business finance mcq . Vang Corp.’s stock price at the end of last year was $33.50 and its earnings

It is generally more expensive to form a proprietorship than a corporation because, with a proprietorship, extensive legal documents are required.

Corporations face fewer regulations than sole proprietorships.

One disadvantage of operating a business as a sole proprietorship is that the firm is subject to double taxation, at both the firm level and the owner level.

One advantage of forming a corporation is that equity investors are usually exposed to less liability than in a regular partnership.

If a regular partnership goes bankrupt, each partner is exposed to liabilities only up to the amount of his or her investment in the business.

Question 4.4. Which of the following statements is CORRECT? (Points : 4)
A time line is not meaningful unless all cash flows occur annually.
Time lines are not useful for visualizing complex problems prior to doing actual calculations.
Time lines cannot be constructed to deal with situations where some of the cash flows occur annually but others occur quarterly.
Time lines can be constructed where some of the payments constitute an annuity but others are unequal and thus are not part of the annuity.

Question 6.6. Vang Corp.’s stock price at the end of last year was $33.50 and its earnings per share for the year were $2.30. What was its P/E ratio? (Points : 4)
13.84
14.57
15.29
16.06

Question 8.8. Which of the following would indicate an improvement in a company’s financial position, holding other things constant? (Points : 4)
The inventory and total assets turnover ratios both decline.
The debt ratio increases.
The profit margin declines.
The current and quick ratios both increase.

Question 9.9. Which of the following statements is CORRECT? (Points : 4)
The four most important financial statements provided in the annual report are the balance sheet, income statement, cash budget, and the statement of stockholders’ equity.
The balance sheet gives us a picture of the firm’s financial position at a point in time.
The income statement gives us a picture of the firm’s financial position at a point in time.
The statement of cash flows tells us how much cash the firm has in the form of currency and demand deposits.

Question 10.10. Companies E and P each reported the same earnings per share (EPS), but Company E’s stock trades at a higher price. Which of the following statements is CORRECT? (Points : 4)
Company E probably has fewer growth opportunities.
Company E is probably judged by investors to be riskier.
Company E must have a higher market-to-book ratio.
Company E trades at a higher P/E ratio.

Question 11.11. Quigley Inc.’s bonds currently sell for $1,080 and have a par value of $1,000. They pay a $100 annual coupon and have a 15-year maturity, but they can be called in 5 years at $1,125. What is their yield to maturity (YTM)?
(Points : 4)
8.56%
9.01%
9.46%
9.93%

Question 12.12. Bill Dukes has $100,000 invested in a 2-stock portfolio. $35,000 is invested in Stock X and the remainder is invested in Stock Y. X’s beta is 1.50 and Y’s beta is 0.70. What is the portfolio’s beta?
(Points : 4)
0.65
0.72
0.80
0.98

Question 13.13. Inflation, recession, and high interest rates are economic events that are best characterized as being: (Points : 4)
systematic risk factors that can be diversified away.
company-specific risk factors that can be diversified away.
among the factors that are responsible for market risk.
risks that are beyond the control of investors and thus should not be considered by security analysts or portfolio managers.

Question 14.14. A 10-year bond with a 9% annual coupon has a yield to maturity of 8%. Which of the following statements is CORRECT? (Points : 4)
If the yield to maturity remains constant, the bond’s price one year from now will be higher than its current price.
The bond is selling below its par value.
The bond is selling at a discount.
If the yield to maturity remains constant, the bond’s price one year from now will be lower than its current price.

Question 15.15. Managers should under no conditions take actions that increase their firm’s risk relative to the market, regardless of how much those actions would increase the firm’s expected rate of return. (Points : 4)
True
False

Question 16.16. Calculate the required rate of return for Mercury, Inc., assuming 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) Mercury has a beta of 1.00, and (5) its realized rate of return has averaged 15.0% ove