Finance Exam 1 Study Guide

Which one of the following accounts is the most liquid?

Accounts Receivable

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

______ are personally responsible for 100 percent of the firm's debts.

Both general partners and sole proprietors

Which form of business would be the best choice if it were necessary to raise large amounts of capital?

Corporation

A firm's liquidity is measured with which one of the following ratios?

Current ratio

Which one of the following is a use of cash?

Decrease in accounts payable

Which one of the following is a disadvantage of the corporate form of business?

Distributed profits may experience double taxation.

On the statement of cash flows, which one of the following is considered a financing activity?

Dividends paid

Which one of the following accurately lists the three components of the DuPont identity?

Equity multiplier, net profit margin, and total asset turnover

Which one of the following determines the standards and procedures with which audited financial statements are prepared?

Generally Accepted Accounting Principles

Which one of the following is an agency cost?

Hiring outside accountants to audit the company's financial statements

Which one of the following financial statements summarizes a firm's revenue and expenses during a period of time?

Income statement

Public offerings of debt and equity must be registered with the:

Securities and Exchange Commission.

Which one of the following questions involves a capital budgeting decision?

Should the firm purchase a new machine for the production line?

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 involves a working capital management decision?

What is the maximum level of cash to be kept in the firm's bank account?

Total income taxes divided by total taxable income equals the ______ tax rate.

average

The book value of a firm is:

based on historical transactions.

Determining the number of shares of stock to issue is an example of a ______ decision.

capital structure

Net working capital is defined as:

current assets minus current liabilities.

All other things beings equal, and assuming all ratios have positive values, an increase in current liabilities will:

decrease the quick ratio.

The articles of incorporation:

describe the purpose of the firm and set forth the number of shares of stock that can be issued.

The cash coverage ratio directly measures the ability of a company to meet its obligation to pay:

interest to a lender.

The ______ tax rate is the percentage of the last dollar you earned that must be paid in taxes.

marginal

Decisions made by financial managers should primarily focus on increasing the:

market value per share of outstanding stock.

The cash flow that results from a company's ongoing, normal business activities is called:

operating cash flow.

Ratios that measure how efficiently a firm manages its assets and operations to generate net income are referred to as ______ ratios.

profitability

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

sales.

Ratios that measure a firm's liquidity are known as ______ ratios.

short-term solvency

The sources and uses of cash over a stated period of time are reflected on the:

statement of cash flows.