finance test 1

sole proprietorship

A business owned by a solitary individual who has unlimited liability for its debt is called a: Corporation. Sole proprietorship. General partnership. Limited partnership. Limited liability company.

Net capital spending = $3,400,000 - 3,600,000 + 900,000 = $700,000

A firm's balance sheet showed beginning net fixed assets of $3.6 million, and ending net fixed assets of $3.4 million. The depreciation expense is $900,000. What was the net capital spending for the year? $700,000 $500,000 $1,300,000 $1,100,000 $400,000

has a greater ability to raise capital than a sole proprietorship

A limited partnership: Has an unlimited life. Can opt to be taxed as a corporation. Terminates at the death of any limited partner. Has a greater ability to raise capital than a sole proprietorship. Consists solely of limited partners.

shareholders

Which one of the following parties has ultimate control of a corporation? Chairman of the board. Board of directors. Chief executive officer. Chief operating office. Shareholders.

Income from both sole proprietorships and partnerships is taxed as individual income

Which one of the following statements is correct? A general partnership is legally the same as a corporation. Income from both sole proprietorships and partnerships is taxed as individual income. Partnerships are the most complicated type of business to form. All business organizations have bylaws. Only firms organized as sole proprietorships have limited lives.

average

the ____ tax rate is equal to total divided by total taaxable income

higher the probability the firm will encounter financial distress

the higher the degree of financial leverage employed by a firm is..

cash, accounts receivable

which of the following are current assets? -cash -trademark -accounts receivable - notes payable

the net working capital turnover rate increased

All-State Moving had sales of $899,000 in 2014 and $967,000 in 2015. The firm's current accounts remained constant. Given this information, which one of the following statements must be true? The days' sales in receivables increased. The receivables turnover rate decreased. The fixed asset turnover decreased. The net working capital turnover rate increased. The total asset turnover rate increased.

accounts receivable

An increase in which one of the following will increase a firm's quick ratio without affecting its cash ratio? Cash. Inventory. Fixed assets. Accounts payable. Accounts receivable.

Current liabilities = .40 × $141,000 = $56,400 Total assets = $218,700 + 141,000 = $359,700 Current assets = $359,700 - 209,800 = $149,900 Net working capital = $149,900 - 56,400 = $93,500

Bonner Automotive has shareholders' equity of $218,700. The firm owes a total of $141,000 of which 40 percent is payable within the next year. The firm has net fixed assets of $209,800. What is the amount of the net working capital? -$47,500 $149,900 $125,600 $93,500 $56,500

Days' sales in receivables = 365 / ($2,430,000 / $246,000) = 36.95 days

Corner Supply has a current accounts receivable balance of $246,000. Credit sales for the year just ended were $2,430,000. How many days on average did it take for credit customers to pay off their accounts during this past year? 44.29 days 55.50 days 41.00 days 36.95 days 55.01 days

Taxable as personal income when received by shareholders even though that income was taxed at the corporate level.

Corporate dividends are: Tax-free income because they represent a repayment of the cost to purchase corporate shares. Not taxed as shareholders pay taxes on corporate income when it is earned. Tax-free since the corporation pays tax on that income when it is earned. Taxed at both the corporate and the personal level when the dividends are paid. Taxable as personal income when received by shareholders even though that income was taxed at the corporate level.

market value per share of outstanding stock

Decisions made by financial managers should primarily focus on increasing which one of the following? - Size of the firm. - Growth rate of the firm. - Gross profit per unit produced. - Market value per share of outstanding stock. - Total sales.

Cash flow to creditors = $2,808 - ($36,714 - 51,207) = $17,301

Ernie's Home Repair had beginning long-term debt of $51,207 and ending long-term debt of $36,714. The beginning and ending total debt balances were $59,513 and $42,612, respectively. The interest paid was $2,808. What is the amount of the cash flow to creditors? $17,418 -$11,272 $17,301 -$11,685 $11,174

shareholders

Financial managers should primarily focus on the interests of: Stakeholders. The vice president of finance. Their immediate supervisor. Shareholders. The board of directors.

Book value of shareholders' equity = $97,400 + 41,300 - 102,800 = $35,900

Four years ago, Ship Express purchased a mailing machine at a cost of $218,000. This equipment is currently valued at $97,400 on today's balance sheet but could actually be sold for $92,900. This is the only fixed asset the firm owns. Net working capital is $41,300 and long-term debt is $102,800. What is the book value of shareholders' equity? $249,400 $253,900 $47,700 $35,900 $31,400

expenses which do not directly affect cash flows

Noncash items refer to: The ownership of intangible assets such as patents. Accrued expenses. Sales which are made using store credit. Inventory items purchased using credit. Expenses which do not directly affect cash flows.

increase in the long-term debt and dividend paid

On the statement of cash flows, which of the following are considered financing activities? I. Increase in long-term debt. II. Decrease in accounts payable. III. Interest paid. IV. Dividends paid.

Cash flow to creditors = $250,000 - ($2,300,000 - 2,100,000) = $50,000

The beginning of year balance sheet of The Beach Shoppe showed long-term debt of $2.1 million, while the end of year balance sheet showed long-term debt of $2.3 million. The annual income statement showed an interest expense of $250,000. What was the cash flow to creditors for the year ? -$200,000 -$150,000 $50,000 $200,000 $450,000

cash flow to creditors

The cash flow related to interest payments less any net new borrowing

deciding whether or not to purchase a new machine for a production line

Which one of the following is a capital budgeting decision? Determining how many shares of stock to issue. Deciding whether or not to purchase a new machine for the production line. Deciding how to refinance a debt issue that is maturing. Determining how much inventory to keep on hand. Determining how much money should be kept in the checking account.

net working capital

current assets minus current liabilities

cash flow to stockholders

dividend payments less net new equity raised

corporation

A business created as a distinct legal entity and treated as a legal "person" is called a: - Corporation. - Sole proprietorship. - General partnership. - Limited partnership. - Unlimited liability company.

general partnership

A business formed by two or more individuals who each have unlimited liability for all of the firm's business debts is called a: Corporation. Sole proprietorship. General partnership. Limited partnership. Limited liability company.

Shareholders' equity = $5,900 + 21,200 - 8,400 = $18,700 (Note: The amount of retained earnings is not provided, so you must use total assets minus total liabilities to derive the correct answer.)

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? $6,900 $18,700 $15,300 $23,700 $35,500

Shareholders' equity = Current assets + Fixed assets - Total liabilities. Shareholders' equity = $450 + $660 - $440 = $670

A firm has common stock of $96, paid-in surplus of $330, total liabilities of $440, current assets of $450, and fixed assets of $660. What is the amount of the shareholders' equity? $670 $220 $1,110 $560 $866

Common-size interest = $65 / $4,300 = .0151, or 1.51 percent

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? 1.35 percent 1.69 percent 1.51 percent .89 percent 2.03 percent

Net capital spending = $3,400,000 - 3,600,000 + 900,000 = $700,000

A firm's balance sheet showed beginning net fixed assets of $3.6 million, and ending net fixed assets of $3.4 million. The depreciation expense is $900,000. What was the net capital spending for the year? $1,100,000 $400,000 $1,300,000 $500,000 $700,000

Change in net working capital = ($483 - 267) - ($323 - 227) = $120

At the beginning of the year, a firm has current assets of $323 and current liabilities of $227. At the end of the year, the current assets are $483 and the current liabilities are $267. What is the change in net working capital? $200 $160 $120 $0 -$120

Net income = $488 + (- $125) = $363 Net income = Dividends paid + Change in retained earnings. In this case, the change in retained earnings was a negative value.

Ivan's, Inc. paid $488 in dividends and $589 in interest this past year. Common stock increased by $199 and retained earnings decreased by $125. What is the net income for the year? $589 $952 $488 $788 $363

Equity multiplier = .162 / (.051 × 1.84) = 1.73 Debt-equity ratio = 1.73- 1 = .73

Lancaster Toys has a profit margin of 5.1 percent, a total asset turnover of 1.84, and a return on equity of 16.2 percent. What is the debt-equity ratio? .42 .64 .81 .73 .83

Earnings before interest and taxes = $911,400 - 787,300 - 52,600 = $71,500 Tax = $71,500 ×.34 = $24,310 Operating cash flow = $71,500 + 52,600 - 24,310 = $99,790

RTF Oil has total sales of $911,400 and costs of $787,300. Depreciation is $52,600 and the tax rate is 34 percent. The firm does not have any interest expense. What is the operating cash flow? $68,320 $79,924 $81,417 $148,410 $99,790

$99,790 Earnings before interest and taxes = $911,400 - 787,300 - 52,600 = $71,500 Tax = $71,500 ×.34 = $24,310 Operating cash flow = $71,500 + 52,600 - 24,310 = $99,790

RTF Oil has total sales of $911,400 and costs of $787,300. Depreciation is $52,600 and the tax rate is 34 percent. The firm does not have any interest expense. What is the operating cash flow? $68,320 $81,417 $79,924 $99,790 $148,410

maximize the current value per share

Which one of the following best states the primary goal of financial management? - Maximize current dividends per share. - Maximize the current value per share. - Increase cash flow and avoid financial distress. - Minimize operational costs while maximizing firm efficiency. - Maintain steady growth while increasing current profits.

Return on assets = (.0563 × $813,200) / ($176,000 + 395,000) = .0802, or 8.02 percent

TJ's has annual sales of $813,200, total debt of $176,000, total equity of $395,000, and a profit margin of 5.63 percent. What is the return on assets? 11.59 percent 6.48 percent 7.78 percent 9.94 percent 8.02 percent

Return on equity = $38,300 / ($206,300 / .56) = .1040, or 10.40 percent

Taylor's Men's Wear has a debt-equity ratio of 56 percent, sales of $829,000, net income of $38,300, and total debt of $206,300. What is the return on equity? 3.32 percent 5.74 percent 14.16 percent 18.57 percent 10.40 percent

cash flow to creditors

The cash flow related to interest payments less any net new borrowing is called the: -Cash flow from assets. -Cash flow to creditors. -Operating cash flow. -Net working capital. -Capital spending cash flow.

capital structure decision

The decision to issue additional shares of stock is an example of which one of the following? Working capital management. Net working capital decision. Capital budgeting. Controller's duties. Capital structure decision.

1, 2, 4 only

Which of the following accounts are included in working capital management? I. Accounts Payable II. Accounts Receivable III. Fixed Assets IV. Inventory I and II only. I and III only. II and IV only. I, II, and IV only. II, III, and IV only.

1, 3, 4

Which of the following are advantages of the corporate form of business ownership? I. Limited liability for firm debt. II. Double taxation. III. Ability to raise capital. IV. Unlimited firm life. I and II only. III and IV only. I, III, and IV only. II, III, and IV only. I, II, III, and IV.

1, 3, 4 only

Which of the following are cash flows from a corporation into the financial markets? I. Repayment of long-term debt. II. Payment of government taxes. III. Payment of loan interest. IV. Payment of quarterly dividend. - I and II only. - I and III only. - II and IV only. - I, III, and IV only. - I, II, and III only.

1, 2, 3, 4

Which of the following help convince managers to work in the best interest of the stockholders? Assume there are no golden parachutes. I. Compensation based on the value of the stock. II. Stock option plans. III. Threat of a company takeover. IV. Threat of a proxy fight. I and II only. III and IV only. I, II, and III only. I, III, and IV only. I, II, III, and IV.

1, 2

Which of the following individuals have unlimited liability based on their ownership interest? I. General partner II. Sole proprietor III. Stockholder IV. Limited partner II only. I and II only. II and IV only. I, II, and III only. I, II, and IV only.

value of management skills, value of firms rep, value of employees experience

Which of the following is (are) included in the market value of a firm but is (are) excluded from the firm's book value? I. Value of management skills. II. Value of a copyright. III. Value of the firm's reputation. IV. Value of employee's experience.

2, 3

Which of the following represent cash outflows from a corporation? I. Issuance of securities. II. Payment of dividends. III. New loan proceeds. IV. Payment of government taxes. I and III only. II and IV only. I and IV only. I, II, and IV only. II, III, and IV only.

1, 2, 3, 4

Which of the following represent problems encountered when comparing the financial statements of two separate entities? I. Either one, or both, of the firms may be conglomerates and thus have unrelated lines of business. II. The operations of the two firms may vary geographically. III. The firms may use differing accounting methods. IV. The two firms may be seasonal in nature and have different fiscal year ends.

1, 2, 3, 4

Which of the following should a financial manager consider when analyzing a capital budgeting project? I. Project start-up costs. II. Timing of all projected cash flows. III. Dependability of future cash flows. IV. Dollar amount of each projected cash flow. I and IV only. I, II, and IV only. I, II, and III only. II, III, and IV only. I, II, III, and IV.

accounts receivable

Which one of the following accounts is the most liquid? Land. Building. Equipment. Accounts Receivable. Inventory.

increase in the market value per share

Which one of the following best illustrates that the management of a firm is adhering to the goal of financial management? - Increase in the amount of the quarterly dividend. - Decrease in the per unit production costs. - Increase in the number of shares outstanding. - Decrease in the net working capital. - Increase in the market value per share.

proxy

Which one of the following grants an individual the right to vote on behalf of a shareholder? Proxy. By-laws. Indenture agreement. Stock option. Stock audit.

auction markets match buy and sell orders

Which one of the following statements is generally correct? - Private placements must be registered with the SEC. - All secondary markets are auction markets. - Dealer markets have a physical trading floor. - Auction markets match buy and sell orders. - Dealers arrange trades but never own the securities traded.

taxes reduce both net income and operating cash flows

Which one of the following statements related to an income statement is correct? Taxes reduce both net income and operating cash flow. Interest expense increases the amount of tax due. Depreciation does not affect taxes since it is a non-cash expense. Interest expense is included in operating cash flow. Net income is distributed to dividends and paid-in surplus.

liquid assets are valuable to a firm

Which one of the following statements related to liquidity is correct? Inventory is more liquid than accounts receivable because inventory is tangible. Liquid assets are defined as assets that can be sold quickly regardless of the price obtained. Any asset that can be sold is considered liquid. Liquid assets are valuable to a firm. Liquid assets tend to earn a high rate of return.

agency problem

Which one of the following terms is defined as a conflict of interest between the corporate shareholders and the corporate managers? - Articles of incorporation. - Corporate breakdown. - Agency problem. - Bylaws. - Legal liability.

capital budgeting

Which one of the following terms is defined as the management of a firm's long-term investments? Working capital management. Financial allocation. Agency cost analysis. Capital budgeting. Capital structure.

capital structure

Which one of the following terms is defined as the mixture of a firm's debt and equity financing? Working capital management. - Cash management. - Cost analysis. - Capital budgeting. - Capital structure.

selling inventory at a loss

Which one of the following will decrease the value of a firm's net working capital? Using cash to pay a supplier. Purchasing inventory on credit. Depreciating an asset. Selling inventory at a loss. Collecting an accounts receivable.

decrease in the change in net working capital

Which one of the following will increase the cash flow from assets, all else equal? Decrease in cash flow to creditors. Decrease in the change in net working capital. Decrease in cash flow to stockholders. Increase in net capital spending. Decrease in operating cash flow.

determining the minimum level of cash to be kept in a checking account

Which one of these is a working capital management decision? - Determining the minimum level of cash to be kept in a checking account. - Determining the best method of producing a product. - Determining the number of employees needed to work during a particular shift. - Determining when to replace obsolete equipment. - Determining if a competitor should be acquired.

office salaries

Which one of these is most apt to be a fixed cost? Manufacturing wages. Office salaries. Management bonuses. Shipping and freight. Raw materials.

operating cash flow

Which term relates to the cash flow that results from a firm's ongoing, normal business activities? Operating cash flow. Capital spending. Cash flow from assets. Net working capital. Cash flow to creditors.

corporation

Which type of business organization has all the respective rights and privileges of a legal person? - Sole proprietorship. - General partnership. - Limited partnership. - Corporation. - Limited liability company.

Earnings before taxes = $843,800 - 609,900 - 76,400 - 38,200 = $119,300 Net income = $18,000 + 62,138 = $80,138 Taxes = $119,300 - 80,138 = $39,162 Tax rate = $39,162 / $119,300 = .3283, or 32.83 percent

Winston Industries had sales of $843,800 and costs of $609,900. The firm paid $38,200 in interest and $18,000 in dividends. It also increased retained earnings by $62,138 for the year. The depreciation was $76,400. What is the average tax rate? 43.39 percent 48.87 percent 38.17 percent 33.33 percent 32.83 percent

Construction of a new restricted access highway located between the store and the surrounding residential areas.

You recently purchased a grocery store. At the time of the purchase, the store's market value equaled its book value. The purchase included the building, the fixtures, and the inventory. Which one of the following is most apt to cause the market value of this store to be lower than the book value? Improvements to the surrounding area by other store owners. The replacement of old inventory items with more desirable products. A sudden and unexpected increase in inflation. Addition of a stop light at the main entrance to the store's parking lot. Construction of a new restricted access highway located between the store and the surrounding residential areas.

Net working capital = $4,900 - 3,200 - 1,400 = $300

Your firm has total assets of $4,900, fixed assets of $3,200, long-term debt of $2,900, and short-term debt of $1,400. What is the amount of net working capital? -$100 $600 $1,700 $1,800 $300