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When companies start investing using internally generated funds, it shows that ____________?

When companies rely on internally generated funds for investment, it indicates that external borrowing is relatively expensive. High interest rates or borrowing costs make loanable funds costly, so firms prefer using their own resources to finance projects and operations.... Read More

1 FINANCE MCQS

When companies start investing using internally generated funds, it shows that ____________?

  • The cost of loanable funds is high
  • The cost of loanable funds is low
  • Equilibrium is zero
  • Equilibrium is negative
Correct Answer: A. The cost of loanable funds is high

Detailed Explanation

When companies rely on internally generated funds for investment, it indicates that external borrowing is relatively expensive. High interest rates or borrowing costs make loanable funds costly, so firms prefer using their own resources to finance projects and operations.

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Finance MCQs
Which financial metric is calculated by dividing total assets by common equity?
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Finance MCQs
Which financial metric is calculated by multiplying profit margin, assets turnover, and equity multiplier?
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Finance MCQs
A company with low earnings power and high interest costs typically exhibits which financial outcome?
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Finance MCQs
Which type of financial ratios compares a company’s stock to its book value per share, cash flow, and earnings?
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Finance MCQs
Which equation multiplies total assets by the profit margin to measure financial performance?
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Finance MCQs
The price-earnings (P/E) ratio and the price-to-cash-flow (P/CF) ratio are classified under which type of financial ratios?
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Finance MCQs
Given a Return on Assets (ROA) of 5.5%, Total Assets of $3,000, and Common Equity of $1,050, what is the Return on Equity (ROE)?
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Finance MCQs
If a company has a Profit Margin of 4.5% and a Total Assets Turnover of 1.8, what will be its Return on Assets (ROA) using the DuPont equation?
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Finance MCQs
A high Price-to-Earnings (P/E) ratio indicates that a company has ____________.
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Finance MCQs
If a company has a Return on Assets (ROA) of 6.7% and an equity multiplier of 2.5, what will be its Return on Equity (ROE)?
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Finance MCQs
The process of comparing a company’s performance with that of leading firms in the industry is called ____________.
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Finance MCQs
An equity multiplier is multiplied by Return on Assets (ROA) to calculate which of the following?
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Finance MCQs
A project whose cash flows exceed the capital invested when discounted at the required rate of return will have a Net Present Value (NPV) that is ____________.
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Finance MCQs
What type of relationship exists between Economic Value Added (EVA) and Net Present Value (NPV)?
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Finance MCQs
If the uncovered cost at the beginning of the year is $200, the full cash flow during the recovery year is $400, and the number of years to full recovery before this year is 3, what will be the payback period?
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Finance MCQs
In capital budgeting, a positive Net Present Value (NPV) results in which of the following outcomes?
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Finance MCQs
For calculating which financial measure is the uncovered cost at the beginning of the year divided by the full cash flow during the recovery year and then added to the cumulative recovery of prior years?
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Finance MCQs
Period costs include which of the following?
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Finance MCQs
In cash flow analysis, two projects are compared using a common life approach, which is classified as ____________?
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Finance MCQs
Other factors held constant, a project with lesser liquidity is usually due to ____________?
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Finance MCQs
In capital budgeting, the Internal Rate of Return (IRR) of a project is classified as its ____________?
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Finance MCQs
In evaluating independent projects, the results of Internal Rate of Return (IRR) and Net Present Value (NPV) usually lead to ____________?
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Finance MCQs
In Internal Rate of Return (IRR), the discount rate that makes Net Present Value (NPV) zero is called ____________?
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Finance MCQs
Projects that are mutually exclusive but differ in scale or completion time are compared using ____________?
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Finance MCQs
The graph plotted for projected Net Present Value (NPV) against capital rates is called ____________?
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Finance MCQs
A Modified Internal Rate of Return (MIRR) is calculated as the present value of costs and is equal to ____________?
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Finance MCQs
The set of projects or investments that maximizes the firm’s value is called ____________?
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Finance MCQs
The point where the Net Present Value (NPV) profile crosses the horizontal axis on a graph indicates the project’s ____________?
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Finance MCQs
The Modified Internal Rate of Return (MIRR) exceeds the cost of capital if the Net Present Value (NPV) is ____________?
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Finance MCQs
The payback period in which expected cash flows are discounted using the project’s cost of capital is called ____________?
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Finance MCQs
In alternative investments, a constant cash flow stream equal to the initial cash flow stream is calculated using ____________?
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Finance MCQs
In capital budgeting, a negative Net Present Value (NPV) results in ____________?
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Finance MCQs
The number of years forecasted to recover the original investment is called ____________?
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Finance MCQs
A discount rate where the present value of terminal value equals the project cost present value is called ____________?
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Finance MCQs
An uncovered cost at the start of the year is $300, full cash flow during recovery year is $650, and prior years to full recovery is 4. The payback period is ____________?
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Finance MCQs
The present value of future cash flows is $2,000, and the initial cost is $1,100. The Profitability Index (PI) is ____________?
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Finance MCQs
The Profitability Index (PI) in capital budgeting is used to ____________?
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Finance MCQs
In calculating the Internal Rate of Return (IRR), it is assumed that the project’s cash flows must ____________?
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Finance MCQs
In capital budgeting, a project with non-normal cash flows can have ____________ internal rates of return (IRR)?
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Finance MCQs
The situation where a firm limits its capital expenditures is called ____________?
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Finance MCQs
If the initial cost is $5,000 and the Profitability Index (PI) is 3.2, then the present value of cash flows is ____________?
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Finance MCQs
The present value of future cash flows divided by the initial project cost is called ____________?
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Finance MCQs
If the Net Present Value (NPV) is positive, the Profitability Index (PI) will be ____________?
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Finance MCQs
Cash flows that have more than one change in sign are called ____________?
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Finance MCQs
The first step in calculating Net Present Value (NPV) is to find ____________?
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Finance MCQs
The situation where accepting one project requires rejecting another is called ____________?
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Finance MCQs
The sum of discounted cash flows is called ____________?
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Finance MCQs
The asset life that maximizes the net present value (NPV) is called ____________?
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Finance MCQs
If two independent projects meet the hurdle rate, then both projects should ____________?
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Finance MCQs
The cash outflows of a project, representing its costs, are shown as ____________?
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Finance MCQs
In capital budgeting, two projects with a cost of capital of 12% are evaluated using ____________?
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Finance MCQs
A cash flow that starts negative, then becomes positive, and later remains positive is called ____________?
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Finance MCQs
In estimating the value of cash flows, the compounded future value is called its ____________?
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Finance MCQs
In capital budgeting, the technique based on discounted cash flows is called ____________?
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Finance MCQs
An increase in marginal cost of capital and capital rationing are complications of ____________?
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Finance MCQs
If the initial cost is $6,000 and the profitability index (PI) is 5.6, the present value (PV) of cash flows is ____________?
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Finance MCQs
In large expansion programs, increased risk and flotation costs can cause ____________?
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Finance MCQs
The cash inflows of a project, which represent its revenues, are shown as ____________?
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Finance MCQs
If the present value of future cash flows is $4,150 and the initial cost is $1,300, the profitability index (PI) is ____________?
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Finance MCQs
A project whose cash flows do not depend on other projects is called ____________?
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Finance MCQs
Net Present Value (NPV), Profitability Index (PI), Payback, and Discounted Payback are methods used to ____________?
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Finance MCQs
Which business term comes from the Latin word meaning “to roll over”?
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Finance MCQs
Investment in a group of different securities is called ____________?
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Finance MCQs
The risk of losses caused by failed processes, policies, systems, or events disrupting business operations is called ____________?
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Finance MCQs
Market risk is also known as ____________?
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Finance MCQs
The risk of losses on financial investments due to adverse price movements is called ____________?
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Finance MCQs
The process of selecting projects that are most likely to be profitable when capital is limited is called ____________?
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Finance MCQs
Which financial analysis technique is used to evaluate a company’s performance over time?
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Finance MCQs
Exchange markets and over-the-counter (OTC) markets are two types of ____________?
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Finance MCQs
If the current market price of a common stock is $15 and the conversion rate is 320, the conversion value of the stock is ____________?
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Finance MCQs
The placement of a financial issue where the investment bank and municipality jointly find large buyers is called ____________?
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Finance MCQs
The difference between the face value of a bond and its call price is called ____________?
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Finance MCQs
If municipal bonds are traded infrequently, the secondary market is called ____________?
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Finance MCQs
In a negotiated sale, the services provided by investment banks include ____________?
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Finance MCQs
Treasury bonds and notes pay interest in the form of ____________?
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Finance MCQs
Securities with the lowest default risk and highest credit quality are rated ____________?
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Finance MCQs
Financial securities issued by local and state governments are called ____________?
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Finance MCQs
The principal value of TIPS (Treasury Inflation-Protected Securities) changes based on ____________?
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Finance MCQs
The interest on floating-rate Eurobonds is paid ____________?
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Finance MCQs
If revenue bonds default, the bondholders will ____________?
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Finance MCQs
The rules and regulations imposed on bondholders and bond issuers are called ____________?
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Finance MCQs
An issuance where the investment bank buys the new securities at a fixed price, guaranteeing the issuer, is called ____________?
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Finance MCQs
If the conversion value is $8,500 and the conversion rate is 430, the current market price of the stock is ____________?
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Finance MCQs
A long-term debt instrument issued by governments or corporations is called ____________?
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Finance MCQs
Financial securities issued to finance government expenditures and national debt are called ____________?
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Finance MCQs
If the marginal income tax rate is 35% and the before-tax rate of return is 12.5%, the after-tax rate of return is ____________?
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Finance MCQs
In a best efforts offering, the price of securities is initially set by ____________?
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Finance MCQs
Default risk is measured by traders, managers, and investors using ____________?
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Finance MCQs
The type of rating that credit rating agencies do not usually consider is called ____________?
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Finance MCQs
In financial markets, a bond indenture results in ____________?
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Finance MCQs
If the conversion value is $9,500 and the conversion rate is 460, the current market price of the stock is ____________?
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Finance MCQs
A Treasury security where the final principal payment is separated from periodic interest payments is called ____________?
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Finance MCQs
Who are the primary issuers of capital market securities?
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Finance MCQs
In a best efforts offering, the investment bank, in return for providing services, must ____________?
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Finance MCQs
Debt that shows the historical accumulated record of federal government expenditures is called ____________?
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Finance MCQs
Financial firms like mutual funds and insurance companies are also called ____________?
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Finance MCQs
In a firm commitment underwriting, who bears most of the risk?
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Finance MCQs
If the marginal income tax rate is 46.8% and the before-tax rate of return is 15.5%, the after-tax rate of return is ____________?
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Finance MCQs
If the marginal income tax rate is 28% and the before-tax rate of return is 14.5%, the after-tax rate of return is ____________?
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Finance MCQs
A financial guarantee ensures that the lender will be paid ____________?
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Finance MCQs
An issuance of securities where the investment bank does not guarantee a price but acts as a distributor is called ____________?
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Finance MCQs
Conversion value divided by the conversion rate is used to calculate ____________?
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Finance MCQs
Treasury securities are exempted from ____________?
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Finance MCQs
In firm commitment underwriting, the securities are sold to investors at a relatively ____________ price?
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Finance MCQs
A bond denominated in US dollars and issued in European financial markets is called ____________?
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Finance MCQs
Eurobonds are typically issued in what denominations?
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Finance MCQs
Private placements of securities are considered ____________?
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Finance MCQs
In which year were Eurobonds first issued in financial markets?
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Finance MCQs
If the purchase price of a stock exceeds its market value, stock warrants will ____________?
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Finance MCQs
Convertible bonds are called hybrid bonds because they have features of ____________?
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Finance MCQs
From a bondholder’s point of view, bonds issued with a sinking fund provision are considered ____________?
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Finance MCQs
The type of sale where an investment bank has the rights to underwrite, distribute, and originate new bonds is called ____________?
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Finance MCQs
Compared to public issues, the interest premiums on privately placed issues over time have ____________?
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Finance MCQs
The funds supplied by lenders in financial markets are called ____________?
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Finance MCQs
Financial system participants reduce their demand for funds if economic growth in ____________?
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Finance MCQs
The demand curve for funds shifts left if economic growth is ____________?
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Finance MCQs
The demand curve for funds shifts left if economic growth is ____________?
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Finance MCQs
According to the loanable funds theory, a fall in interest rates leads to ____________?
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Finance MCQs
mcq_question: The value that converts a series of equal payments into the value received at the end of an investment is called ____________?
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Finance MCQs
The present value decreases at a decreasing rate when there is ____________?
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Finance MCQs
The interest earned that is reinvested in other investments is called ____________?
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Finance MCQs
The formula to calculate the effective annual return (EAR) is written as ____________?
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Finance MCQs
The demand in financial markets created by users of funds is called ____________?
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Finance MCQs
The interest rate that accounts for compounding over 12 months is called ____________?
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Finance MCQs
If the risk of a financial security increases and the supply curve shifts left, what happens to the equilibrium interest rate?
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Finance MCQs
Loans for education and medical purposes are classified as loans for ____________?
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Finance MCQs
An increase in the equilibrium interest rate with the supply curve of funds shifting left or upward is caused by ____________?
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Finance MCQs
Suppliers, fund consumers, foreign participants, and government intermediaries are all participants of ____________?
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Finance MCQs
According to the loanable funds theory, who are the main net suppliers of fund
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Finance MCQs
In financial markets, a decrease in investment causes ____________?
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Finance MCQs
Accounts receivable and inventory are examples of ____________?
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Finance MCQs
If the risk of a financial security decreases and the supply curve shifts right and downward, what happens to the equilibrium interest rate?
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Finance MCQs
When the interest rate is lower than the equilibrium rate, the financial system has ____________?
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Finance MCQs
If the demand for loanable funds decreases, the borrowing cost of funds becomes ____________?
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Finance MCQs
To avoid a shortage of funds, the relationship between funds supplied and funds demanded must be ____________?
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Finance MCQs
Plants and equipment are examples of ____________?
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Finance MCQs
Loans for cars and home appliances are called loans for ____________?
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Finance MCQs
For other non-price conditions, an increase in the equilibrium interest rate leads to ____________?
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Finance MCQs
Services like commercial trade transactions and financial investment positions provided by financial institutions are called ____________?
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Finance MCQs
The rule that states similar goods and services produced in different countries should have the same price is called ____________?
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Finance MCQs
The position created when assets are greater than liabilities is called ____________?
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Finance MCQs
The stocks or shares sold to investors without using financial institutions are called ____________?
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Finance MCQs
The market where debt and stocks with a maturity period of more than one year are traded is called __________?
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Finance MCQs
The structured market where funds flow through financial instruments like bonds and stocks is called ____________?
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Finance MCQs
The financial market where corporations issue new securities to raise funds is called ____________?
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Finance MCQs
Savings banks, insurance companies, mutual funds, and commercial banks are examples of which type of institutions?
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Finance MCQs
Do debt instruments with which maturity face more price fluctuations?
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Finance MCQs
The centralized marketplace where agents can trade efficiently and quickly is called
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Finance MCQs
The major assets of commercial banks are:
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Finance MCQs
The type of markets in which derivative securities are traded is classified as:
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Finance MCQs
In the money markets, the excess supply of funds from agents is for:
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Finance MCQs
The type of financial security having payoffs linked to previously issued securities is called:
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Finance MCQs
The financial intermediaries that provide loans and accept short-term and long-term debts for funding are called:
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Finance MCQs
The risk which arises from all activities related to contingent liabilities and assets is called:
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Finance MCQs
The major liabilities of commercial banks are:
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Finance MCQs
In financial transactions, the risk that there will be no profit in selling an asset is classified as:
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Finance MCQs
The type of financial security which has a payoff linked to another issued security is classified as:
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Finance MCQs
The examples of derivative securities include:
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Finance MCQs
The risk that occurs due to a technology system failure is called:
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Finance MCQs
The legal document required by the Securities Exchange Commission that shows risks and details of an issue is called:
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Finance MCQs
Additional debt or equity instruments of a publicly traded company are issued in which market?
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Finance MCQs
Which of the following are financial instruments of public markets?
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Finance MCQs
The risk caused by changes in asset prices and exchange rates is called?
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Finance MCQs
Which institutions write securities, provide brokerage services, and trade in securities?
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Finance MCQs
Which institutions issue securities, handle brokerage, and trade in securities?
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Finance MCQs
Which term refers to the ability of an asset to be quickly converted into cash?
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Finance MCQs
Companies that collect money from individuals and businesses and invest it in a portfolio of assets are called __________?
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Finance MCQs
The risk that occurs when there is not enough capital to cover a sudden decrease in asset value is called __________?
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Finance MCQs
The market value of outstanding instruments in the capital market depends on __________?
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Finance MCQs
The depository institutions include __________?
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Finance MCQs
The market where governments issue securities to raise short-term funds is called __________?
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Finance MCQs
The risk where the value of assets and liabilities changes due to exchange rate fluctuations is called __________?
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Finance MCQs
The economic period when banks have excess funds is called __________?
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Finance MCQs
The accounting entry for institutions that borrow federal funds is recorded as __________?
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Finance MCQs
Commercial papers cannot be easily converted into cash due to lack of __________?
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Finance MCQs
Drafts that are backed by banks and payable to sellers of goods or services are called __________?
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Finance MCQs
Transactions that occur when borrowing and lending excess money are called __________?
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Finance MCQs
Which financial instrument is used to raise funds for working capital?
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Finance MCQs
The main investors of U.S. Treasury Bills do NOT include __________?
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Finance MCQs
Repurchase agreements (repos) can be traded __________?
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Finance MCQs
The Federal Reserve increases the money supply by __________?
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Finance MCQs
Negotiable certificates of deposit are traded in __________?
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Finance MCQs
In a security transaction, the agreement is called a “reverse repo” from the perspective of the __________?
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Finance MCQs
The interest rate on a certificate of deposit is quoted based on how many days in a year?
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Finance MCQs
In the borrowing and lending of federal funds, the federal funds rate is determined by the interaction of which two factors?
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Finance MCQs
Which financial instrument is used to raise funds for working capital?
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Finance MCQs
The demand for heavy loans can cause ____________?
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Finance MCQs
Investors usually hold commercial papers for __________?
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Finance MCQs
Markets that reallocate liquid funds in fixed amounts are called __________?
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Finance MCQs
CD rates are usually negotiated between __________?
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Finance MCQs
A commercial paper with a low interest rate indicates __________?
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Finance MCQs
The federal funds rate is determined by the interaction of __________?
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Finance MCQs
Which agreement involves selling a security with a promise to buy it back at maturity?
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Finance MCQs
Which instrument does the Federal Reserve use to manage money supply and interest rates?
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Finance MCQs
When an institution lends federal funds, it records them as __________?
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Finance MCQs
Negotiable certificates of deposit are issued by __________?
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Finance MCQs
The funds transferred usually for one day between financial institutions are classified as __________?
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Finance MCQs
Commercial paper can be sold __________?
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Finance MCQs
The banks that handle reciprocal agreements and accounts are called __________?
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Finance MCQs
The government regulates financial markets mainly to __________?
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Finance MCQs
Which document usually underlies an international banker’s acceptance?
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Finance MCQs
A negotiable certificate of deposit (with one-year maturity) pays interest __________?
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Finance MCQs
A banker’s acceptance, which is a time draft, is fully backed by ___________?
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Finance MCQs
Financial panic that causes large public losses can lead to ___________?
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Finance MCQs
The market where short-term financial instruments are traded is called __________?
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Finance MCQs
The transaction of federal funds usually takes place in the form of __________?
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Finance MCQs
The type of funds involving transfer transactions between financial institutions are called __________?
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Finance MCQs
Financial instruments are first traded in money markets and then in __________?
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Finance MCQs
The major investors in commercial papers include which of the following?
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Finance MCQs
The government issues treasury bills at a discounted rate from which value?
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Finance MCQs
Overnight loan transactions are part of which type of funds?
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Finance MCQs
The most flexible and liquid source of funding for savings banks is __________.
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Finance MCQs
The loan given to businesses or individuals to buy land, a home, or other property is called __________.
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Finance MCQs
Commercial mortgages, farm mortgages, and home mortgages are categories of?
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Finance MCQs
The mortgages taken to purchase townhouses and apartment complexes are called?
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Finance MCQs
The percentage change in bond price for a given change in interest rate is called __________.
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Finance MCQs
The duration divided by (1 + interest rate) is called ____________?
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Finance MCQs
The inverse relationship between bond price change and interest rate change is called?
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Finance MCQs
The situation where most of the investment money is borrowed from a broker is called __________.
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Finance MCQs
The upfront fee that a buyer must pay to the seller in an options contract is called __________.
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Finance MCQs
The main participants in the forward markets are __________.
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Finance MCQs
The type of index where current stock values are added together and divided by the stock value on the base date is called __________.
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Finance MCQs
The difference between the price of the underlying asset and the exercise price of an option is called __________.
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Finance MCQs
The traders who take positions in the futures market based on expected price changes of underlying assets are called __________.
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Finance MCQs
The underwriter spread of stock is added to net proceeds to calculate ___________?
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Finance MCQs
The underwriter spread is subtracted from gross proceeds to calculate __________.
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Finance MCQs
The prices adjusted daily to reflect current conditions of futures markets are called __________.
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Finance MCQs
Which type of contract involves exchange of assets in the future with prices settled daily?
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Finance MCQs
The process in which a group of investment banks distributes securities is called what?
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Finance MCQs
The pre-specified price at which an underlying asset can be bought or sold is called what?
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Finance MCQs
When the price of the underlying asset is added to the intrinsic value of an option, it gives what?
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Finance MCQs
The fixed price at which investment banks purchase stock from the issuer is called what?
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Finance MCQs
The period between the issuance of shares and the filing of registration with the Securities and Exchange Commission (SEC) is called what?
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Finance MCQs
The exchange members who place buy and sell orders from the public are called what?
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Finance MCQs
The orders executed at the best available price are called what?
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Finance MCQs
In a public corporation, the claim of fundamental ownership is called what?
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Finance MCQs
Which of the following is an example of a derivative security?
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Finance MCQs
The markets where derivatives are traded are called __________.
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Finance MCQs
Capital gain is subtracted from the return to stockholders to calculate __________.
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Finance MCQs
The unit that guarantees all buying and selling transactions made by traders on an exchange is called __________.
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Finance MCQs
The contract that gives the holder the right (but not the obligation) to buy or sell an asset within a specific time period is called __________.
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Finance MCQs
The composite value of a group of traded stocks in secondary markets is called __________.
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Finance MCQs
The difference between net proceeds and gross proceeds is called __________.
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Finance MCQs
The markets where corporations issue new securities to raise funds are called __________.
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Finance MCQs
The deposit required in a futures contract as a guarantee that the contract terms will be fulfilled is called ___________.
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Finance MCQs
The type of liability where stockholders can lose only the amount they invested in the firm is called __________.
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Finance MCQs
According to a futures contract, the long position means the __________.
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Finance MCQs
___________ is concerned with the acquisition, financing, and management of assets with an overall goal in mind.
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Finance MCQs
Financial management, while keeping an overall goal in mind, is mainly concerned with:
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Finance MCQs
The investment decision is the most important of a firm’s three major decisions because it relates to:
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Finance MCQs
Annual cash dividends divided by annual earnings, or alternatively, dividends per share divided by earnings per share, are termed as:
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Finance MCQs
Profit maximization refers to the maximization of a firm’s earnings:
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Finance MCQs
A major facet of financial management involves providing the financing necessary to support which of the following?
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