Module 1 Homework

Question 1

Which one of the following occupations best fits into the corporate area of finance?

A) Insurance Risk Manager
B) Mortgage Broker
C) Local Bank Manager
D) Chief Financial Officer
E) Treasury Bill Analyst

Answer 1

D) Chief Financial Officer

Question 2

An auction market:
A) has a physical trading floor
B) handles primary market transactions exclusively
C) is dealer-based
D) is an electronic means of exchanging securities
E) is also referred to as an OTC market

Answer 2

A) has a physical trading floor

Question 3

Which one of the following is a working capital decision?
A) How should the firm raise additional capital to fund its expansion?
B) What is the cost of debt financing?
C) What debt-equity ratio is best suited to the firm?
D) How much cash should the firm keep in reserve?
E)Should the firm borrow money for five or for ten years?

Answer 3

D) How much cash should the firm keep in reserve?

Question 4

Which one of the following statements is correct?
A) Nasdaq has more listed stocks than does the NYSE.
B) Nasdaq has the most stringent listing requirements of any U.S. exchange.
C) Nasdaq is an auction market.
D) The trading floor for Nasdaq is located in Chicago.
E)The NYSE is a dealer market.

Answer 4

A) Nasdaq has more listed stocks than does the NYSE.

Question 5

Which one of the following functions should be assigned to the corporate treasurer rather than to the controller?
A) Cost accounting
B) Financial accounting
C) Data processing
D) Cash management
E) Tax management

Answer 5

D) Cash management

Question 6

Silvia is employed as a currency trader in the Japanese yen market. Her job falls into which one of the following areas of finance?
A) International Finance
B) Corporate Finance
C) Financial Institutions
D) Personal Finance
E) Capital management

Answer 6

A) International Finance

Question 7

A private placement is most apt to involve:
A) a life-insurance company
B) the U.S. Treasury Dept
C) a large number of private investors
D) several private securities dealers
E) only foreign investors

Answer 7

A) a life-insurance company

Question 8

The Sarbanes-Oxley Act of 2002 has:
A) reduced the annual compliance costs of all publicly traded firms in the U.S.

B) greatly increased the number of U.S. firms that are going public for the first time.

C) decreased the number of U.S. firms going public on foreign exchanges.

D) decreased senior management’s involvement in the corporate annual report.

E) essentially made officers of publicly traded firms personally responsible for the firm’s financial statements.

Answer 8

E) essentially made officers of publicly traded firms personally responsible for the firm’s financial statements.

Question 9

Which one of the following is an advantage of being a limited partner?
A) Active market for ownership interest
B) Unlimited profits without risk of incurring a loss
C) Control over the daily operations of the firm
D) Losses limited to capital invested
E) Nontaxable share of any profits

Answer 9

D) Losses limited to capital invested

Question 10

Which one of the following forms of business organization offers liability protection to some of its owners but not to all of its owners?
A) Sole Proprietorship
B) Limited Liability Company
C) General Partnership
D) Corporation
E) Limited Partnership

Answer 10

E) Limited Partnership

Question 11

T/F- When a company sells its stock for the first time publicly, it takes place in primary market.

Answer 11

True

Question 12

T/F- When a company sells its stock for the first time publicly, it happens on NYSE.

Answer 12

False

Question 13

T/F- NASDAQ is a dealer’s market.

Answer 13

True

Question 14

T/F- The process a private company becomes a public company is referred to as initial public offering.

Answer 14

True

Question 15

T/F- When a company sells its stock for the first time publicly, it happens on NYSE.

Answer 15

False

Question 16

Corporate shareholders:
A) are proportionately liable for the firm’s debts
B)have the ability to change the corporation’s bylaws
C) receive tax-free distributions since all profits are taxed at corporate level
D) are protected from all financial losses
E) have basically no control over the actual corporation

Answer 16

B)have the ability to change the corporation’s bylaws

Question 17

Which one of the following parties can sell shares of ABC stock in the primary market?
A) ABC Company
B) Only officers and directors of ABC company
C) Any corporation, other than the ABC company
D) Any private individual shareholder
E) Any institutional shareholder

Answer 17

A) ABC Company

Question 18

A)
B)
C)
D)
E)

Question 19

A corporation:
A) is prohibited from entering into contractual agreements
B) has its existence regulated by the rules set forth in its charter
C) has its identity defined by its bylaws
D) is a legal entity separate from its owners
E) is ultimately controlled by its board of directors

Answer 19

D) is a legal entity separate from its owners

Question 20

The primary goal of financial management is to maximize:
A) current profits
B) market share
C) revenue growth
D) the market value of existing stock
E) current dividends

Answer 20

D) the market value of existing stock

Question 21

The Sarbanes-Oxley Act:
A) requires the corporate officers to personally attest that the financial statements are a fair representation of the company’s financial results.
B) places the responsibility for a firm’s financial statements solely on the chief financial officer.
C) requires all corporations to fully disclose its financial dealings to the general public.
D) places total responsibility for the financial statements of a firm on the auditor who certifies the statements.
E)requires that the board of directors be solely responsible for the firm’s financial dealings.

Answer 21

A) requires the corporate officers to personally attest that the financial statements are a fair representation of the company’s financial results.

Question 22

Raleigh BBQ has $48,000 in current assets and $39,000 in current liabilities. Decisions related to these accounts are referred to as:
A) capital busgeting decisions
B) capital structure decisions
C) working capital management
D) operating management
E) fixed account structure

Answer 22

C) working capital management

Question 23

Vera opened a used bookstore and is both the 100 percent owner and the store’s manager. Which type of business entity does Vera own if she is personally liable for all the store’s debts?
A) Limited partnership
B) Corporation
C) Joint stock company
D) General partnership
E) Sole Proprietorship

Answer 23

E) Sole Proprietorship

Question 24

Which one of the following correctly defines a common chain of command within a corporation?
A) the controller reports directly to the corporate treasurer
B) the controller reports directly to the chief financial officer
C) the credit manager reports directly to the controller
D) the treasurer reports directly to the board of directors
E) the chief financial officer reports directly to the board of directors

Answer 24

B) the controller reports directly to the chief financial officer

Question 25

T/F- The process a public company becomes a private company is referred to as initial public offering.

Answer 25

False

Question 26

Which one of these is correct?
A) Interest paid is a non cash item
B) Taxable income must be a positive value
C) Depreciation has no effect on taxes
D) Taxable income equals net income multiplied by (1+ Avg tax rate)
E) Net income is distributed either to dividends or retained earnings

Answer 26

E) Net income is distributed either to dividends or retained earnings

Question 27

Which one of the following terms is defined as the total tax paid divided by the total taxable income?
A) Average Tax Rate
B) Variable Tax Rate
C) Absolute Tax Rate
D) Marginal Tax Rate
E) Contingent Tax Rate

Answer 27

A) Average Tax Rate

Question 28

Which one of the following statements concerning the balance sheet is correct?
A) Shareholders’ equity is equal to net working capital minus net fixed assets plus long-term debt.
B) Net working capital is equal total assets minus total liabilities.
C) Current assets are equal to total assets minus net working capital.
D) Assets are listed in descending order of liquidity.
E) Total assets equal total liabilities minus total equity.

Answer 28

D) Assets are listed in descending order of liquidity.

Question 29

A useful way of standardizing financial statements is to choose a _______ year and then express each item relative to that amount.
A) low
B) average
C) high
D) base
E) forecasted

Answer 29

D) base

Question 30

T/F- Common size income statements show balance sheet items as a percentage of current assets.

Answer 30

False, common size income statements show balance sheet items as a percentage of TOTAL assets

Question 31

The three parts of the Dupont equation are:
A) Profit margin, total assets, and equity multiplier
B) Profit margin, total asset turnover, and equity multiplier
C) Return on assets, total asset turnover, and debt/equity ratio
D) Profit margin, operating efficiency, and equity multiplier
E) Return on assets, total asset turnover, and equity multiplier

Answer 31

B) Profit margin, total asset turnover, and equity multiplier

Question 32

Return on equity can be calculated as ROA × Equity multiplier. What is another way to express this equation?
A) ROE= ROA x Profit Margin
B) ROE= ROA x Total asset turnover
C) ROE=ROA x(1+ Equity multiplier)
D) ROE= ROA x (1+ Debt-equity ratio)
E) ROE=ROA x Operating Efficiency

Answer 32

D) ROE= ROA x (1+ Debt-equity ratio)

Question 33

Davis Company has provided the following financial data:

Total Asset Turnover = .245

Net Income = $400,000

Equity Multiplier = 1.20

Net Sales = $1,300,000

What is the Return on Equity?
A) 7.8%
B) 6.8%
C) 8.1%
D) 9.1%
E) 7.2%

Answer 33

D) 9.1%

Question 34

Jupiter Explorers has $9,000 in sales. The profit margin is 5 percent. There are 6,300 shares of stock outstanding, with a price of $1.80 per share. What is the company’s price-earnings ratio?
A) 31.75 times
B) 15.30 times
C) 25.20 times
D) 12.86 times
E) 12.60 times

Answer 34

C) 25.20 times

Question 35

Palms, Inc., has sales of $19.6 million, total assets of $14.6 million and total debt of $5.4 million. The profit margin is 9 percent.
What is the NOI?
What is the ROA?
What is the ROE?

Answer 35

1,764,000
12.08%
19.17%

Question 36

Lightning, Inc., has sales of $666,000, costs of $336,000, depreciation expense of $81,000, interest expense of $46,000, and a tax rate of 23 percent. The firm paid out $76,000 in cash dividends and has 36,600 shares of common stock outstanding.
What is the Earnings per share?
What is the dividends per share?

Answer 36

4.27

2.08

Question 37

Lightning, Inc., has sales of $702,000, costs of $345,000, depreciation expense of $90,000, interest expense of $55,000, and a tax rate of 22 percent. What is the NOI?

Answer 37

165,360