Corporate Finance TEST #1

Which of the following are current assets? I. Patent II. Inventory III. Accounts payable IV. Cash

II and IV only

Net capital spending:

Is equal to zero if the decrease in the net fixed assets is equal to the depreciation expense

The primary goal of financial management is to:

Maximize the current value per share of the existing stock

Which of the following is a source of cash?

Increase in accounts payable

Marginal tax rate

the percentage paid on the next dollar earned

Controller

oversees taxes, cost accounting, financial accounting and data processing

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

sales

Book value

Value at which the asset is carried on a balance sheet and calculated by taking cost of asset - accumulated depreciation

Which of the following accounts is the most liquid?

Accounts receivable

The process of planning and managing a firm's long-term investments is called:

Capital budgeting

The mixture of debt and equity used by a firm to finance the operations is called:

Capital structure

The financial statement summarizing a firm's accounting performance over a period of time is the:

Income statement

Which of the following will increase the value of a firm's net working capital?

Selling inventory as a profit

A business owned by a single individual is called a:

Sole proprietorship

A conflict of interest between the stockholders and management of a firm is called:

The agency problem

The management of a firm's short-term assets and liabilities is called:

Working capital management

Working Capital Management

focuses on short-term day-to-day financial issues

Investment activity

includes changes in fixed assets (how much spent on capital)

Financing Activity

includes changes in notes payable, LTD, and equity accounts, as well as dividends

Operating activity

includes net income and changes in most current accounts

Treasurer

oversees cash management, credit management, capital expenditures, and financial planning

Internal Growth Rate

tells us how much the firm can grow assets using retained earnings as the only source of financing

Sustainable Growth Rate

tells us how much the firm can grow by using internally generated funds and issuing debt to maintain a constant debt ratio

The original sale of securities by governments and corporations to the general public occurs in the:

Primary market

A current asset is:

An item currently owned by the firm that will convert to cash within the next 12 months

Which of the following is true according to Generally Accepted Accounting Principles?

Cost of goods sold are recorded based on the matching principle

Net working capital is defined as:

Current assets minus current liabilities

Crandall Oil has total sales of $1,394,800 and costs of $903,500. Depreciation is $42,700 and the tax rate is 34 percent. The firm does not have any interest expense. What is the operating cash flow?

EBIT= $1,349,800 - $903,500 - $42,700 = $403,600 Tax= $403,600 x .34 = $137,224 OCF= $403,600 + $42,700 - $137,224= $309,076

Which one of the following accurately describes the three parts of the Du Pont identity?

Equity multiplier, profit margin, and total asset turnover

A business entity operated and taxed like a partnership, but with limited liability for the owners, is called a:

Limited liability company

Capital budgeting

Long-term investments/ what projects should the business take on

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?

$5,900 + $21,200 - $8,400= $18,700

Your _____________ tax rate is the amount of tax payable on the next taxable dollar you earn

Marginal

The Sarbanes Oxley Act of 2002 is intended to:

Protect investors from corporate abuses

Average tax rate

the tax bill / taxable income

Al's Sport Store has sales of $897,400, costs of goods sold of $628,300, inventory of $208,400, and accounts receivable of $74,100 How many days, on average, does it take the firm to sell its inventory assuming that all sales are on credit?

121.07 days Inventory turnover= $628,300/$208,400= 3.014875 Days in inventory= 365/ 3.014875= 121.07 days

Wise's Corner Grocer has the following current account values. What effect did the change in net working capital have on the firm's cash flows for 2009? 2008: 2009: Cash= $87 Cash= $112 AR= $309 AR= $321 Inventory= $919 Inventory= $868 AP= $617 AP= $714

Net source of cash of $111

Which term relates to the cash flow which results from a firm's ongoing, normal business activities?

Operating Cash Flow