Financial Management Chapter 1, Financial Management Chapter 2, Financial Management Chapter 3, Financial Management Chapter 4

Check #17 Chap 2.

$1,611

See #10 Chap. 3

$101 See #10 Chap. 3 for explanation

Check #17 Chap. 4

$3,924 Pro forma accounts payable = $3,650 × (1 + .075) = $3,924

Check #18 Chap. 2

$432

Coulter Supply has a total debt ratio of .46. What is the equity multiplier? -.89 -1.17 -1.47 -1.85 -2.17

1.85 Debt-equity ratio = .46 / (1 − .46) = .85 Equity multiplier = 1 + .85 = 1.85

A firm has a debt-total asset ratio of 58 percent and a return on total assets of 13 percent. What is the return on equity? -26.27 percent -30.95 percent -45.00 percent -22.41 percent -13.50 percent

30.95% (Total assets - Total equity) / Total assets = .58 Total equity = .42 Total assets Net income = .13 Total assets Return on equity = .13 Total assets / .42 Total assets = .3095, or 30.95percent

See #12 Chap. 3

38.00 days Days' sales in receivables at year-end = 365 / ($827,500 / $86,150) = 38.00

See #13 Chap. 3

4.28 Price-sales ratio = $43.20 / [$827,500 / ($82,000 / $1)] = 4.28

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

Accounts Receivable.

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.

Agency Problems

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

Expenses which do not directly affect cash flows

Sales can often increase without increasing which one of the following? -Accounts receivable. -Cost of goods sold. -Accounts payable. -Fixed assets. -Inventory.

Fixed assets.

If a firm produces a 13 percent return on assets and also a 13 percent return on equity, then the firm: -May have short-term, but not long-term debt. -Is using its assets as efficiently as possible. -Has no net working capital. -Has a debt-equity ratio of 1.0. -Has an equity multiplier of 1.0.

Has an equity multiplier of 1.0

Which one of the following is an agency cost? -Accepting an investment opportunity that will add value to the firm. -Increasing the quarterly dividend. -Investing in a new project that creates firm value. -Hiring outside accountants to audit the company's financial statements. -Closing a division of the firm that is operating at a loss.

Hiring outside accountants to audit the company's financial statements.

Which of the following questions are appropriate to address during the financial planning process? I. Should the firm merge with a competitor? II. Should additional shares of stock be sold? III. Should a particular division be sold? IV. Should a new product be introduced?

I. Should the firm merge with a competitor? II. Should additional shares of stock be sold? III. Should a particular division be sold? IV. Should a new product be introduced?

Which one of the following terms is applied to the financial planning method which uses the projected sales level as the basis for determining changes in balance sheet and income statement account values? -Percentage of sales method. -Sales dilution method. -Sales reconciliation method. -Common-size method. -Trend method.

Percentage of sales method

Which one of these is a requirement if the sustainable growth rate is to exceed the internal growth rate? -Net working capital must be > $0. -Total debt > $0. -Dividend ratio = 0. -Retention ratio = 0. -Sales > Total assets.

Total debt > $0

Which one of the following is defined as a firm's short-term assets and its short-term liabilities? -Working capital. -Debt. -Investment capital. -Net capital. -Capital structure.

Working capital

Check #21 Chap. 2

$1,542 Operating cash flow = ($7,202 - 4,460 - 1,196) + $1,196 - 317 = $2,425 Net capital spending = $7,330 - 7,700 + 1,196 = $826 Change in net working capital = ($418 + 578 + 1,598 - 463) - ($672 + 601 + 1,215 - 414) = $57 Cash flow from assets = $2,425 - 826 - 57 = $1,542

Check #16 Chap. 4

$12,209 Pro forma net working capital = ($15,300 - 3,650) × (1 + .048) = $12,209

Check #19 Chap. 2

$2,131

Check #18 Chap. 4

$2,152 Projected addition to retained earnings = ($2,900 - 870) × (1 + .06) = $2,152

The Lakeside Inn had operating cash flow of $48,450. Depreciation was $6,700 and interest paid was $2,480. A net total of $2,620 was paid on long-term debt. The firm spent $24,000 on fixed assets and decreased net working capital by $1,330. What is the amount of the cash flow to stockholders? -$5,100 -$7,830 -$18,020 -$19,998 -$20,680

$20,680 Cash flow from assets = $48,450 - (-$1,330) - 24,000 = $25,780 Cash flow to creditors = $2,480 - (-$2,620) = $5,100 Cash flow to stockholders = $25,780 - 5,100 = $20,680

The Atlantic Co. has sales of $21,600, total costs of $16,780 and taxes of $1,750. The dividend payout ratio is 12 percent. Sales are expected to increase by 22 percent next year. What is the pro forma addition to retained earnings assuming all costs vary proportionately with sales? -$2,899 -$3,745 -$3,892 -$2,011 -$3,296

$3,296 Pro forma addition to retained earnings = ($21,600 - 16,780 - 1,750) × (1 - .12) .× (1 + .22) = $3,296

Wood Refinishers currently has $298,900 in sales and is operating at 86 percent of the firm's capacity. The dividend payout ratio is 40 percent and cost of goods sold is $211,300. What is the full capacity level of sales? -$245,697.67 -$208,534.88 -$347,558.14 -$211,300.00 -$254,500.00

$347,558.14 Full-capacity sales = $298,900 / .86 = $347,558.14

The Widget Co. purchased new machinery three years ago for $4 million. The machinery can be sold to the Roman Co. today for $2 million. The Widget Co.'s current balance sheet shows net fixed assets of $2,500,000, current liabilities of $1,375,000, and net working capital of $725,000. If all the current assets were liquidated today, the company would receive $1.9 million in cash. The book value of the Widget Co.'s assets today is _____ and the market value of those assets is _____. -$4,600,000; $3,900,000 -$4,600,000; $3,125,000 -$5,000,000; $3,125,000 -$5,000,000; $3,900,000 -$6,500,000; $3,900,000

$4,600,000; $3,900,000 Book value = ($725,000 + 1,375,000) + 2,500,000 = $4,600,000 Market value = $1,900,000 + 2,000,000 = $3,900,000

Fresno Salads has current sales of $6,000 and a profit margin of 6.5 percent. The firm estimates that sales will increase by 4 percent next year and that all costs will vary in direct relationship to sales. What is the pro forma net income? -$303.33 -$327.18 -$405.60 -$438.70 -$441.10

$405.60 Net income = $6,000 × .065 × (1 + .04) = $405.60

Check #20 Chap. 2

$57 Change in net working capital = ($418 + 578 + 1,598 - 463) - ($672 + 601 + 1,215 - 414) = $57

A firm has net working capital of $560. Long-term debt is $3,970, total assets are $7,390, and fixed assets are $3,910. What is the amount of the total liabilities? -$2,050 -$2,920 -$4,130 -$7,950 -$6,890

$6,890

See #14 Chap. 3

$7,300 Dividends paid = $96,200 - ($397,900 - 309,000) = $7,300

Best-Ever Chicken has a debt-equity ratio of .94. Return on assets is 8.5 percent, and total equity is $520,000. What is the net income? -$44,200 -$88,880 -$85,748 -$41,548 -$74,909

$85,748 Equity multiplier = 1 + .94 = 1.94 Return on equity = .085 × 1.94 = .1649 Net income = .1649 × $520,000 = $85,748

Which one of these correctly expresses the calculation of the common-size, base year value of inventory for 2015? Assume 2014 is the base year. -2015 inventory / 2015 Total assets -2015 inventory / 2014 inventory -(2015 inventory / 2015 total assets) / (2014 inventory / 2014 total assets) ) -(2015 inventory / 2014 inventory) / (2015 total assets / 2014 total assets) -(2015 inventory / 2015 sales) / (2014 inventory / 2014 sales)

(2015 inventory / 2015 total assets) / (2014 inventory / 2014 total assets) )

At the beginning of the year the balance sheet of The Outlet showed $800,000 in the common stock account and $2.6 million in the additional paid-in surplus account. The end-of-year balance sheet showed $872,000 and $4.8 million in the same two accounts, respectively. The company paid out $150,000 in cash dividends during the year. What is the cash flow to stockholders for the year? - -$1,972,000(Negative) - -$2,122,000(Negative) - -$628,000(Negative) -$222,000 -$78,000

-$2,122,000 Cash flow to stockholders = $150,000 - [($872,000 + 4,800,000) - ($800,000 + 2,600,000) = -$2,122,000

The 2010 balance sheet of Maria's Tennis Shop, Inc., showed long-term debt of $2.3 million, and the 2011 balance sheet showed long-term debt of $2.55 million. The 2011 income statement showed an interest expense of $190,000. What was the firm's cash flow to creditors during 2011? (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567. Negative amount should be indicated by a minus sign.)

-60,000 ± 0.01% Cash flow to creditors = Interest paid - Net new borrowing Cash flow to creditors = Interest paid - (LTDend - LTDbeg) Cash flow to creditors = $190,000 - ($2,550,000 - 2,300,000) Cash flow to creditors = -$60,000

A firm wishes to maintain a growth rate of 8 percent and a dividend payout ratio of 62 percent. The ratio of total assets to sales is constant at 1, and the profit margin is 10 percent. What must the debt-equity ratio be if the firm wishes to keep these ratios constant? -.05 -.40 -.55 -.60 -.95

.95 Retention ratio = 1 - .62 = .38 Sustainable growth rate = .08 = (ROE × .38)/[1 - (ROE × .38)]; ROE = .1949 Return on equity = .1949 = .10 × (1 / 1) × (1 + D/E); D/E = .95

Rural Market's has $878,000 of sales and $913,000 of total assets. The firm is operating at 93 percent of capacity. What is the capital intensity ratio at full capacity? -.62 -.88 -.97 -1.03 -1.14

.97 Full-capacity sales = $878,000 / .93 = $944,086.02 Capital intensity ratio = $913,000 / $944,086.02 = .97

Which one of these is a correct method of computing the retention ratio? -1 - Plowback ratio . -Change in retained earnings / Cash dividends. -1 + Dividend payout ratio. -(Change in retained earnings + Cash dividends) / Net income. -1 - (Cash dividends / Net income).

1 - (Cash dividends / Net income)

Leon's has a total asset turnover of 1.46 percent, a profit margin of 8 percent, an equity multiplier of 1.2, and a dividend payout ratio of 32 percent. What is the sustainable growth rate? -10.30 percent -10.53 percent -10.67 percent -10.89 percent -11.01 percent

10.53 % Return on equity = .08 × 1.46 × 1.20 = .14016 Retention ratio = 1 - .32 = .68 Sustainable growth rate = (.14016 × .68) / [1 - (.14016 × .68)] = .1053, or 10.53 percent

Country Comfort, Inc. had equity of $150,000 at the beginning of the year. At the end of the year, the company had total assets of $195,000. During the year, the company sold no new equity. Net income for the year was $63,000 and dividends were $44,500. What is the sustainable growth rate? -10.3 percent -10.7 percent -11.6 percent -12.7 percent -12.3 percent

12.3% Ending equity = $150,000 + ($63,000 - 44,500) = $168,500 Return on equity = $63,000 / $168,500 = .37389 Retention ratio = ($63,000 - 44,500) / $63,000 = .29365 Sustainable growth rate = (.37389 × .29365) / [1 - (.37389 × .29365)] = .123, or 12.3 percent

The Docksider has net income for the most recent year of $24,650. The tax rate was 15 percent. The firm paid $1,800 in total interest expense and deducted $2,900 in depreciation expense. What was the cash coverage ratio for the year? -20.48 times -11.48 times -12.39 times -18.72 times -13.69 times

18.72 times Earnings before taxes = $24,650 / (1 - .15) = $29,000 Earnings before interest and taxes = $29,000 + 1,800 = $30,800 Cash coverage ratio = ($30,800 + 2,900) / $1,800 = 18.72 times

The Two Sisters has a 9 percent return on assets and a 75 percent dividend payout ratio. What is the internal growth rate? -3.24 percent -4.05 percent -3.97 percent -2.30 percent -2.25 percent

2.30% Internal growth rate = [.09 ×(1 - .75)] / {1 - [.09 ×(1 - .75)]} = .0230, or 2.30 percent

Flo's Flowers has accounts receivable of $4,511, inventory of $1,810, sales of $138,609, and cost of goods sold of $64,003. How many days does it take the firm to sell its inventory and collect the payment on the sale assuming that all sales are on credit? -11.88 days -22.20 days -16.23 days -14.50 days -18.67 days

22.20 days Days in inventory = 365 / ($64,003 / $1,810) = 10.322 days Days' sales in receivables = 365 / ($138,609 / $4,511) = 11.879 days Total days in inventory and receivables = 10.322 + 11.879 = 22.20 days

See #15 Chap. 3

27.22% Net working capital to total assets at year-end = ($43,700 + 86,150 + 214,600 - 104,300) / $882,400 = .2722, or 27.22 percent

Boyer Enterprises had $200,000 in taxable income. What is the firm's average tax rate based on the rates shown in the table (Check #23 Chap.2)? -28.25 percent -30.63 percent -32.48 percent -36.50 percent -39.00 percent

30.63 percent Tax = .15($50,000) + .25($25,000) + .34($25,000) + .39($200,000 - 100,000) = $61,250 Average tax rate = $61,250 / $200,000 = .3063, or 30.63 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? -32.83 percent -33.33 percent -38.17 percent -43.39 percent -48.87 percent

32.83 percent 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

Christina's has a profit margin of 7.5 percent, a capital intensity ratio of .8, a debt-equity ratio of .6, net income of $31,000, and dividends paid of $15,810. What is the sustainable rate of growth? -4.94 percent -5.29 percent -7.93 percent -6.42 percent -3.58 percent

7.93% Return on equity = .075 × (1 / .8) × (1 + .6) = .15 Retention ratio = 1 - ($15,810 / $31,000) = .49 Sustainable growth rate = (.15 × .49) / [1 - (.15 × .49)] = .0793, or 7.93 percent

Frasier Cabinets wants to maintain a growth rate of 5 percent without incurring any additional equity financing. The firm maintains a constant debt-equity ratio of .55, a total asset turnover ratio of 1.30, and a profit margin of 9 percent. What must the dividend payout ratio be? -26.26 percent -38.87 percent -49.29 percent -61.13 percent -73.74 percent

73.74 Return on equity = .09 × 1.30 × (1 + .55) = .18135 Sustainable growth = (.18135 × b) / [1 - (.18135 × b)] = .05; b = .2626 Payout ratio = 1 - .2626 = .7374, or 73.74 percent

BL Industries has ending inventory of $302,800 and cost of goods sold for the year just ended was $1.41 million. On average, how long did a unit of inventory sit on the shelf before it was sold? -47.64 days -22.18 days -78.38 days -61.78 days -83.13 days

78.38 days Day's sales in inventory = 365 / ($1,410,000 / $302,800) = 78.38 days

Which one of the following statements is correct? -If the total debt ratio is greater than .50, then the debt-equity ratio must be less than 1.0. -Long-term creditors would prefer the times interest earned ratio be 1.4 rather than 1.5. -The debt-equity ratio can be computed as 1 plus the equity multiplier. -An equity multiplier of 1.2 means a firm has $1.20 in sales for every $1 in equity. -An increase in the depreciation expense will not affect the cash coverage ratio.

An increase in the depreciation expense will not affect the cash coverage ratio

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.

Auction markets match buy and sell orders

Which one of the following is the financial statement that shows the accounting value of a firm's equity as of a particular date? -Income statement. -Creditor's statement. -Balance sheet. -Statement of cash flows. -Dividend statement.

Balance sheet.

On a common-base year financial statement, accounts receivables for the current year will be expressed relative to which one of the following? -Current year sales. -Current year total assets. -Base-year sales. -Base-year total assets. -Base-year accounts receivables.

Base-year accounts receivables.

A firm which opts to "go dark" in response to the Sarbanes-Oxley Act: -Must continue to provide audited financial statements to the public. -Must continue to provide a detailed list of internal control deficiencies on an annual basis. -Can provide less information to its shareholders than it did prior to "going dark". -Can continue publicly trading its stock but only on the exchange on which it was previously listed. -Ceases to exist.

Can provide less information to its shareholders than it did prior to "going dark".

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 Budgeting

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.

Capital Structure

Which one of the following ratios identifies the amount of total assets a firm needs in order to generate $1 in sales? -Return on assets. -Equity multiplier. -Retention ratio. -Capital intensity ratio. -Fixed asset turnover ratio.

Capital intensity ratio

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

Cash flow to creditors

Which one of the following standardizes items on the income statement and balance sheet relative to their values as of a chosen point in time? -Statement of standardization. -Statement of cash flows. -Common-base year statement. -Common-size statement. -Base reconciliation statement.

Common-base year statement

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.

Corporation

Net working capital is defined as: -Total liabilities minus shareholders' equity. -Current liabilities minus shareholders' equity. -Fixed assets minus long-term liabilities. -Total assets minus total liabilities. -Current assets minus current liabilities.

Current assets minus current liabilities.

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.

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

Which one of the following is a use of cash? -Decrease in fixed assets. -Decrease in inventory. -Increase in long-term debt. -Decrease in accounts receivables. -Decrease in accounts payable.

Decrease in accounts payable

An increase in current liabilities will have which one of the following effects, all else held constant? Assume all ratios have positive values. -Increase in the cash ratio. -Increase in the net working capital to total assets ratio. -Decrease in the quick ratio. -Decrease in the cash coverage ratio. -Increase in the current ratio.

Decrease in the quick ratio

According to the statement of cash flows, an increase in inventory will _____ the cash flow from _____ activities. -Increase; operating. -Decrease; financing. -Decrease; operating. -Increase; financing. -Increase; investment.

Decrease; operating

Which one of the following is a capital structure decision? -Determining which one of two projects to accept. -Determining how to allocate investment funds to multiple projects. -Determining the amount of funds needed to finance customer purchases of a new product. -Determining how much debt should be assumed to fund a project. -Determining how much inventory will be needed to support a project.

Determining how much debt should be assumed to fund a project.

Which one of these is a working capital management decision? -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. -Determining the minimum level of cash to be kept in a checking account.

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

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.

General partnership

Which one of these sets forth the common set of standards and procedures by which audited financial statements are prepared? -The Matching Principle. -The Cash Flow Identity. -Generally Accepted Accounting Principles. -Financial Accounting Reporting Principles. -Standard Accounting Value Guidelines.

Generally Accepted Accounting Principles

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 (Repayment of long-term debt III (Payment of loan interest) IV (Payment of quarterly dividend)

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

I. Accounts Payable II. Accounts Receivable IV. Inventory

Which of the following can affect a firm's sustainable rate of growth? I. Capital intensity ratio. II. Profit margin. III. Dividend policy. IV. Debt-equity ratio.

I. Capital intensity ratio. II. Profit margin. III. Dividend policy. IV. Debt-equity ratio.

Which of the following are current assets? I. Cash II. Trademark III. Accounts receivable IV. Notes payable

I. Cash III. Accounts receivable

On the statement of cash flows, which of the following are considered operating activities? I. Costs of goods sold. II. Decrease in accounts payable. III. Purchase of equipment. IV. Dividends paid.

I. Costs of goods sold. II. Decrease in accounts payable.

Which of the following parties are considered stakeholders of a firm? I. Employee II. Long-term creditor III. Government IV. Common stockholder

I. Employee III. Government

The DuPont identity can be used to help managers answer which of the following questions related to a firm's operations? I. How many sales dollars has the firm generated per each dollar of assets? II. How many dollars of assets has a firm acquired per each dollar in shareholders' equity? III. How much net profit is a firm generating per dollar of sales? IV. Does the firm have the ability to meet its debt obligations in a timely manner?

I. How many sales dollars has the firm generated per each dollar of assets? II. How many dollars of assets has a firm acquired per each dollar in shareholders' equity? III. How much net profit is a firm generating per dollar of sales?

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. 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.

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.

I. Value of management skills. III. Value of the firm's reputation. IV. Value of employee's experience.

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.

II (Payment of Dividends) IV (Payment of government

Which of the following questions are addressed by financial managers? I. How should a product be marketed? II. Should customers be given 30 or 45 days to pay for their credit purchases? III. Should the firm borrow more money? IV. Should the firm acquire new equipment?

II (Should customers be given 30 or 45 days to pay for their credit purchase) III (Should the firm borrow more money?) IV (Should the firm acquire new equipment?)

Which of the following ratios are measures of a firm's liquidity? I. Cash coverage ratio. II. Interval measure. III. Debt-equity ratio. IV. Quick ratio.

II. Interval measure. IV. Quick ratio.

The growth of both sole proprietorships and partnerships is frequently limited by their: -Double taxation. -Bylaws. -Inability to raise cash. -Limited liability. -Organizational articles.

Inability to raise cash

Which one of the following is true according to generally accepted accounting principles? -Depreciation is recorded based on the market value principle. -Income is recorded based on the realization principle. -Costs are recorded based on the realization principle. -Depreciation is recorded based on the recognition principle. -Costs of goods sold are recorded based on the matching principle.

Income is recorded based on the realization principle

Which one of the following is a source of cash for a non-tax-paying firm? -Increase in accounts receivable. -Increase in depreciation. -Decrease in accounts payable. -Increase in common stock. -Increase in inventory.

Increase in common stock

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.

Increase in the market value per share.

Which one of the following will increase the maximum rate of growth a corporation can achieve? -Avoidance of external equity financing. -Increase in corporate tax rates. -Increase in the retention ratio. -Increase in the dividend payout ratio. -Increase in sales forecast.

Increase in the retention ratio

Depreciation for a tax-paying firm: -Increases expenses and lowers taxes. -Increases the net fixed assets as shown on the balance sheet. -Reduces both the net fixed assets and the costs of a firm. -Is a noncash expense that increases the net income. -Decreases net fixed assets, net income, and operating cash flows.

Increases expenses and lowers taxes

Which one of the following actions by a financial manager is most apt to create an agency problem? -Refusing to borrow money when doing so will create losses for the firm. -Refusing to lower selling prices if doing so will reduce the net profits. -Refusing to expand the company if doing so will lower the value of the equity. -Agreeing to pay bonuses based on the market value of the company stock rather than on the firm's level of sales. -Increasing current profits when doing so lowers the value of the firm's equity.

Increasing current profits when doing so lowers the value of the firm's equity.

A business partner whose potential financial loss in the partnership will not exceed his or her investment in that partnership is called a: -General partner. -Sole proprietor. -Limited partner. -Corporate shareholder. -Zero partner.

Limited partner

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 constant at 40 percent. If the firm has a positive external financing need, that need will be met by: -Accounts payable. -Long-term debt. -Fixed assets. -Retained earnings. -Common stock.

Long-term debt

The Sarbanes-Oxley Act of 2002 is a governmental response to: -Decreasing corporate profits. -The terrorists attacks on 9/11/2001. -A weakening economy. -Deregulation of the stock exchanges. -Management greed and abuses.

Management greed and abuses.

Which one of the following statements concerning net working capital is correct? -The lower the value of net working capital is, the greater is the ability of a firm to meet its current obligations. -An increase in net working capital must also increase current assets. -Net working capital increases when inventory is sold for cash at a profit. -Firms with equal amounts of net working capital are also equally liquid. -Net working capital is a part of the operating cash flow.

Net working capital increases when inventory is sold for cash at a profit.

Which one of the following statements concerning net working capital is correct? -Net working capital increases when inventory is purchased with cash. -Net working capital excludes inventory. -Total assets must increase if net working capital increases. -Net working capital may be a negative value. -Net working capital is the amount of cash a firm currently has available for spending.

Net working capital may be a negative value.

Which one of the following is classified as a tangible fixed asset? -Accounts receivable. -Production equipment. -Cash. -Patent. -Inventory.

Production equipment

Which one of the following terms can be defined as the net income that a firm reinvests in itself? -Retention ratio. -Dividend yield. -Dividend payout ratio. -Internal growth rate. -Cash plowback.

Retention ratio

Which one of the following is a primary market transaction? -Sale of currently outstanding stock by a dealer to an individual investor. -Sale of a new share of stock to an individual investor. -Stock ownership transfer from one shareholder to another shareholder. -Gift of stock from one shareholder to another shareholder. -Gift of stock by a shareholder to a family member.

Sale of a new share of stock to an individual investor.

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.

Sole proprietorship

The sources and uses of cash over a stated period of time are reflected on the: -Income statement. -Balance sheet. -Tax reconciliation statement. -Statement of cash flows. -Statement of operating position.

Statement of cash flows

A firm's net working capital and all of its expenses vary directly with sales. The firm is operating currently at 96 percent of capacity. The firm wants no additional external financing of any kind. The tax rate is 34 percent and the dividend payout ratio is fixed at 25 percent. Which one of the following statements related to the firm's pro forma statements for next year must be correct? -Total equity will remain constant at this year's ending value. -The maximum rate of sales increase is four percent. -The firm cannot exceed its internal rate of growth. -Accounts payable will increase at the same rate as fixed assets. -Inventory will remain constant at the current level.

The firm cannot exceed its internal rate of growth

You are comparing the current financial statements of a firm to the pro forma statement for next year. The pro forma is based on a four percent increase in sales. The firm is currently operating at 85 percent of capacity. Net working capital and all costs vary directly with sales. The tax rate and the dividend payout ratio are fixed. Given this information, which one of the following statements must be true? -Projected dividends equal the current cash dividend amount. -Depreciation will decrease by four percent. -Retained earnings will increase by 85 percent of projected net income. -Total assets will increase by less than four percent. -Total liabilities and owners' equity will increase by four percent.

Total assets will increase by less than four percent