Exam 1 Review Flashcards
Depreciation for a tax-paying firm:
A. Decreases net fixed assets, net income, and operating cash flows.
B. Increases the net fixed assets as shown on the balance sheet.
C. Increases expenses and lowers taxes.
D. Reduces both the net fixed assets and the costs of a firm.
E. Is a noncash expense that increases the net income.
C
Which one of the following will decrease the value of a firm's net working capital? A. Using cash to pay a supplier. B. Depreciating an asset. C. Collecting an accounts receivable. D. Purchasing inventory on credit. E. Selling inventory at a loss.
E
Which one of the following is a primary market transaction?
A. Gift of stock from one shareholder to another shareholder.
B. Sale of currently outstanding stock by a dealer to an individual investor.
C. Stock ownership transfer from one shareholder to another shareholder.
D. Sale of a new share of stock to an individual investor.
E. Gift of stock by a shareholder to a family member.
D
Which one of the following best states the primary goal of financial management?
A. Maintain steady growth while increasing current profits.
B. Minimize operational costs while maximizing firm efficiency.
C. Maximize the current value per share.
D. Maximize current dividends per share.
E. Increase cash flow and avoid financial distress.
C
Relationships determined from a firm's financial information and used for comparison purposes are known as: A. Dimensional analysis. B. Scenario analysis. C. Financial ratios. D. Solvency analysis. E. Identities.
C
If a firm produces a 13 percent return on assets and also a 13 percent return on equity, then the firm:
A. Is using its assets as efficiently as possible.
B. May have short-term, but not long-term debt.
C. Has a debt-equity ratio of 1.0.
D. Has an equity multiplier of 1.0.
E. Has no net working capital.
D
Which one of the following is a capital budgeting decision?
A. Determining how much inventory to keep on hand.
B. Determining how much money should be kept in the checking account.
C. Deciding how to refinance a debt issue that is maturing.
D. Determining how many shares of stock to issue.
E. Deciding whether or not to purchase a new machine for the production line.
E
Net capital spending:
A. Is equivalent to the cash flow from assets minus the operating cash flow minus the change in net working capital.
B. Reflects the net changes in total assets over a stated period of time.
C. Is equal to ending net fixed assets minus beginning net fixed assets.
D. Is equal to the net change in the current accounts.
E. Is equal to zero if the decrease in the net fixed assets is equal to the depreciation expense.
E
Which one of the following accounts is the most liquid? A. Accounts Receivable. B. Building. C. Equipment. D. Land. E. Inventory.
A
According to the statement of cash flows, an increase in interest expense will \_\_\_\_\_ the cash flow from \_\_\_\_\_ activities. A. Increase; operating. B. Increase; investment. C. Decrease; operating. D. Increase; financing. E. Decrease; financing.
C
Cash flow from assets is also known as the firm's: A. Free cash flow. B. Capital structure. C. Historical cash flow. D. Hidden cash flow. E. Equity structure.
A
Lenders probably have the most interest in which one of the following sets of ratios?
A. Market-to-book and times interest earned.
B. Return on assets and profit margin.
C. Return on equity and price-earnings.
D. Price-earnings and debt-equity.
E. Long-term debt and times interest earned.
E
Which one of the following statements related to an income statement is correct? Assume accrual accounting is used.
A. Depreciation increases the marginal tax rate.
B. The labor costs for producing a product are expensed when the product is sold.
C. Interest is a non-cash expense.
D. Credit sales are recorded on the income statement when the cash from the sale is collected.
E. The addition to retained earnings is equal to net income plus dividends paid.
B
Which one of the following is a use of cash? A. Decrease in accounts payable. B. Increase in long-term debt. C. Decrease in inventory. D. Decrease in fixed assets. E. Decrease in accounts receivables.
A
A business created as a distinct legal entity and treated as a legal "person" is called a: A. Sole proprietorship. B. General partnership. C. Corporation. D. Unlimited liability company. E. Limited partnership.
C
