Corporate Finance TEST #1
Which of the following are current assets? I. Patent II. Inventory III. Accounts payable IV. Cash
II and IV only
Net capital spending:
Is equal to zero if the decrease in the net fixed assets is equal to the depreciation expense
The primary goal of financial management is to:
Maximize the current value per share of the existing stock
Which of the following is a source of cash?
Increase in accounts payable
Marginal tax rate
the percentage paid on the next dollar earned
Controller
oversees taxes, cost accounting, financial accounting and data processing
A common-size income statement is an accounting statement that expresses all of a firm's expenses as percentage of:
sales
Book value
Value at which the asset is carried on a balance sheet and calculated by taking cost of asset - accumulated depreciation
Which of the following accounts is the most liquid?
Accounts receivable
The process of planning and managing a firm's long-term investments is called:
Capital budgeting
The mixture of debt and equity used by a firm to finance the operations is called:
Capital structure
The financial statement summarizing a firm's accounting performance over a period of time is the:
Income statement
Which of the following will increase the value of a firm's net working capital?
Selling inventory as a profit
A business owned by a single individual is called a:
Sole proprietorship
A conflict of interest between the stockholders and management of a firm is called:
The agency problem
The management of a firm's short-term assets and liabilities is called:
Working capital management
Working Capital Management
focuses on short-term day-to-day financial issues
Investment activity
includes changes in fixed assets (how much spent on capital)
Financing Activity
includes changes in notes payable, LTD, and equity accounts, as well as dividends
Operating activity
includes net income and changes in most current accounts
Treasurer
oversees cash management, credit management, capital expenditures, and financial planning
Internal Growth Rate
tells us how much the firm can grow assets using retained earnings as the only source of financing
Sustainable Growth Rate
tells us how much the firm can grow by using internally generated funds and issuing debt to maintain a constant debt ratio
The original sale of securities by governments and corporations to the general public occurs in the:
Primary market
A current asset is:
An item currently owned by the firm that will convert to cash within the next 12 months
Which of the following is true according to Generally Accepted Accounting Principles?
Cost of goods sold are recorded based on the matching principle
Net working capital is defined as:
Current assets minus current liabilities
Crandall Oil has total sales of $1,394,800 and costs of $903,500. Depreciation is $42,700 and the tax rate is 34 percent. The firm does not have any interest expense. What is the operating cash flow?
EBIT= $1,349,800 - $903,500 - $42,700 = $403,600 Tax= $403,600 x .34 = $137,224 OCF= $403,600 + $42,700 - $137,224= $309,076
Which one of the following accurately describes the three parts of the Du Pont identity?
Equity multiplier, profit margin, and total asset turnover
A business entity operated and taxed like a partnership, but with limited liability for the owners, is called a:
Limited liability company
Capital budgeting
Long-term investments/ what projects should the business take on
A firm has common stock of $6,200, paid-in surplus of $9,100, total liabilities of $8,400, current assets of $5,900, and fixed assets of $21,200. What is the amount of the shareholders' equity?
$5,900 + $21,200 - $8,400= $18,700
Your _____________ tax rate is the amount of tax payable on the next taxable dollar you earn
Marginal
The Sarbanes Oxley Act of 2002 is intended to:
Protect investors from corporate abuses
Average tax rate
the tax bill / taxable income
Al's Sport Store has sales of $897,400, costs of goods sold of $628,300, inventory of $208,400, and accounts receivable of $74,100 How many days, on average, does it take the firm to sell its inventory assuming that all sales are on credit?
121.07 days Inventory turnover= $628,300/$208,400= 3.014875 Days in inventory= 365/ 3.014875= 121.07 days
Wise's Corner Grocer has the following current account values. What effect did the change in net working capital have on the firm's cash flows for 2009? 2008: 2009: Cash= $87 Cash= $112 AR= $309 AR= $321 Inventory= $919 Inventory= $868 AP= $617 AP= $714
Net source of cash of $111
Which term relates to the cash flow which results from a firm's ongoing, normal business activities?
Operating Cash Flow
