STUDY

Question 1

Which type of cost will change in relationship to the level of activity (number of products made or sold, etc.).

Answer 1

Total Variable Cost

Question 2

A common-size analysis would present all amounts on the income statement as a percentage of :

Answer 2

Total Revenues

Question 3

How a company generates the cash it brings in and how it spends its available cash (what does the company buy with its cash) is the subject of which statement

Answer 3

Statement of Cash Flows.

Question 4

A machine that is purchased with an estimated useful life of 5 years is said to be a capital asset. When the purchase of this asset is recorded into the accounting records, an increase would be recorded to which of the following accounts?

Answer 4

Long-Term Investments

Question 5

Mary was in the business of raising, and selling sheep. Mary had several little lambs, 15 ewes, and 5 rams. In Mary’s accounting system, these animals were which of the following:

Answer 5

inventory

Question 6

How much did Fantasia generate from its primary business operations in 2002?

Answer 6

3,288

Question 7

How much cash did Fantasia invest in anticipation of its future growth in 2003?

Answer 7

5,700

Question 8

Budgets are a management tool that is the result of which of the primary functions of managers?

Answer 8

Planning

Question 9

Which of the following is not true regarding financial analysis?

Answer 9

There is not an acceptable range that ratios must fall into for a company to be healthy.

Question 10

When using the balanced scorecard system, we view a company from multiple perspectives (not just financial). “How do we look to our owners?” is the question we answer when considering which of the following perspectives.

Answer 10

Financial

Question 11

Old MacDonald had a farm. His primary products were eggs and milk. On this farm he had some chickens (primarily hens with one or two roosters) and some cows. Both the chickens and the cows were expected to produce for at least 3 years. In Mac’s accounting system, the chickens and cows were considered to be which of the following:

Answer 11

depreciable assets

Question 12

Which of the following metrics answers the question “What percent of sales was retained by the time we got to the bottom line of the income statement?’

Answer 12

Net Profit Margin Percentage

Question 13

Which of the following statements is FALSE regarding working capital and liquidity?

Answer 13

We want to maximize the amount of investment we have in inventory.

Question 14

In a common-size analysis, what percentage would you show for Income taxes for 2010?

Answer 14

5.11%

Question 15

In a vertical, common sized analysis, what percentage would you show for Operating expenses for 2009?

Answer 15

10.11%

Question 16

What percentage of sales was the gross profit margin in 2010?

Answer 16

43.18%

Question 17

What was the percentage growth in net income in 2010 when compared to 2009?

Answer 17

80.00%

Question 18

What do “Margin” Ratios measure?

Answer 18

How much of our sales dollars are left after taking out certain expenses.

Question 19

Which ratios measure how much profit we generated compared to the cost of the assets used to create the profit?

Answer 19

Return Ratios

Question 20

How much of our sales dollars are left after taking out certain expenses.

Answer 20

Inventory

Question 21

With respect to working capital and liquidity, which of the statements below is FALSE?

Answer 21

We want to maximize the amount of time we take to collect our receivables.

Question 22

Which of the following ratios would management want to be as small as possible?

Answer 22

Days’ Sales in Inventory

Question 23

Which of the following is not a measure of working capital management or company liquidity?

Answer 23

Profit Margin

Question 24

A company wishes to invest in its long-term future growth by buying $100,000 of new manufacturing equipment. Which of the following financing techniques should the company NOT employ in order to pay for the new equipment?

Answer 24

Secure a 6 month note payable at a local bank.

Question 25

When the Bad Debt Percentage is calculated, what does management want the percentage to be:

Answer 25

As small as possible because that suggests that most accounts receivable balances are collectible.

Question 26

Which of the following ratios helps predict a company’s ability to pay its near-term liabilities?

Answer 26

Current Ratio

Question 27

Which statement is true regarding the Price/Earnings Ratio?

Answer 27

Collin performed worse in 2011 than in 2010.

Question 28

Which statement is true regarding the Percent Uncollectible?

Answer 28

Collin performed worse in 2011 than Clayton.

Question 29

Which statement is true regarding Return on Assets?

Answer 29

Collin’s performance was better in 2011 than in 2010.

Question 30

Which statement is FALSE regarding Days’ Receivables Outstanding (O/S)?

Answer 30

Collin performed worse in 2011 than Clayton.

Question 31

Which statement is FALSE regarding the Operating Cash Index?

Answer 31

Clayton performed better in 2011 than in 2010.

Question 32

In the Fantasia case, our initial focus was on the long-term capital project which was intended to expand the company’s production capacity. What did we find was the primary problem that the project created for the company?

Answer 32

The company did not borrow a sufficient amount of funds to complete the project.

Question 33

With respect to the Fantasia case, we concluded that financing the company’s projected growth became a problem for which of the following reasons?

Answer 33

The expansion plan cash shortfall resulted from a lack of thoughtful financial planning and preparation for the project.

Question 34

Salem Telephone (a regulated company) created a subsidiary company called Salem Data Services to perform data service work that Salem Telephone needed. Why did Salem Telephone choose to create the separate subsidiary company as opposed to simply setting up the data services function as a part of Salem Telephone?

Answer 34

Salem Telephone wanted Salem Data Services to offer their services to other companies but they could not do so effectively if Data Services was a part of Salem Telephone due to regulatory issues.

Question 35

Tall Tree2 Hotel Casino was a Reno Hotel & Casino. The establishment has restaurant and bar facilities that are typical of establishments of this type. Which of the following statements is true about Tall Tree2?

Answer 35

The casino department is the largest revenue generator followed by the hotel, the restaurants, and then the bar. At the time the case was written, the hotel, the restaurants, and the bar operated more like cost centers than profit centers.

Question 36

New management at the Tall Tree2 property was concerned with the structure of the departments with respect to regular operations as well as special events that were held from time to time. The new management wished to:

Answer 36

Have each department function as an independent profit center with each department being responsible for profitable operations on a day to day basis as well as for special events. Management also believes that each special event should be profitable

Question 37

In the Pacific Health Care Case, Tim, the Controller, struggled with which of the following issues?

Answer 37

He was concerned that, if he chose to talk to the CFO about not altering the financial statements for the up-coming bank meeting, he would lose his job.

Question 38

In each of the cases we examined this semester we discovered a recurring theme at the root of many of the problems faced by the companies. What was that theme?

Answer 38

poor decisions made by managers who lacked management decision making experience.

Question 39

A business’s strategy is designed to create the firm’s sustainable competitive advantage. Which of the following is correct with respect to business strategy?

Answer 39

business strategy and business model are not the same thing.

Question 40

When demand for a product exceeds its supply, what generally happens with respect to prices for the product?

Answer 40

they go up

Question 41

Because the business world is constantly changing, a business must do which of the following in order to gain a sustainable competitive advantage.

Answer 41

innovate

Question 42

You own a manufacturing company that produces a certain product. The product, among other materials, requires the use of a bronze and titanium alloy. The cost of the alloy is dependent upon the amount of titanium used to produce each product and upon the number of units of the product that are made. What type of cost is bronze/titanium alloy in this case?

Answer 42

variable cost

Question 43

In a common-size analysis, all the items on the balance sheet should be expressed as a percentage of:

Answer 43

Total Assets

Question 44

What is the Weighted Average Cost of Capital (WACC)?

Answer 44

weighted average cost of all long-term capital in the firm

Question 45

A business will minimize its Weighted Average Cost of Capital (WACC) by doing which of the following?

Answer 45

borrowing all the money it can afford to borrow and obtaining the remainder by selling equity.

Question 46

A lease arrangement which 1) results in the lessee owing the leased equipment (at the end of the lease) and 2) has a lease term (length of the lease) that exceeds 90% of the estimated useful life of the asset being leased, is what type of lease?

Answer 46

capital lease

Question 47

Debenture bonds are supported only by the good faith and credit of the borrower (there is no collateral).

Answer 47

True