FIN 320 Final Exam Study

Shamrock Inc. has total assets of $26 million including cash and marketable securities of $6 million, debt of $5 million, book value of equity of $15 million and market value of equity of $45 million. Last year EBITDA was $4 million and net earnings were $2 million. What is the enterprise value of the company? A. $44.0 million B. $45.0 million C. $46.0 million D. Some other amount

$44.0 million | (45+5-6=44) | Market Cap./Market Equity + debts- cash/marketable securities

Shamrock Inc. has total assets of $26 million including cash and marketable securities of $6 million, debt of $5 million, book value of equity of $15 million and market value of equity of $45 million. Last year EBITDA was $4 million and net earnings were $2 million. The price to book ratio is closest to: A. 22.5 times B. 15 times C. 8.25 times D. 3 times

3 times | (45/15=3)

> world's largest member association representing the accounting profession > sets ethical standards for the profession and U.S. auditing standards for private companies, nonprofit organizations, federal, state and local governments

AICPA (American Institute of Certified Public Accountants)

Which of the following statements regarding cash basis and accrual basis accounting is true? A. Accrual basis is more accurate than cash basis. B. Accrual basis requires less time to report compared to cash basis C. Accrual basis is always better than cash basis D. Accrual basis is the most reliable means of measuring value added

Accrual basis is the most reliable means of measuring value added

Which company is DeGeorge using as his example for the financial statement analysis project during the current semester? A. Sprouts B. Kroger C. Publix D. Albertson's

Albertson's

Use the following information to answer questions 17-18 Retained earnings at the beginning of the year was $50. During the year the company declared and paid dividends of $10, had revenues of $300, expenses of $240, capital expenditures of $30, paid-in-capital increased by $25 and debt increased by $40. There were no other transactions affecting equity during the year. What is the ending balance of retained earnings? A. $50 B. $90 C. $100 D. some other amount

Beginning balance of retained earnings $ 50.00 Add: Earnings $ 60.00 Subtotal $ 110.00 Less: Dividends paid $ 10.00 Ending retained earnings balance $ 100.00

dedicated to providing thought leadership through the development of frameworks and guidance on enterprise risk management, internal control and fraud deterrence

COSO

Which two cycles are combined to measure liquidity? A. Conversion cycle and days to pay B. Days to pay and days in advance C. Days to collect and days to move D. Days to move and days to pay

Conversion cycle and days to pay

Which of the following items would be reported gross and pretax as opposed to net and after tax? A. Selling general and administrative expense B. Gain or loss on sale of fixed assets C. Discontinued operations D. More than one of the above would be reported net and after tax.

Discontinued operations

Which of the following IS NOT one of the "Big Four" accounting firms: A. Deloitte B. KPMG C. PricewaterhouseCoopers D. Ernst and Young E. EWTN

EWTN

> establishes financial accounting and reporting standards for public and private companies and not-for-profit organizations that follow GAAP > recognized by the SEC as the designated accounting standard setter for public companies

FASB (Financial Accounting Standards Board)

A company receives an order for product from a customer in January, ships the product in February, mails the invoice to the customer in March and receives cash in April. Under accrual accounting when will the company record revenue? (The product was produced in January) A. January B. February C. March D. April

February

a company's ability to adapt to unforeseen events A. Preferred stock D. Treasury Stock B. Financial Flexibility E. Leverage C. Solvency F. Liquidity

Financial Flexibility

Which of the following reports is filed quarterly by publicly traded companies in the United States? A. Report on Form 10-Q B. Report on Form 8-K C. Report on Form 10-K D. Report of Form S-1

Report on Form 10-Q

Use the following information to answer questions 17-18 Retained earnings at the beginning of the year was $50. During the year the company declared and paid dividends of $10, had revenues of $300, expenses of $240, capital expenditures of $30, paid-in-capital increased by $25 and debt increased by $40. There were no other transactions affecting equity during the year. What was net income for the Year? A. $60 B. $30 C. $20 D. some other amount

Revenues $ 300.00 less: Expenses $ 240.00 Net income $ 60.00

> protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation. > interpret and enforce federal securities laws; >issue new rules and amend existing rules; >oversee the inspection of securities firms, brokers, investment advisers, and ratings agencies; >oversee private regulatory organizations in the securities, accounting, and auditing fields; and >coordinate U.S. securities regulation with federal, state, and foreign authorities.

SEC

Which of the following laws holds corporate CEOs and CFOs personally accountable for misrepresentation in the financial statements of public companies? A. Dodd-Frank Regulatory Reform Bill B. Glass-Steagall Act C. Sarbanes-Oxley Act D. The Treadway Committee

Sarbanes-Oxley Act

Which of the following laws holds corporate CEOs and CFOs personally accountable for misrepresentation in the financial statements of public companies? A. Dodd-Frank Regulatory Reform Bill B. Sarbanes-Oxley Act C. Glass-Steagall Act D. The Treadway Committee- internal controls

Sarbanes-Oxley Act

By law which agency/entity currently has the responsibility for establishing accounting standards in the United States?

Securities Exchange Commission (SEC)

moves in concert with financial flexibility A. Preferred stock D. Treasury Stock B. Financial Flexibility E. Leverage C. Solvency F. Liquidity

Solvency

the ability to satisfy long-term obligations as they come due describes: A. liquidity B. solvency C. financial flexibility D. operating capability

Solvency

DeGeorge considers this to be one of his favorite assets because the actual value is generally higher than the carrying or book value. A. Preferred stock D. Treasury Stock B. Financial Flexibility E. Leverage C. Solvency F. Liquidity

Treasury Stock

is reported as a contra-equity account on the balance sheet A. Preferred stock D. Treasury Stock B. Financial Flexibility E. Leverage C. Solvency F. Liquidity

Treasury Stock

purchase of this is currently being criticized by many politicians. A. Preferred stock D. Treasury Stock B. Financial Flexibility E. Leverage C. Solvency F. Liquidity

Treasury Stock

Which of the following is an unsecured loan certificate issued by a company and backed by the general credit of the company? A a secured line-of-credit B. a debenture C. a subordinated indenture D. a mortgage-backed security

a debenture

Which of the following hurts the conversion cycle? Assume all unmentioned cycles remain constant. A. a decrease in the days to collect B. an increase in the days to move inventory C. an increase in the days to pay for inventory D. a decrease in the days paid in advance

an increase in the days to move inventory

What is the normal relationship between financial leverage, solvency and financial flexibility? A. as leverage decreases, solvency improves and flexibility decreases. B. as leverage decreases, solvency decreases and flexibility improves. C. as leverage decreases, both solvency and flexibility improve. D. as leverage decreases, both solvency and flexibility decrease

as leverage decreases, both solvency and flexibility improve.

All other things being equal which of the following will decrease future EPS? A. paying dividends B. purchasing treasury stock C. extending days to pay for inventory D. borrowing on a line-of-credit

borrowing on a line-of-credit

Successful use of leverage is aimed at increasing A. net income B. earnings per share C. assets in relations to equity D. sales in relations to assets

earnings per share

Which is correct? A. financial statements result from decision that will cause future transactions B. financial statements result from transactions which were caused by management decisions C. the objective of the CFO of a company should be to maximize the company's stock price D. the Board of Directors are paid to oversee the day to day activities of the business

financial statements result from transactions which were caused by management decisions

A company has a very low PE ratio (2 times). This most likely indicates that: A. the stock has very low growth potential. B. historic earnings are unusually high C. historic earnings are unusually low D. the stock is under valued

historic earnings are unusually high

Buying back treasury stock__________while retiring treasury stock__________ A. Increases financial leverage, increases financial flexibility B. Increases financial leverage, decreases financial flexibility C. Reduces financial leverage, increases financial flexibility D. Reduces financial leverage, decreases financial flexibility

increases financial leverage, decreases financial flexibility

Mark-to-market investments represent which level of ownership interest? A. less than 20% B. 20% to 50% C. more than 50% D. either A or B can be marked to market.

less than 20%

the ability to satisfy short-term obligations as they come due describes: A. liquidity B. solvency C. financial flexibility D. operating capability

liquidity

The debt to EBITDA ratio for a company is consistently higher than that of its common competitor. The most logical reason for this is: A. management's confidence and desire to maintain significant financial leverage B. management's effort to attract new customers C. covenants with lenders who are concerned about the company's solvency D. management's lack of knowledge and understanding of leverage

management's confidence and desire to maintain significant financial leverage

What are the two primary uses of preferred stock: A. mezzanine financing and off-balance sheet financing B. Off-balance sheet financing and blocking a hostile takeover attempt C. mezzanine financing and increasing leverage D. mezzanine financing and blocking a hostile takeover attempt

mezzanine financing and blocking a hostile takeover attempt

Which of the following would be recorded on the income statement? A. other comprehensive income B. dividend expense C. Deferred revenue D. none of the above would be recorded on the income statement E. A and B would be recorded on the income statement

none of the above would be recorded on the income statement

Which of the following increases leverage without increasing corporate risk? A. repurchasing a company's own common stock B. using senior secured debt to finance an investment C. paying a significant cash dividend to common shareholders D. Using preferred stock to finance an investment

repurchasing a company's own common stock

A new accounting rule put operating lease obligations and the related assets on the balance sheet. Which of the following statements is true? A. return on assets increased B. return on assets decreased C. return on equity increased D. return on equity decreased

return on assets decreased

Which of the following combinations of activities is indicative of a company in the early growth A. significant capital expenditures AND mergers and acquisition activity B. significant capital expenditures AND research and development C. mergers and acquisitions AND payment of dividends D. payment of dividends AND repurchase of treasury stock

significant capital expenditures AND research and development

Seeing "Marketable Securities" on a balance sheet most likely indicates that? A. the company has not been profitable B. the company is doing very well and is confident about the future C. the company is compensating for a known risk D. the company has repurchased its own common stock stage?

the company is compensating for a known risk

When amortizing a note payable each payment includes an interest portion and a principle portion. Which of the following statements is correct? A. the interest portion will decrease over time B. the principle portion will decrease over time C the total payment will increase over time D. the current portion of debt will be equal to the next year's total payments

the interest portion will decrease over time

Which of the following is generally prepared using the indirect method: A. financing activities section of the statement of cash flows B. the operating section of the statement of cash flows C. the investing section of the statement of cash flows D. the non-operating section of the statement of comprehensive income

the operating section of the statement of cash flows

financial statements provide/result in clearly the decisions being made and executed by management of the company: A. transparency B. Moral hazard C. liquidity when users are able to understand D. conflicts

transparency

Shamrock Inc. has total assets of $26 million including cash and marketable securities of $6 million, debt of $5 million, book value of equity of $15 million and market value of equity of $45 million. Last year EBITDA was $4 million and net earnings were $2 million. The price to earnings ratio is closest to: A. 22.5 times B. 15 times C. 8.25 times D. 3 times

22.5 times (highest)

Which of the following is a "squeeze" from the statement of cash flows? A. Change in operating assets and liabilities B. Operating cash flows C. Operating cash flows earned D. Investing cash flows

Operating cash flows earned

Sun Inc. has acquired a controlling interest in Star and a significant yet non-controlling interest in Moon. Non-controlling interest on Sun Inc.'s financial statements represents: A. Sun's ownership interest in Moon B. Other shareholders ownership interest in Moon. C. Sun's ownership interest in Star. D. Other shareholders ownership interest in Star.

Other shareholders ownership interest in Star.

>established by Congress to oversee the audits of public companies in order to protect investors and the public interest by promoting informative, accurate, and independent audit reports. >oversees the audits of brokers and dealers, including compliance reports filed pursuant to federal securities laws, to promote investor protection. >Created by the Sarbanes-Oxley Act of 2002

PCAOB (Public Company Accounting Oversight Board)

is often used as "mezzanine" financing A. Preferred stock D. Treasury Stock B. Financial Flexibility E. Leverage C. Solvency F. Liquidity

Preferred Stock

can be used as an anti-takeover weapon A. Preferred stock D. Treasury Stock B. Financial Flexibility E. Leverage C. Solvency F. Liquidity

Preferred stock

Which agency/entity currently establishes auditing standards in the United States?

Public Company Accounting Oversight Board (PCAOB)

According to DeGeorge, what is the objective of every business and what is the only way to accomplish that objective?

To make money for the shareholders now and in the future, by creating value to goods or services

The use of 3rd party funds to increase the earnings for the owners A. Preferred stock D. Treasury Stock B. Financial Flexibility E. Leverage C. Solvency F. Liquidity

Leverage

moves in opposition to solvency A. Preferred stock D. Treasury Stock B. Financial Flexibility E. Leverage C. Solvency F. Liquidity

Leverage

Should be examined first, before examining other qualities of a company. A. Preferred stock D. Treasury Stock B. Financial Flexibility E. Leverage C. Solvency F. Liquidity

Liquidity

A normal US GAAP balance sheet is arranged order of: A. High to low dollar value B. Liquidity (quickly) C. Solvency (debt) D. Flexibility (un for seen)

Liquidity (quickly)

Who is responsible for the fair presentation of the financial statements and the integrity of the system of internal controls? A. The independent registered accounting firm B. Management of the Company C. The CEO and CFO D. The Board of Directors

Management of the Company

Which of the following could include level 1, 2 or 3 securities? A. investments accounted for by consolidation B. investments classified as trading securities C. investments classified as available for sale securities D. More than one of the above could include level 1, 2 or 3 securities

More than one of the above could include level 1, 2 or 3

Sun owns a 5% interest in Moon, a controlling interest in Galaxy and a significant yet non- controlling interest in Star. Which investment would be consolidated? A. Sun's interest in Star B. Sun's interest in Moon C Sun's interest in Galaxy D. More than one of the investments will be consolidated

Sun's interest in Galaxy

Sun owns a 5% interest in Moon, a controlling interest in Galaxy and a significant yet non- controlling interest in Star. Which investment is likely to be "marked-to-market"? A. Sun's interest in Star B. Sun's interest in Moon C. Sun's interest in Galaxy D. More than one of the investments will be marked-to-market

Sun's interest in Moon

On 12/7/2021, AutoZone was trading at just over $2,000.00 per share representing a PE ratio of 21.1 times earnings. The company also has a ROE that is negative. The reason for this odd ratio combination is that: A. The stock is significantly over valued B. The stock is significantly under valued C. The company has bought back significant treasury stock and has negative equity D. The company has chosen to be very lightly leveraged

The company has bought back significant treasury stock and has negative equity

Autozone Inc. has negative equity (total liabilities exceed total assets) but steadily increasing stock prices. This indicates which of the following: A. The company is on the verge of declaring bankruptcy B. The market is not efficient C. The company maintains solvency and financial flexibility via it's cash flows/operating cycles D. The company's lenders are probably too big to fail and therefore have taken on too much risk

The company maintains solvency and financial flexibility via it's cash flows/operating cycles

Profit margin is 5%, asset turnover is 1.5, financial leverage is 3.0, earnings per share are $2.00 and there were no dividends. Which of the following statements is correct? A. The return on assets is greater than the return on equity B. The return on equity is greater than the sustainable growth rate C. The sustainable growth rate is greater than the return on assets D. The stock is under valued

The sustainable growth rate is greater than the return on assets