Practice Exam 1 Flashcards
When the present financial ratios of a firm are compared with similar ratios for another firm in the same industry, it is called trend analysis. True or False?
False
A company with negative net income will also have negative operating cash flow. True or False?
False.
The risk-return trade-off implies that the return on a riskless asset must be zero. True or False?
False
An income statement reports a firm’s cumulative revenues and expenses from the inception of the firm through the income statement date. True or False?
False
Borrowing money causes a corporation’s return on assets to decrease because of the interest that must be paid. True or False?
True
If company A has lower days in inventory than company B, then company A will have a higher inventory turnover. True or False?
True
Suppose two companies have the same operating income. In that case, their net incomes will still differ if one company finances its assets with more debt and the other with more equity. True or False?
True
According to accrual accounting, revenues are recognized when earned, and expenses are recognized when incurred. True or False?
True
Nishaa has been promoted and is now in charge of all external financing. In other words, she is in charge of:
A) Capital structure management.
B) Asset allocation.
C) Risk management.
D) Capital budgeting.
E) Working capital management.
Capital structure management.
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) Sole proprietorship
B) Limited partnership
C) Corporation
D) Joint stock company
E) General partnership
Sole proprietorship
Which one of the following functions should be assigned to the corporate treasurer rather than to the controller?
A) Data processing.
B) Cost accounting.
C) Tax management.
D) Cash management.
E) Financial accounting.
Cash management.
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) General partnership
C) Limited partnership
D) Limited liability company
E) Corporation
Limited partnership
The primary goal of financial management is most associated with increasing the:
A) Dollar amount of each sale.
B) Traffic flow within the firm’s stores.
C) Fixed costs while lowering the variable costs.
D) Firm’s liquidity.
E) Market value of the firm.
Market value of the firm.
An agency issue is most apt to develop when:
A) A firm encounters a period of stagnant growth.
B) A firm downsizes.
C) The control of a firm is separated from the firm’s ownership. D) The firm’s owner is also its key manager.
E) A firm is structured as a general partnership.
The control of a firm is separated from the firm’s ownership.
A firm has common stock of $100, paid-in surplus of $370, total liabilities of $460, current assets of $490, and net fixed assets of $700. What is the amount of the shareholders’ equity?
A) $580
B) $240
C) $1,190
D) $930
E) $730
$730
At the beginning of the year, long-term debt of a firm is $298 and total debt is $334. At the end of the year, long-term debt is $264 and total debt is $344. The interest paid is $30. What is the amount of the cash flow to creditors?
A) $30
B) −$64
C) $34
D) −$34
E) $64
$64
For the past year, Momsen Limited had sales of $45,017, interest expense of $3,308, cost of goods sold of $15,434, selling and administrative expense of $11,101, and depreciation of $5,400. If the tax rate was 22 percent, what was the company’s net income?
A) $16,283
B) $6,896
C) $9,774
D) $6,842
E) $7,624
$7,624
Which one of the following changes during a year will increase cash flow from assets but not affect the operating cash flow?
A) Increase in depreciation
B) Increase in accounts receivable
C) Increase in accounts payable
D) Decrease in cost of goods sold
E) Increase in sales
Increase in accounts payable
For the year, Bethalto Furniture had sales of $818,790, costs of $748,330, and interest paid of $24,450. The depreciation expense was $56,100 and the tax rate was 21 percent. At the beginning of the year, the firm had retained earnings of $172,270 and common stock of $260,000. At the end of the year, retained earnings was $158,713 and common stock was $280,000. Any tax losses can be used. What is the amount of the dividends paid for the year?
A) $5,586
B) $6,466
C) $7,566
D) $7,066
E) $6,898
$5,586
Porter Jewelers, a sole proprietorship has a marginal tax rate of 32 percent and an average tax rate of 20.9 percent. If the firm owes $34,330 in taxes, how much taxable income did it earn?
A) $127,584
B) $116,649
C) $164,258
D) $157,500
E) $168,500
$164,258
Which one of the following is the maximum growth rate that a firm can achieve without any additional external financing?
A) DuPont rate
B) External growth rate
C) Sustainable growth rate
D) Internal growth rate
E) Cash flow rate
Internal growth rate
Which one of the following actions will increase the current ratio, all else constant? Assume the current ratio is less than 1.0.
A) Cash purchase of inventory
B) Cash payment on an account receivable
C) Cash payment of an account payable
D) Credit sale of inventory
Credit sale of inventory
A firm has total debt of $1,450 and a debt-equity ratio of .30. What is the value of the total assets?
A) $4,350.00
B) $3,000.00
C) $1,885.00
D) $4,833.33
E) $6,283.33
$6,283.33
Mario’s Home Systems has sales of $2,870, costs of goods sold of $2,210, inventory of $514, and accounts receivable of $435. How many days, on average, does it take Mario’s to sell its inventory? Assume a 365-day year.
A) 83.73 days
B) 71.84 days
C) 65.37 days
D) 84.89 days
E) 55.32 days
84.89 days