Finance Exam 1
If a firm has a debt-equity ratio of 1.0, then its total debt ratio must be which one of the following?
.5
In 2019 a firm has sales of $4,300, net income of $320, total assets of $4,800, and total equity of $2,950. Interest expense is $65. What is the common-size statement value of the interest expense?
65/4300 = 1.51%
Which one of the following terms is defined as a conflict of interest between the corporate shareholders and the corporate managers?
Agency problem
which of the following is a capital budgeting decision?
Deciding whether or not to purchase a new machine for the production line
which of the following is a use of cash?
Decrease in accounts payable
The Corner Hardware has succeeded in increasing the amount of goods it sells while holding the amount of inventory on hand at a constant level. Assume that both the cost per unit and the selling price per unit also remained constant. This accomplishment will be reflected in the firm's financial ratios in which one of the following ways?
Decrease in the day's sales in inventory
Which one of the following is a capital structure decision?
Determine how much debt should be assumed to fund a project.
Which one of the following is included in a firm's market value but yet is excluded from the firm's accounting value?
Good reputation of the company
Home Depot has a price-earnings ratio of 18.5. Lowes also has a price-earnings ratio of 18.5. Which one of the following statements must be true if Home Depot has a higher PEG ratio than Lowes?
Lowes is expected to increase its earnings at a faster rate than Home Depot; lowes has higher earnings growth rate
decisions made by financial managers should primarily focus on increasing which one of the following?
Market value per share of outstanding stock
During the year, Al's Tools decreased its accounts receivable by $160, increased its inventory by $115, and decreased its accounts payable by $70. How did these three accounts affect the firm's cash flows for the year?
Net change in cash = 160 - 115 - 170 = -25 Net use of cash of $25
Which one of the following statements concerning net working capital is correct?
Net working capital may be a negative value.
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 must be true if a firm had a negative cash flow from assets?
The firm utilized outside funding.
the price-sales ratio is especially useful relative to the price-earnings ratio when analyzing firms that have which of the following?
Volatile market prices
Which one of the following is a source of cash?
acquisition of debt
Financial managers should strive to maximize the current value per share of the existing stock to:
best represent the interests of the current shareholders.
Which one of the following terms is defined as the management of a firm's long-term investments?
capital budgeting
Which one of the following terms is defined as the mixture of a firm's debt and equity financing?
capital structure
which form of business structure is most associated with agency problems?
corporation
which of the following is a source of cash?
decrease in inventory
The higher the degree of financial leverage employed by a firm is, the:
higher is the probability that the firm will encounter financial distress
The growth of both sole proprietorships and partnerships is frequently limited by the firm's:
inability to raise cash
Which of the following actions by a financial manager is most likely to create an agency problem?
increasing current profits when doing so lowers the value of the firm's equity
Which one of the following is least apt to help convince managers to work in the best interest of the stockholders? Assume there are no golden parachutes
increasing managers base salaries
which one of the following is a primary market transaction?
issuing a new share of stock by a dealer to an individual investor
Mortgage lenders probably have the most interest in the ______ ratios.
long-term debt and times interest earned
Ratios that measure how efficiently a firm manages its assets and operations to generate net income are referred to as _____ ratios.
profitability
A short term creditor is analyzing the likelihood of getting current liabilities paid back to them by the boeing company. Boeing's inventory is very illiquid, but the creditor believes boeing should be able to convert its account receivables to cash rather easily. Which financial ratio is most useful to this short term creditor?
quick ratio
according to the assigned reading, the initial round of funding for a startup firm is called the :
seed round
Corporate dividends are:
taxable income of the recipient even though that income was previously taxed.