FINC 340

Which one of the following statements concerning the balance sheet is correct? Net working capital is equal total assets minus total liabilities Current assets are equal to total assets minus net working capital Assets are listed in descending order of liquidity Total assets equal total liabilities minus total equity

Assets are listed in descending order of liquidity Reason:

The potential conflict of interest between a firm's owners and its managers is referred to as which type of conflict? Agency Structural Organizational Formative

Agency Reason:

The financial statement that summarizes a firm's accounting value as of a particular date is called the: cash flow statement balance sheet income statement liquidity position

Balance sheet Reason:

Which one of the following is a capital structure decision? Selecting new equipment to purchase Establishing the preferred debt-equity level Determining the optimal inventory level Setting the terms of sale for credit sales

Establishing the preferred debt-equity level Reason:

Which one of the following is a fixed asset? Cash Account receivable Inventory Machinery

Machinary Reason:

Which one of the following is a capital structure decision? Establishing the target debt-equity ratio Determining which customers will be granted credit Determining how many new shares of stock should be issued Deciding which new projects to accept

Determining which customer will be granted credit Reason:

Highly liquid assets: generally, produce a high rate of return appear on the right side of a balance sheet can be sold quickly at close to full value increase the probability a firm will face financial distress

can be sold quickly at close to full value Reason:

The transaction motive refers to the need to hold cash: as a financial reserve for daily operations as a safety margin for unforeseen investment opportunities

for daily operations reason:

The accounting statement that measures the revenues, expenses, and net income of a firm over a period is called the: statement of cash flows income statement GAAP statement balance sheet

income statement Reason:

Holding cash as a financial reserve ("just in case") is referred to as the _________blank motive. activity opportunistic speculative precautionary

precautionary reason:

Leon is the owner of a corner store. Which ratio should he compute if he wants to know how long the store can pay its bills given its current level of cash and accounts receivable? Assume all receivables are collectible when due. Quick (acid test) ratio Cash coverage ratio Debt ratio Cash ratio

quick (acid test) ratio reason:

Which one is not a liquidity ratio? Current ratio Return on equity Quick ratio Cash ratio

return on equity reasons:

Raleigh BBQ has $48,000 in current assets and $39,000 in current liabilities. Decisions related to these accounts are referred to as: working capital management capital structure decisions operating management capital budgeting decisions

Working-Capital Management Reason:

An employee has a claim on the cash flows of Westlake Machines. This claim is defined as a claim by one of the firm's: shareholders provisional partners financiers stakeholders

Stakeholders Reason:

Which one is not a main financial ratio group? Sustainability ratios Profitability ratios Leverage ratios Turnover ratios

Sustainability ratios reason:

Which one of these statements is true concerning the price-earnings (PE) ratio? The PE ratio is a constant value for each firm A high PE ratio may indicate that a firm is expected to grow significantly The PE ratio is classified as a profitability ratio A PE ratio of 16 indicates that investors are willing to pay $1 for every $16 of current earnings

A high PE ratio may indicate that a firm is expected to grow significantly Reason:

A firm grants credit with terms of "2/10 net 30". The firm's customers have _________blank days to pay in order to receive a _________blank percent discount. 30; 2 20; 2 2; 10 10; 2

10; 2 reason:

A firm offers credit terms of "2/5 net 25". How long is the net credit period? 2 days 5 days 25 days 10 days

25 days reason:

Which of these is a speculative motive for holding cash? Needing to purchase a new delivery truck because the old one was totally destroyed in an accident Buying extra inventory because a key supplier offered a special one-time discount Paying the annual insurance premium on the firm's assets Paying a $100 bonus to all employees at year-end

Buying extra inventory because a key supplier offered a special one-time discount reason:

Emma has been promoted and is now in charge of all external financing. In other words, she is in charge of: risk management capital structure management asset allocation capital budgeting

Capital Structure Management Reason:

Which one is not one of the main areas of financial management decisions? Cash flow management Capital budgeting Working capital management Capital structure

Cash Flow Management Reasoning: The 4 main financial decisions are 1. Capital Budgeting or Long term Investment 2. Capital Structure or Financing Decision 3. Dividend Decision 4. Working Capital Management Decision.

Which one of the five Cs refers to the general economic climate in a customer's line of business? Collateral Capacity Conditions Character

Conditions Reason:

Which one is the ultimate goal of financial management? Market share maximization Profit maximization Shareholder wealth maximization Sales maximization

Shareholder Wealth Maximization Reason: The ultimate goal of Financial Management is Shareholder Wealth Maximizing: profits/Company Value Max. Company value is share price multiplied by number of shares--->Sustainability Ethics

When we compare the same financial ratio for two different companies, which one would we care about the least or not at all? The companies are from the same country The companies are similar in size The companies are in the same industry The companies are audited by the same audit company

The companies are audited by the same audit company reason:

The daily financial operations of a firm are primarily controlled by managing the: total debt level working capital capital structure capital budget

Working Capital Reason: Net Working Capital=Current Assets-Current Liabilities Working Capital: Cash Accounts receivable, Inventory these are all accounts that should have lower numbers as a company you do not want these accounts to be high. Fixed accounts should be focused on for most companies, which will result in profit from that side of the business.

Common-size financial statements present all balance sheet account values as a percentage of: total assets the forecasted budget total equity sales

Total assets Reason:

Builder's Outlet just hired a new chief financial officer. To get a feel for the company, she wants to compare the firm's sales and costs over the past three years to determine if any trends are present and also determine where the firm might need to make changes. Which one of the following statements will best suit her purposes? Common-size balance sheet Balance sheet Income statement Common-size income statement

common-size income statement reason:

The terms of sale are best defined as the: total invoice amount including all shipping costs and taxes conditions under which a firm sells its goods or services for either cash or credit period of time during which a sale price applies legal documents related to the credit sale of either goods or services

conditions under which a firm sells its goods or services for either cash or credit reason:

Which party is the one that is most interested in the leverage ratios of companies? Government Creditors Prospective investors IRS

creditors reason:

The ratios that are based on financial statement values and used for comparison purposes are called: equity standards industrial statistics accounting returns financial ratios

financial ratios reason:

If a firm has an inventory turnover of 15, the firm: sells its entire inventory an average of 15 times each year stocks its inventory only once every 15 days sells its entire inventory every 15 days delivers raw materials to its customers every 15 days

sells its entire inventory an average of 15 times each year reason:

AJ's Market generally holds $50,000 in cash in case an unexpected investment opportunity arises. This is an example of the _________blank motive for holding cash. opportunistic speculative precautionary transaction

speculative reason:

Which one is a conflict of interest inherent in any relationship where one party is expected to act in another's best interests? Compensation problems Board of directors size problems Agency problems Ownership structure problems

Agency Problems Reason: