Multiple choice

1. Kuznet Rental Center requires $1,000,000 in financing over the next two year. Kuznet can borrow long-term at 9 percent interest per year for two year. Alternatively, Kuznet can borrow short term and pay 7 percent interest in the first year. The Kuznet project paying 10 percent interest in the second year. Assuming Kuznets pays off the accrued interest at the end of each year, Which of the following statement is true?

a. Kuznets will definitely end up paying more under the long-term financing plan.

b. Kuznets will definitely end up paying less under the long- term financing plan.

c. Kuznets will probably pay more under the short- term financing plan.

d. Kuznets will probably pay less under the short-term financing plan.

 

2. Hicks Health Cluds, Inc. has $10,000,000 in assets. If it goes with a low liquidity plan for the assets. It can earn a return of 15 percent, but with a high liquidity plan, the return eill be 10 percent. If the firm the goes with the short-term financing plan, the financing cost on the $10,000,000 will be 8 percent, and with a long-term financing plan, financing cost on the $10,000,000 will be 9 percent. Compute the anticipated return after financing cost on the most conservative assets financing mix.

a. $50,000

b. $100,000

c. $200,000

d. $700,000

 

3. The strong from of the efficient market hypothesis states that.

a. past price data is positively correlated to future price.

b. prices reflect all public information.

c. all information both public and private is immediately reflect in stock price.

d. none of the above.

 

 4.  A firm’s long term assets =$75,000, total assets = $200,000, inventory =$25,000 and current liabilities =$50,000

a. Current ratio =0.5;quick ratio= 1.5

b. Current ratio=1.0; quick ratio= 2.0

c. Current ratio= 1.5;quick ratio= 2.0

d.  Current ratio= 2.5; quick ratio= 2.0

 

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