FIN 3680 Exam 1 Materials
Four years ago, Velvet Purses purchased a mailing machine at a cost of $185537. This equipment is currently valued at $74984 on today's balance sheet but could actually be sold for $5526. This is the only fixed asset the firm owns. Net working capital is $99211. and long term debt is $26972. What is the book value of current assets?
$147223.00
A firm has 1223 in inventory, 1482 in fixed assets, 1323 in accounts receivables, 762 in accounts payable, and 574 in cash. What is the amount of the current assets?
$3120
A firm has net working capital of 3789. Long-term debt is 9863, total assets are 983, and fixed assets are 3693. What is the amount of the total liabilities?
$3364.00
A firm has common stock of {cs}, paid-in surplus of {pds}, total liabilities of 7005. current assets of 8849, and fixed assets of 35374. What is the amount of the shareholder's equity?
$37218.00
Jensen Enterprises paid 5701 in dividends and {int} in interest this past year. Common stock increased by {cs} and retained earnings decreased by -973. What is the net income for the year?
$4728
A firm has 307 in inventory, 351 in fixed assets, 7712 in accounts receivable, 946 in accounts payable, and 65 in cash. What is the amount of the current assets?
$8084
quick ratio
(Current Assets - Inventory) / Current Liabilities
cash coverage ratio
(EBIT + Depreciation) / Interest
return on equity (ROE)
(net income/sales) x (sales/assets) x (assets/equity)
total debt ratio
(total assets-total equity)/total assets
Four years ago, Velvet Purses purchased a mailing machine at a cost of $188205. This equipment is currently valued at $62821 on today's balance sheet but could actually be sold for $8430. This is the only fixed asset the firm owns. Net working capital is $33184. and long term debt is $98438. What is the book value of shareholder's equity?
-2433.00
If a firm has a debt-equity ratio of 1.0, then its total debt ratio must be?
0.5
Days' Sales in Inventory
365/inventory turnover
Days' Sales in Receivables
365/receivables turnover
cash ratio
Cash / Current Liabilities
Which one of the following statements is correct? a. Corporations can raise large amounts of capital generally easier than partnerships can b. Corporate shareholders elect the corporate president c. The majority of firms in the U.S. are structured as corporations d. Corporate profits are taxable income to the shareholders when earned e. Stockholders face no potential losses related to their corporate investment
Corporations can raise large amounts of capital generally easier than partnerships can
interval measure
Current Assets/Average Daily Operating Costs
The common set of standards and procedures by which audited financial statements are prepared is known as the :
Generally Accepted Accounting Principles
Return on Assets (ROA)
Net Income/Total Assets
Return on Equity (ROE)
Net Income/Total Equity
net working capital to total assets
Net Working Capital / Total Assets
Which one of the following statements concerning net working capital is correct? a. The lower the value of net working capital the greater the ability of firm to meet its current obligations b. Firms with equal amounts of net working capital are also equally liquid c. Net working capital is a part of the operating cash flow d. Net working capital increases when inventory is sold for cash at a profit e. An increase in net working capital must also increase current assets f. Net working capital increases when inventory is purchased with cash g. Total assets must increase if net working capital increases h. Net working capital is the amount of cash a firm currently has available for spending i. Net working capital must be a positive value j. A decrease in the cash balance may or may not decrease net working capital
Net working capital increases when inventory is sold for cash at a profit or A decrease in the cash balance may or may not decrease net working capital
PEG ratio
Price-Earnings Ratio/Earnings Growth Rate (%)
Receivables Turnover
Sales / Accounts Receivable
fixed asset turnover
Sales/Net Fixed Assets
Which one of the following must be true if a firm had a negative cash flow from assets? a. The firm had a net loss for the period b. The firm acquired new fixed assets c. Newly issued shares of stock were sold d. The firm utilized outside funding e. The firm borrowed money
The firm utilized outside funding
intangible asset
a beneficial component that the firm owns, like a patent, copyright, or trademark
the planning horizon is
a period of two to five years that financial planning covers
balance sheet
a snapshot of the firm which organizes and summarizes the firm's assets, liabilities, and the differences between the two
a decrease in inventory and accounts receivable are
a source of cash
acquisition of debt is
a source of cash
an increase in accounts payable is
a source of cash
an increase in notes payable and long-term debt are
a source of cash
a decrease in common stock is
a use of cash
an increase in accounts receivable is
a use of cash
Which one of the following accounts is the most liquid? a. land b. building c. equipment d. accounts receivable e. inventory
accounts receivable
a conflict of interest between the corporate shareholders and the corporate managers is known as
agency problem
financial planning often contains
alternative options based on economic developments
A stakeholder is:
any person or entity other than a stockholder or creditor who potentially has a claim on the cash flows of a firm
the balance sheet identity
assets= liabilities+shareholder's equity
The _______ tax rate is equal to total taxes divided by total taxable income
average
Which one of the following is the financial statement that shows the accounting value of a firm's equity as of a particular date?
balance sheet
The book value of a firm is:
based on historical cost
The Du Pont Identity
breaks down the return on equity into three components
the management of a firm's long-term investments is
capital budgeting
the mixture of a firm's debt and equity financing is known as
capital structure
The decision to issue additional shares of stock is an example of
capital structure decision
The cash flow of a firm which is available for distribution to the firm's creditors and stockholders is called the:
cash flow from assets
The cash flow related to interest payments less any net new borrowing is called the:
cash flow to creditors
what standardizes items on the income statement and balance sheet relative to their values as of a chosen point in time?
common-base year statement
a business created as a distinct legal entity and treated as a legal "person" is called a
corporation
inventory turnover
cost of goods sold/average inventory
current ratio
current assets divided by current liabilities
Net working capital is defined as:
current assets minus current liabilities
Which one of the following is a capital budgeting decision? a. deciding whether or not to purchase a new machine for the production line b. deciding how to refinance a debt issue that is maturing c. determining how much money should be kept in the checking account d. determining how many shares of stock to issue e. determining how much inventory to keep on hand
deciding whether or not to purchase a new machine for the production line
corporate bylaws:
determine how a corporation regulates itself
Which one of the following is a capital structure decision? a. determining how much debt should be assumed to fund a project b. determining how to allocate investment funds to multiple projects c. determining how much inventory will be needed to support a project d. determining the amount of funds needed to finance customer purchases of a new product e. determining which one of two projects to accept
determining how much debt should be assumed to fund a project
Which one of the following is a working capital management decision? a. determining the amount of long-term debt required to complete a project b. determining the number of shares of stock to issue to fund an acquisition c. determining whether or not a project should be accepted d. determining the amount of equipment needed to complete a job e. determining whether to pay cash for a purchase or use the credit offered by the supplier
determining whether to pay cash for a purchase or use the credit offered by the supplier
dividends per share
dividends paid divided by outstanding shares
the dividend payout ratio
dividends paid expressed as a percentage of net income
times interest earned ratio
earnings before interest and taxes divided by interest
A firm currently has $600 in debt for every $1,000 in equity. Assume the firm uses some of its cash to decrease its debt while maintaining its current equity and net income. What will decrease as a result of the action?
equity multipler
the du pont identity equals
equity multiplier x total asset turnover x profit margin
Noncash items refer to:
expenses which do not directly affect cash flow
Cash flow from assets is also known as the firm's:
free cash flow
Which one of the following is included in a firm's market value but yet is excluded from the firm's accounting value? a. money due from a customer b. good reputation of the company c. real estate investment d. equipment owned by the firm e. an item held by the firm for future sale
good reputation of the company
The higher the degree of financial leverage employed by a firm, the:
higher the probability that the firm will encounter financial distress
Which one of the following is the financial statement that summarizes a firm's revenue and expenses over a period of time?
income statement
________ is the responsibility of the controller rather than the treasurer
income tax return(s)
Which one of the following best illustrates that the management of a firm is adhering to the goal of financial management? a. decrease in the per unit production costs b. decrease in the net working capital c. increase in the market value per share d. increase in the amount of the quarterly dividend e. increase in the number of share outstanding
increase in the market value per share
in relation to pro forma statements
inventory changes are directly proportional to sales changes
A general partner:
is personally responsible for all the partnerships debts
Which one of the following statements concerning a sole proprietorship is correct? a. a sole proprietorship is taxed the same as a C corporation b. the life of a sole proprietorship is potentially unlimited c. a sole proprietor can generally raise large sums of capital quite easily d. it is easy to create a sole proprietorship e. transferring ownership of a sole proprietorship is easier than transferring ownership of a corporation
it is easy to create a sole proprietorship
long term debt ratio
long term debt / (long term debt + total equity)
A firm is currently operating at full capacity. Net working capital, costs, and all assets vary directly with sales. The firm does not wish to obtain any additional equity financing. The dividend payout ratio is currently at 40 percent. If the firm has a positive external financing need, that need will be met by:
long-term debt
The percentage of the next dollar you earn that must be paid in taxes is referred to as the _____ tax rate.
marginal
Tobin's Q ratio
market value of assets / replacement cost of assets
market to book ratio
market value per share/book value per share
the internal growth rate of a firm is best described as
maximum growth rate achievable excluding external financing of any kind
Which one of the following best describes the primary advantage of being a limited partner instead of a general partner?
maximum loss limited to the capital invested
financial planning considers
multiple options and scenarios for the next two to five years
earnings per share
net income divided by number of shares outstanding
operating cash flow
net income plus non cash expenses (i.e. depreciation) minus changes in net working capital
profit margin
net income/sales
Which one of these is most apt to be a fixed cost? a. office salaries b. management bonuses c. raw materials d. manufacturing wages e. shipping and freight
office salaries
Which term relates to the cash flow which results from a firm's ongoing, normal business activities?
operating cash flow
the du pont identity measures
operating efficiency (profit margin), asset use efficiency (total asset turnover), and financial leverage (equity multiplier)
price earnings ratio
price per share/earnings per share
price sales ratio
price per share/sales per share
Depreciation:
reduces both taxes and net income
Shareholder's equity:
represents the residual value of a firm
income
revenues minus expenses
what should you estimate first as you begin to compose a pro forma statement?
sales forecast
net working capital turnover
sales/NWC
total asset turnover
sales/total assets
Which one of the following will increase the value of a firm's net working capital?
selling inventory at a profit
A business owned by a solitary individual who has unlimited liability for its debt is called a:
sole proprietorship
assets
something a firm owns that is beneficial. can be current or fixed. current: has life of less than a year fixed: has a relatively long life found on the balance sheet
tangible asset
something you can physically interact with, like a truck
marginal tax rate
tax rate applied to the last dollar earned
the retention ratio is
the addition to retained earnings divided by net income
net cash flow equals
the difference between cash inflow and outflow for a given period
net working capital
the difference between current assets and current liabilities is positive when assets outweigh liabilities usually positive in healthy firms
shareholder/common/owner's equity
the difference between the total value of assets and liabilities
Which one of the following statements concerning a sole proprietorship is correct? a. A sole proprietorship is designed to protect the personal assets of the owner b. the profits of a sole proprietorship are subject to double taxation c. A sole proprietorship is structured the same as a limited liability company d. there are very few sole proprietorships remaining in the U.S. today e. the owner of a sole proprietorship is personally responsible for all of the company's debts
the owner of a sole proprietorship is personally responsible for all of the company's debts
the du pont identity is also known as
the return on equity
equity multiplier equals
total assets divided by total equity
on a common-sized balance sheer, all accounts are expressed as a percentage of
total assets for the current year
debt equity ratio equals
total debt divided by total equity
average tax rate
total taxes paid divided by total taxable income
Which one of the following is classified as an intangible fixed asset? a. inventory b. trademark c. production equipment d. building e. accounts receivable
trademark
activities of a firm which require the spending of cash are known as
uses of cash
when constructing a pro forma statement, net working capital generally
varies proportionally with sales
the controller of the corporation generally reports to the
vice president of finance
liability
what someone owes. can be current or long-term.
a firm's short-term assets and its short-term liabilities
working capital
