trade.
b.
Led by Hong Kong, Singapore, South Korea, and Taiwan.
c.
Countries changing from government-controlled or communistic economies to a more free market capitalism.
d.
None of the above
AACSB Reflective thinking, Environmental influence
PTS: 1
8. Emerging markets include
a.
OECD countries.
b.
Brazil, China, Russia, India.
c.
Korea, Japan and USA.
d.
Hungary, Poland, Slovakia.
AACSB Reflective thinking, Environmental influence
PTS: 1
9. Developing economies are
a.
Mature economies with substantial per capita GDP and international trade.
b.
Hong Kong, Singapore, and Taiwan.
c.
Countries in the process of changing their economies from government-controlled to a more free market capitalism.
d.
None of the above
AACSB Reflective thinking, Environmental influence
PTS: 1
10. Emerging markets are defined as those that are:
a.
Growing rapidly.
b.
Transitioning from a communist-controlled economy to capitalism.
c.
Seen to have impact only sporadically.
d.
Enjoying a mature economy.
AACSB Reflective thinking, Environmental influence
e
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MKT 475 Week 11 Quiz – Strayer
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Quiz 10 Chapter 15
Strategic Marketing Implementation and Control
True/False Questions
1. The analytical dimension of marketing planning process is concerned with the organizational structure in which planning is carried out, along with the associated information resources and corporate culture.
2. Internal marketing involves developing programs to win line management support for new strategies.
3. External marketing involves changing the attitudes and behavior of employees working at key points of contact with customers.
4. Internal marketing goals include promoting the external marketing strategy.
5. The balanced scorecard method is used to implement marketing plans.
6. The balanced scorecard method formally includes an assessment of the strategy component across all aspects of the business unit at the same time.
7. A benefit of the balanced scorecard methodology is that it is feasible for any business unit level strategy and provides a means to link performance evaluation to strategy implementation.
8. The second step in marketing evaluation and control is determining performance metrics and standards.
9. When monitoring a firm’s effectiveness of marketing activities, external information sources must be excluded.
10. Marketing metrics should be chosen to reflect issues most closely linking marketing investments with value chain requirements.
Multiple Choice Questions
11. The _____ indicates marketing objectives and the strategy and tactics for accomplishing the objectives, and guides implementation and control.
A. strategic marketing plan
B. traditional marketing design
C. integrated marketing communications
D. market positioning strategy
12. Which of the following techniques guides short-term marketing activities?
A. Strategic marketing plan
B. Annual marketing plan
C. Situation analysis
D. Positioning strategy
13. Which of the following marketing planning process dimensions is concerned with an organization’s structure, associated information resources, and corporate culture?
A. Analytical process dimension
B. Behavioral process dimension
C. Organizational process dimension
D. Cognitive process dimension
14. Which of the following marketing planning process dimensions is concerned with managerial perceptions, participation, and strategic assumptions?
A. Analytical process dimension
B. Cognitive process dimension
C. Organizational process dimension
D. Behavioral process dimension
15. Which of the following marketing planning process dimensions is concerned with techniques, procedures, systems, and planning models?
A. Analytical process dimension
B. Cognitiveprocess dimension
C. Organizational process dimension
D. Behavioral process dimension
16. Which of the following is true about internal marketing?
A. It positions the marketing strategy in the customer marketplace.
B. Its goals include promoting the external marketing strategy.
C. It aims at providing superior external customer service to support internal strategy.
D. Its aim is to better align internal market objectives with external capabilities.
17. Which of the following is true about internal marketing?
A. It positions the marketing strategy in the customer marketplace.
B. It involves changing the attitudes and behavior of customers at key points of contact with employees.
C. It is aimed at the potential customers within the company.
D. It is targeted at particular market segments and niches.
18. _____ is a formalized management control system that implements a given business unit strategy by means of activities across four areas: financial, customer, internal business process, and learning and growth (or innovation).
A. Benchmarking
B. Internal strategy-organization fit
C. Strategic marketing audit
D. Balanced scorecard method
19.Which of the following is true of the balanced scorecard method?
A. It translates aggregate and broadly defined strategies to very specific actions.
B. It provides a means to link customer satisfaction with value orientation.
C. It is not feasible for business unit level strategies.
D. It does not assess the strategy component across all aspects of the business unit.
20. The _____ approach allows consideration of specific activities which will accomplish the objective, but also formally includes an assessment of the strategy component across all aspects of the business unit at the same time.
A. vertical assessment
B. balanced scorecard
C. strategic marketing audit
D. benchmarking
21. Which of the following is the initial step in setting up a strategic marketing evaluation program?
A. Obtaining and analyzing information for performance-gap identification
B. Selecting performance criteria and choosing relevant marketing metrics
C. Conducting strategic marketing audit
D. Assessing performance and taking necessary action
22. Which of the following is the strategic marketing audit used for?
A. To translate broadly defined marketing strategy into very specific actions
B. To provide a means to link performance evaluation to strategy implementation
C. To ensure that activities in one area do not interfere with activities in another area
D. To initiate a formal strategic marketing planning program
23. The results of the _____ provide the basis for selecting performance criteria and choosing relevant marketing metrics to assess actual performance against plans and tactical intent.
A. strategic marketing audit
B. integrated marketing communications
C. balanced scorecard
D. customer relationship analysis
24. _____ use both internal and external information sources to provide a structure for monitoring the effectiveness of marketing activities and strategies.
A. Marketing segmentation strategies
B. Balanced scorecard methods
C. Marketing metrics
D. Salesforce strategies
25. The choice of the most relevant marketing metrics should be made in the light of the need to:
A. track performance relative to alliances.
B. track performance relative to suppliers.
C. track performance over investment capabilities.
D. measure performance relative to strategy.
26. Which of the following is a danger of using a marketing dashboard?
A. The dashboard contains metrics only relevant to assessing past performance.
B. The dashboard contains metrics which only give insight into present performance.
C. The dashboard contains metrics which only give insight into future developments.
D. The dash board contains only metrics related to the main business drivers.
27. Which of the following approaches is a quality control technique useful in determining when operating results are fluctuating normally or instead are disorderly?
A. Value chain analysis
B. Statistical process-control methods
C. Benchmarking
D. Data-control processes
28. _____ is/are used to analyze and improve results in marketing performance measures such as the number of orders processed, customer complaints, and territory sales.
A. Value chain analysis
B. Benchmarking
C. Quality-control charts
D. Cluster analysis
29. A _____ indicates when the process is experiencing normal variation and when the process is out of control.
A. data-control process
B. value chain analysis
C. BCG matrix
D. control-chart analysis
30. Which of the following is true of a control-chart analysis?
A. It cannot be used to detect randomness in operating results.
B. Its control boundaries are set using historical data.
C. It can only be used to establish average and upper limits of the measure.
D. It can only be used to establish average and lower limits of the measure.
Essay Questions
31. What are the core tasks of a CMO?
32. Explain the dimensions of the marketing planning process.
33. Discuss factors that influence the implementation of a marketing strategy.
34. Discuss how organizational designs help implement a strategic marketing plan.
35. What guiding points should be considered when selecting relevant marketing metrics?
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MKT 500 Week 11 Discussion Question – Strayer New
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"Reflection" Please respond to the following:
• Reflecting on the past ten (10) weeks, specify what you believe are the two (2) most important concepts you have learned in this course.
• Predict two (2) ways you will be able to apply these concepts to your current job and career in the future. Give your opinion on the manner in which this course’s learning outcomes contribute to the MBA curriculum. Provide a rationale for your response.
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