Accounting
Anthropology
Archaeology
Art History
Banking
Biology & Life Science
Business
Business Communication
Business Development
Business Ethics
Business Law
Chemistry
Communication
Computer Science
Counseling
Criminal Law
Curriculum & Instruction
Design
Earth Science
Economic
Education
Engineering
Finance
History & Theory
Humanities
Human Resource
International Business
Investments & Securities
Journalism
Law
Management
Marketing
Medicine
Medicine & Health Science
Nursing
Philosophy
Physic
Psychology
Real Estate
Science
Social Science
Sociology
Special Education
Speech
Visual Arts
Finance
Q:
The law that set up the federal banking system and provided for the chartering of national banks
was the:
A) National Bank Act
B) McFadden-Pepper Act
C) Glass-Steagall Act
D) Bank Merger Act
E) Federal Reserve Act
Q:
Preferably, cash flows for a project are estimated as:
A. Cash flows before taxes
B. Cash flows after taxes
C. Accounting profits before taxes
D. Accounting profits after taxes
Q:
An institutional arrangement in which federal and state authorities both have significant bank regulatory powers is referred to as:
A) Balance of Power
B) Federalism
C) Dual Banking System
D) Cooperative Regulation
E) Coordinated Control
Q:
Important points to remember while estimating cash flows of projects are:
I) only cash flow is relevant
II) always estimate cash flows on an incremental basis
III) be consistent in the treatment of inflation
A. I only
B. I and II only
C. II, and III only
D. I,II, and III
Q:
Banks are regulated for which of the reasons listed below?
A) Banks are leading repositories of the public's savings.
B) Banks have the power to create money.
C) Banks provide businesses and individuals with loans that support consumption and investment spending.
D) Banks assist governments in conducting economic policy, collecting taxes and dispensing government payments.
E) All of the above.
Q:
When calculating a weighted average profitability index should you apply an index of 0 to left over money?
Q:
T F 46. One of the principal reasons for government regulation of financial firms is to protect the safety and soundness of the financial system.
Q:
Briefly explain the term "hard rationing."
Q:
The was created by the National Banking Act and is part of the Treasury Department. It is the primary regulator of National Banks.
Q:
Briefly explain the term "soft rationing".
Q:
Briefly discuss capital rationing.
Q:
In what way is the modified internal rate of return (MIRR) method better than the IRR method?
Q:
What are some of the advantages of using the IRR method?
Q:
What are some of the disadvantages of using the IRR method?
Q:
Discuss some of the disadvantages of the payback rule.
Q:
Discuss some of the advantages of using the payback method.
Q:
Briefly explain the value adding-up property.
Q:
The _____________________ Act prohibits banks and other publicly owned firms from publishing false or misleading financial performance information.
Q:
(p. 138) Soft rationing may be used to control managerial behavior.
Q:
The central bank of the new European Union is known as the _______________________.
Q:
The benefit-cost ratio is equal to profitability index plus one.
Q:
The _________________ requires financial service companies to report suspicious activity in customer accounts to the Treasury Department.
Q:
Decommissioning and clean-up cost for any project is always insignificant and should always be ignored.
Q:
The federal bank regulatory agency which examines the most banks is the ______________.
Q:
Customers of financial-service companies may _____________________ of having their private information shared with a third party such as a telemarketer. However, in order to do this they must tell the financial-services company in writing that they do not want their personal information shared with outside parties.
Q:
There can never be more than one value of IRR for any cash flow.
Q:
The allows banks to affiliate with insurance companies and securities firms either through a holding company or as a subsidiary.
Q:
In case of a loan project, one should accept the project if the IRR is more than the cost of capital.
Q:
The__________________________ allows bank holding companies to acquire banks anywhere in the United States. However, no one bank can control more than 30 percent of the deposits in any one state or more than 10 percent of the deposits across the country.
Q:
The IRR rule states that firms should accept any project offering an internal rate of return in
excess of the cost of capital.
Q:
The internal rate of return is the discount rate that makes the PV of a project's cash inflows equal to zero.
Q:
The discounted payback rule calculates the payback period and then discounts it at the opportunity cost of capital.
Q:
The payback rule ignores all cash flows after the cutoff date.
Q:
Present values have value adding-up property.
Q:
One tool that the Federal Reserve uses to control the money supply is _________________. The Federal Reserve will change the interest rate they charge for short term loans when they are using this tool of monetary policy.
Q:
A positive NPV will always generate a profitability index above 0.
Q:
In 1980, __________________________ was passed and lifted government ceilings on deposit interest rates in favor of free market interest rates.
Q:
The profitability index will always be below 1.
Q:
Because the FDIC levies fixed insurance premiums regardless of risk, this leads to a problem called the ____________________ among banks. The fixed premiums encourage all banks to accept greater risk.
Q:
What is the profitability index of an investment with cash flows in years zero thru 4 of -340, 120, 130, 153, and 166, respectively and a discount rate of 16%?
A. .15
B. .22
C. .35
D. .42
Q:
The __________________________ prevented banks from crossing state lines and made national banks subject to the branching laws of their state. This act was later repealed by the Riegle Neal Interstate Banking law.
Q:
What would be the weighted average profitability index of the following two investments, given the firm only has $250 to invest?
Project A: Cost = $120, NPV = 80
Project B: Cost = $100, NPV = 75
A. .62
B. .67
C. .75
D. .79
Q:
The profitability index can be used for ranking projects under:
A. Soft capital rationing
B. Hard capital rationing
C. Capital rationing at t = 0
D. Both A and B
Q:
One tool that the Federal Reserve uses to control the money supply is _________________ . The Federal Reserve will buy and sell T-bills when they are using this tool of monetary policy.
Q:
(p. 136) Benefit-cost ratio is defined as the ratio of:
A. Net present value cash flow to initial investment
B. Present value of cash flow to initial investment
C. Net present value of cash flow to IRR
D. Present value of cash flow to IRR
Q:
The firm has only twenty million to invest. What is the maximum NPV that the company can obtain?
A. 3.5
B. 4.0
C. 4.5
D. None of the above
Q:
The _____________________ was created as part of the Glass Steagall Act. In the beginning it insured deposits up to $2,500.
Q:
The following table gives the available projects for a firm. If the firm has a limit of 210 million to invest, what is the maximum NPV the company can obtain?
A. 200
B. 283
C. 307
D. None of the above
Q:
During the financial crisis of 2007-2009, the collapse of Lehman Brothers and the bailout of Bear Stearns reaffirmed the importance of the fundamental principle of:
A) Superior management
B) Globalization
C) Government bailout
D) Regulatory arbitrage
E) Public trust and confidence in the system
Q:
Profitability index is the ratio of:
A. Future value of cash flows to investment
B. Net present value of cash flows to investment
C. Net present value of cash flows to IRR
D. Present value of cash flows to IRR
Q:
Profitability index is useful under:
A. Capital rationing
B. Mutually exclusive projects
C. Non-normal projects
D. None of the above
Q:
Which of the following is not a purpose of bank regulation:
A) Guarantee minimal profitability of the banking system
B) Provide monetary stability
C) Ensure safety and soundness of banks
D) Provide competitive financial system
E) Protect consumers from abuses by banks
Q:
Which of the following is considered a depository financial institution?
A) Mortgage company
B) Mutual fund
C) Savings and Loan associations
D) Federal Reserve
E) Insurance company
Q:
39. Given the following cash flow for project A: C0 = -3,000, C1 = +500, C2 = +1,500 and C3 = +5,000, calculate the NPV of the project using a 15% discount rate.
A. $5,000
B. $2,352
C. $3,201
D. $1,857
Q:
The principal functions and services offered by many financial-service firms today include:
A) Lending and investing money
B) Making payments of behalf of customers to facilitate their purchases of goods and services
C) Managing and protecting customers cash and other property
D) Assisting customers in raising and investing funds profitably
E) All of the above
Q:
Dry-Sand Company is considering investing in a new project. The project will need an initial investment of $1,200,000 and will generate $600,000 (after-tax) cash flows for three years. Calculate the MIRR (modified internal rate of return) for the project if the cost of capital is 15%.
A. 14.5%
B. 18.6%
C. 20.2%
D. 23.4%
Q:
Banks with less than ___________in assets are generally called community banks.
A) More than $1 billion
B) Less than $1 billion
C) More than $10 billion
D) Less than $1 trillion
E) More than $1 trillion
Q:
Chandriga Suppiah has opened a Roth IRA with North Carolina State Bank and plans on making regular contributions to this account until she retires. Which of the financial services is Chandriga taking advantage of?
A) Getting a consumer loan
B) Getting financial advice
C) Managing cash
D) Getting venture capital services
E) Buying a retirement plan
Q:
Story Company is investing in a giant crane. It is expected to cost 6.0 million in initial investment and it is expected to generate an end of year cash flow of 3.0 million each year for three years. Calculate the NPV at 12% (approximately).
A. 2.4 million
B. 1.2. million
C. 0.80 million
D. 0.20 million
Q:
A project will have only one internal rate of return if:
A. The net present value is positive
B. The net present value is negative
C. The cash flows decline over the life of the project
D. There is a one sign change in the cash flows
Q:
MyWebCast is a new company that makes it easy for individuals to create streaming videos on the internet to share with friends and family for a small fee. MyWebCast wants to expand their offerings of video streaming services but needs cash to be able to do this. The Second National Bank of Oklahoma City, through a subsidiary, gives them the cash they need for an ownership share in the company. Which of the more recent services that banks offer is MyWebCast taking advantange of?
A) Getting a consumer loan
B) Getting financial advice
C) Managing cash
D) Getting venture capital services
E) Buying a retirement plan
Q:
The Bartholemew Bakery receives a lot of payments in cash. They deposit it in their local bank who invests the money in an interest bearing account until it is needed to pay bills. Which of the financial services banks offer is the Bartholemew bakery taking advantage of?
A) Getting a consumer loan
B) Getting financial advice
C) Managing cash
D) Getting venture capital services
E) Buying a retirement plan
Q:
Muscle Company is investing in a giant crane. It is expected to cost 6.5 million in initial investment and it is expected to generate an end of year cash flow of 3.0 million each year for three years. Calculate the IRR approximately.
A. 14.6 %
B. 16.4 %
C. 18.2 %
D. 22.1%
Q:
Drew Davis goes to his local bank to get help developing a financial plan and making investment decisions. Which of the more recent services banks offer is Drew taking advantage of?
A) Getting a consumer loan
B) Getting financial advice
C) Managing cash
D) Getting venture capital services
E) Buying a retirement plan
Q:
Music Company is considering investing in a new project. The project will need an initial investment of $2,400,000 and will generate $1,200,000 (after-tax) cash flows for three years. Calculate the NPV for the project if the cost of capital is 15%.
A. $169, 935
B. $1,200,000
C. $339,870
D. $125,846
Q:
Nick Rodr gets a loan from the First State Bank of Guthrie to purchase a new refrigerator for his condo. What service that a bank provides is he taking advantage of?
A) Risky arbitrage services
B) Liquidity services
C) Ability of a bank to evaluate information
D) Divisibility of money services
E) Credit services
Q:
32. Project Y has following cash flows: C0 = -800; C1 = +5,000; C2 = -5,000;
Calculate the IRRs for the project:
A. 25% & 400%
B. 125% & 500%
C. -44% & 11.6%
D. None of the above
Q:
30. Project X has the following cash flows: C0 = +2000, C1 = -1,150 and C2 = -1,150. If the IRR of the project is 9.85% and if the cost of capital is 12%, you would:
A. Accept the project
B. Reject the project
Q:
Jonathan Wynn knows that if he wanted to purchase a Treasury Bill, the minimum amount he would spend would be close to $10,000. He also knows that he could deposit $1,000 in a money market deposit account at a bank and earn about the same rate of interest. Jonathan does not have $10,000 to invest in a Treasury Bill. If Jonathan puts his money in the bank, which service that a bank can provide is he taking advantage of?
A) Risky arbitrage services
B) Liquidity services
C) Ability of the bank to evaluate information
D) Divisibility of money services
E) Credit services
Q:
The First National Bank of Lakeland makes risky loans to business to expand and grow their businesses while at the same time accepting funds into checking accounts that are insured by the FDIC. Which of the following services is this bank offering to their customers?
A) Risky arbitrage services
B) Liquidity services
C) Ability of the bank to evaluate information
D) Divisibility of money services
E) Credit services
Q:
Driscoll Company is considering investing in a new project. The project will need an initial investment of $2,400,000 and will generate $1,200,000 (after-tax) cash flows for three years. Calculate the IRR for the project.
A. 14.5%
B. 18.6%
C. 20.2%
D. 23.4%
Q:
Major trends affecting the performance of financial firms today include all of these except:
A) Greater product-line diversification
B) Reduced branching
C) Geographic diversification
D) Convergence
E) Increasing automation
Q:
Which of the following methods of evaluating capital investment projects incorporates the time value of money concept?
I) Payback Period, II) Discounted Payback Period, III) Net Present Value (NPV), IV) Internal Rate of Return
A. I, II, and III only
B. II, III, and IV only
C. III and IV only
D. I, II, III, and IV
Q:
The IRR is defined as:
A. The discount rate that makes the NPV equal to zero
B. The difference between the cost of capital and the present value of the cash flows
C. The discount rate used in the NPV method
D. The discount rate used in the discounted payback period method
Q:
The Bank, N.A. accepts deposits from thousands of individuals and lends that money to (among others) the Stillwater Body Shop to expand their work bays. Which of the following roles is the bank performing?
A) The intermediation role
B) The payment role
C) The risk management role
D) The guarantor role
E) The policy role
Q:
24. Given the following cash flows for Project M: C0 = -1,000, C1 = +200, C2 = +700, C3 = +698, calculate the IRR for the project.
A. 23%
B. 21%
C. 19%
D. None of the above
Q:
Chris Jones gets a cashiers check from Wachovia Bank to make his down payment on a new home. Which of the following roles is the bank performing?
A) The intermediation role
B) The payment role
C) The risk management role
D) The guarantor role
E) The policy role
Q:
The quickest way to calculate the internal rate of return (IRR) of a project is by:
A. Trial and error method
B. Using the graphical method
C. Using a financial calculator
D. Guessing the IRR
Q:
Alexander Phua goes to his local bank and gets an insurance policy that protects him against loss in case he is in a car accident. Which of the following roles is the bank performing?
A) The intermediation role
B) The payment role
C) The risk management role
D) The guarantor role
E) The policy role
Q:
Internal rate of return (IRR) method is also called:
A. Discounted payback period method
B. Discounted cash-flow (DCF) rate of return method
C. Modified internal rate of return (MIRR) method
D. None of the above