Exam 1 - FIN 3090
the following is an unintended result of the Sarbanes-Oxley Act
Corporations delisting from major exchanges
The _________ identity can help to explain why two firms with the same return on equity may not be operating in the same way.
DuPont
Financial planning addresses all the basic elements of firm value.
FALSE
What is the future value of $100 compounded for 50 years at 10 percent annual interest?
FV = $100 × 1.10(50) = $11,739.09
________ ________ are the prime source of information about a firm's financial health.
Financial statements
All else equal, when the rate of growth in sales or assets in a financial plan is higher, external financing needs will be
Greater
the following questions is a working capital management decision
How much inventory should the company keep on hand
What is the equation for enterprise value?
Market value of stock + book value of liabilities − cash
__________ statements are one of the key elements of financial planning.
Pro-forma
The ROE equals the net profit margin multiplied by the total ________ turnover multiplied by the equity multiplier.
asset
The cash coverage ratio adds ______ to operating earnings (EBIT) for a better of measure of how much cash is available to meet interest obligations.
depreciation
The formula for total __________ is the total equity plus long-term debt.
equity
A financial plan looks at what needs to be done in the _____.
future
The percentage of ___________ approach is a financial planning method in which accounts are varied depending on a firm's predicted sales level.
sales
The percentage of sales approach separates accounts on the pro forma income statement and balance sheet into those that change directly with ____ and those that do not.
sales
The profit margin is equal to net income divided by ______.
sales
Public offerings of debt and equity must be registered with the:
securities and exchange commission
the following questions involves a capital budgeting decision
should the firm purchase a new machine for the production line
Interest earned on the original principal amount invested is called _____.
simple
If a firm maintains a constant debt-equity ratio and does not use any new external equity financing, the firm can grow at a rate no greater than its _____.
sustainable growth rate
When the future value formula is used to calculate growth rates, the assumption is that _____ growth rate is achieved each year.
the same
Both the debt-equity ratio and the equity multiplier are calculated using _____ in the denominator.
total equity
The inventory ________________ is calculated as the COGS divided by the inventory.
turnover
Usually the treasurer reports directly to the
vice president of finance
An increase in the profit margin will ______ a firm's sustainable growth rate.
Increase
The inventory turnover ratios for Proctor and Gamble over the past three years are 5.09, 5.72, and 5.92 times, respectively. Explaining the upward trend in the inventory turnover ratio requires:
further investigation
Future value of cash is the value of an investment at some time in the
future
The greater the number of time periods, the _______ the impact of compounding.
greater
Given an internal growth rate of 3 percent, a firm can _____.
grow by 3 percent or less without any additional external financing
A ______ PE ratio may indicate that investors believe a company has better prospects for future growth in earnings.
higher
the following is an agency cost
hiring outside accountants to audit the company's financial statements
A(n) ________ in net profit margin will increase ROE.
increase
All else equal, a decrease in a firm's sustainable rate of growth will result from a(n)______________
increase
An increase in the profit margin, all else equal, will
increase
It is typically assumed that total assets ________ with increased sales because additional working capital and fixed assets are needed to support growth.
increase
It is typically assumed that total assets __________ with increased sales because additional working capital and fixed assets are needed to support growth.
increase
A pro forma balance sheet indicates that total assets will increase by $300,000. If a debt-equity ratio of 0.5 is maintained, then debt must increase by _____.
$100,000 - If D/E = 0.5, an increase of $300k in assets will be financed with $100k of debt and $200k of equity.
Which of the following is the correct representation of the cash coverage ratio?
(EBIT+ Non-cash expenses)/Interest expense *Note:non-cash expenses include depreciation
Alpha Omega's percentage of sales model forecasts sales growth of 20 percent next year. If cost of good sold are proportionate at 80 percent of sales, then cost of good sold will increase by _____.
20 percent
A firm with a profit margin of 6.8% generates ______ cents in net income for every one dollar in sales.
6.8 cents
Davis Company has provided the following financial data: Total Asset Turnover = .245 Net Income = $400,000 Equity Multiplier = 1.20 Net Sales = $1,300,000 What is the Return on Equity?
9.1%
Limited partners benefit from which of the primary advantages?
Their maximum loss cannot exceed the amount of their capital investment
Why is a dollar received today worth more than a dollar received in the future?
Today's dollar can be reinvested, yielding a greater amount in the future.
All other things staying the same, the higher the rate of growth in sales or assets, the greater will be the need for external financing.
True
Given the same rate of interest, more money can be earned with compound interest than with simple interest.
True - With compound interest, you earn interest on interest as well as interest on the principal.
Corporate dividends represent:
after tax income from the corporation which becomes taxable income for the recipient
A useful way of standardizing financial statements is to choose a _______ year and then express each item relative to that amount.
base
The alternative sustainable growth rate formula, where growth is equal to ROE times b, should only be applied when using total equity from the ____________ of period balance sheet.
beginning
The alternative sustainable growth rate formula, where growth is equal to ROE times b, should only be applied when using total equity from the _________________ of period balance sheet.
beginning
The ________ growth rate tells us the maximum growth rate that can be achieved with no external financing of any kind.
internal
Whenever ___________ information is available, it should be used instead of accounting data.
market
The price-earnings (PE) ratio is a ______ ratio.
market value
Enterprise value equals total market value of the stock plus the book value of the liabilities _______ cash.
minus
The aggregation process determines the total _____.
needed investment
Given a firm requires external financing, the firm has multiple options including short- and long-term borrowing, and _____.
new equity
Eduardo sold 500 shares of Northcutt Corporation stock on the New York Stock Exchange. This transaction:
occurred in the secondary market
the following statements is correct concerning the NYSE
The listing requirements for the NYSE are more stringent than those of Nasdaq
One advantage to well-executed financial planning is that the firm can _____.
avoid surprises
A deteriorating time trend in a financial ratio is not always a bad sign.
but it does merit investigation
Future value is the ________ value of an investment at some time in the future.
cash
The process of leaving your money and any accumulated interest in an investment for more than one period, thereby reinvesting the interest, is called
compounding
A firm with a market-to-book ratio that is greater than 1 is said to have ______ value for shareholders.
created
The DuPont Identity in broken down into three parts:
Operating efficiency, asset use efficiency, and financial leverage.
The Statement of Cash Flows has all of the following categories:
Operating, financing, investing