Finance 3610 - Darrell Crutchley

Which of the following represents a significant disadvantage to the corporate form of organization?

Exposure to taxation of both corporate earnings and stockholder dividend income

A business partner whose potential financial loss in the partnership will not exceed his or her investment in that partnership is called a:

Limited Partner

A common-size income statement is an accounting statement that expresses all of the firm's expenses as percentage of:

Sales

A business owned by a solitary individual who has unlimited liability for its debt is called a:

Sole Proprietorship

All of the following represent cash outflows to the firm except...

Depreciation

Allocation of the historic costs of fixed assets against the annual revenue they generate is called

Depreciation

What is defined as a firm's short-term assets and its short-term liabilities?

Working capital

What is defined as the mixture of a firm's debt and equity financing?

capital structure

Cash flow to stockholders is defined as:

dividend payments less net new equity raised

If a firm produces a twelve percent return on assets and also a twelve percent return on equity, then the firm:

has an equity multiplier of 1.0

The higher 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 an agency cost

hiring outside accountants to audit the company's financial statements

The percentage of the next dollar you earn that must be paid in taxes is referred to as the ______ tax rate.

marginal

Which one of the following accounts is that most liquid?

Accounts Recievable

Which of the following accounts are included in working capital management?

1. Accounts Payable 2. Accounts Receivable 3. Inventory

Which of the following help convince managers to work in the best interest of the stockholders? Assume there are no golden parachutes

1. Compensation based on the value of the stock 2. Stock option plans 3. Threat of a company takeover 4. Threat of a proxy fight

Which of the following are advantages of the corporate form of business ownership?

1. Ease of formations 2. Ability to raise capital 3. Unlimited firm life

Which of the following individuals have unlimited liability based on their ownership interest?

1. General Partner 2. Sole Proprietor

Why is the stock price considered to be the best measure of a company's performance?

1. It incorporates all available information about the company's financial standing 2. It incorporates all available information about the company's cash flows 3. It incorporates non-financial information that is relevant to the company's performance.

Which of the following are included in current liabilities

1. Note payable to a supplier in eight months 2. Account payable to a supplier that is due next week

Russell's Deli has cash of $136, accounts recievable of $95, accounts payable of $210, and inventory of $409. What is the value of the quick ratio?

1.10

Which one of the following statements is correct?

Both sole proprietorship and partnership income is taxed as individual income

What is defined as the management of a firm's long-term investments?

Capital Budgeting

The cash flow related to interest payments less any net new borrowing is called the:

Cash flow to creditors

A business created as a distinct legal entity and treated as a legal "person" is called a:

Corporation

Which form of business structure is most associated with agency problems?

Corporation

Which one of the following business types is best suited to raising large amounts of capital?

Corporation

Corporations can raise money in one of two ways; either issue debt or issue common stock. Which of the methods will result in lower taxes? Why?

Debt; because interest is tax deductible for the corporation and dividends are not.

Which one of the following is a capital budgeting decision?

Deciding whether or not to purchase a new machine for the production line

The formula which breaks down the return on equity into three component parts is referred to as which one of the following

Du Pont Idnetity

The common set of standards and procedures by which audited financial statements are prepared is known as the:

Generally Accepted Accounting Principles

Which one of the following is the financial statement that summarizes a firm's revenue and expenses over a period of time?

Income Statement

The liabilities of the firm include all of the following except:

Inventory

Sam Alfredo and Juan want to start a small U.S. business. Juan will fund the venture but wants to limit his liability to his initial investment and has no interest in the daily operations. Sam will contribute his full efforts on a daily basis but has limited funds to invest in the business. Alfredo will be involved as an active consultant and manager and will also contribute funds. Sam and Alfredo are willing to accept liability for the firm's debts as they feel they have nothing to lose by doing so. All three individuals will share in the firm's profits and wish to keep the initial organizational costs of the business to a minimum. Which form of business entity should these individuals adopt?

Limited Partnership

A firm that wants to know if it has enough cash to meet its bills would be most likely to use which kind of ratio.

Liquidity

The Sarbanes-Oxley Act of 2002 is a governmental response to:

Management greed and abuses

Which one of the following bets states the primary goal of financial management?

Maximize the current value per share

Of the choices below, only one is a characteristic of the corporation. Which one?

Personal assets of owners may not be seized by creditors

Which one of the following is a primary market transaction?

Sale of a new share of stock to an individual investor

A positive cash flow to stockholders indicates which one of the following with certainty?

The dividends paid exceeded the net new equity raised.

Which one of the following statments related to taxes is correct?

The marginal tax rate for a firm can be either higher than or the same as the average tax rate

The ______ ratio indicates how well the firm is able to afford its level of debt.

Times interest earned

Over the past five years, the Troubled Company has seen its return on assets decline from 10% to around 5%. Troubled's net profit margin has remained relatively constant throughout the past five years. This information tells us that over the past five years:

Troubled's total asset turnover has declined

Dee's has a fixed asset turnover rate of 1.12 and a total asset turnover rate of .91. Sam's has a fixed asset turnover rate of 1.15 and a total asset turnover rate of .88. Both companies have similar operations. Based on this information, Dee's must be doing which one of the following?

Utilizing its total assets more efficiently than Sam's

Shareholder A sold 500 shares of ABC stock on the New York Stock Exchange. This transaction:

Was facilitated in the secondary maket

Which of the following is an example of an agency problem?

You hire Frank's Lawn Service to maintain your yard while you are out of town for two months. When you return you find that your plants are all dead.

Net working capital is defined as:

current assets minus current liabilites

Ownership in a corporation is evidenced by what?

owning the corporation's common stock