Instructions: Select the ONE BEST Answer to Each Question. Record Your Choice on Both The

BUS 330 Spring 2015 Quiz 2

Instructions: Select the ONE BEST answer to each question. Record your choice on both the quiz and the cover sheet. I will collect ONLY the coversheet.

1. The rule that says for written contracts -- only written amendments will be considered enforceable is the: a. statute of frauds b. statute of limitations c. parole evidence rule d. reasonable man rule e. infield fly rule

2. In a bankruptcy reorganization, there is not enough asset value (or discounted cash flow) to pay all claim holders everything they are owed. Not everyone gets the same percentage of what they hoped to get. The priority of claims is given by (from highest priority to lowest priority): a. stock holders, secured creditors, unsecured creditors b. secured creditors, unsecured creditors, stockholders c. unsecured creditors, secured creditors, stock holders d. secured creditors, stock holders, unsecured creditors e. unsecured creditors, secured creditors, stock holders

3. Lenders must carefully select borrowers, then design contracts that protect their rights against possible mishaps or abuses on the part of the borrower, and then ensure that the terms of the contract are being fulfilled. If there are many lenders, they must also ensure that the costs of the contract design and supervision are being shared by all lenders proportionately. When the lenders accomplish this by “hiring” a firm to do this on their behalf – they are using a: a. financial intermediary b. investment bank c. stock broker d. stock exchange e. derivative contract 4. Some financial ratios are especially useful to potential lenders who want to evaluate the ability of a company to meet its debts as they come due, other financial ratios are more useful to a potential stockholder who wants to evaluate the firm’s stock as a possible investment. The ____ ratio is an example of the first type of ratio, and the ____ ratio is an example of the second. a. current price/earnings b. basic earning power inventory turnover c. total assets turnover debt d. operating margin days sales outstanding e. inventory turnover quick (acid test)

5. The _____ is the financial statement that describes the firm’s operating performance. The _____ describes how much (and why) a firm’s equity changed during a year. The _____ is the financial statement that describes the company’s financial position at a particular date. a. income statement statement of stockholders’ equity statement of cash flows b. balance sheet income statement statement of stockholders’ equity c. statement of stockholders’ equity balance sheet income statement d. statement of stockholders’ equity income statement balance sheet e. none of the above.

6. If a corporation pays 40% of its income as tax (typical in the USA), the amount of pre-tax income needed to fund $1 of dividend payment to shareholders is: a. $1. b. $1.40 c. $0.60 d. $1.67 e. $1.50

Extra Credit: Below are pictures of 4 famous figures in the field of finance – Alexander Hamilton (first Secretary of the Treasury of the USA), Cornelius Vanderbilt (famous financier and railroad tycoon), Franco Modigliani (financial theorist), Merton Miller (financial theorist) -- and my dog. Which is which? a. (1) Miller; (2) dog; (3) Hamilton; (4) Vanderbilt; (5) Modigliani b. (1) dog; (2) Miller; (3) Vanderbilt; (4) Modigliani; (5) Hamilton c. (1) Modigliani; (2) Hamilton; (3) dog; (4) Vanderbilt; (5) Miller d. (1) Vanderbilt; (2) Miller; (3) Hamilton; (4) dog; (5) Modigliani e. (1) Hamilton; (2) Modigliani; (3) Miller; (4) Vanderbilt; (5) dog