Finance 450 Exam 1

Which one of the following best describes the primary intent of the Sarbanes-Oxley Act of 2002? A. Decrease the number of corporations that can be publicly traded B. Increase the protections against corporate fraud C. Limit secondary issues of corporate securities D. Increase the dividends paid to shareholders E. Increase the number of firms that "go dark"

B. Increase the protections against corporate fraud

Net working capital includes: A. a land purchase. B. an invoice from a supplier. C. non-cash expenses. D. fixed asset depreciation. E. the balance due on a 15-year mortgage.

B. an invoice from a supplier.

The accounting statement that measures the revenues, expenses, and net income of a firm over a period of time is called the: A. statement of cash flows. B. income statement. C. GAAP statement. D. balance sheet. E. net working capital schedule.

B. income statement.

The relationship between the present value and the investment time period is best described as: A. direct. B. inverse. C. unrelated. D. ambiguous. E. parallel.

B. inverse.

A corporation: A. is ultimately controlled by its board of directors. B. is a legal entity separate from its owners. C. is prohibited from entering into contractual agreements. D. has its identity defined by its bylaws. E. has its existence regulated by the rules set forth in its charter.

B. is a legal entity separate from its owners.

The primary goal of financial management is to maximize: A. current profits. B. market share. C. current dividends. D. the market value of existing stock. E. revenue growth.

D. the market value of existing stock.

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. A. Current ratio B. Debt ratio C. Cash coverage ratio D. Cash ratio E. Quick ratio

E. Quick ratio

Which one of the following correctly defines a common chain of command within a corporation? A. The controller reports directly to the corporate treasurer. B. The treasurer reports directly to the board of directors. C. The chief financial officer reports directly to the board of directors. D. The credit manager reports directly to the controller. E. The controller reports directly to the chief financial officer.

E. The controller reports directly to the chief financial officer.

Which one of the following features distinguishes an ordinary annuity from an annuity due? A. Number of equal payments B. Amount of each payment C. Frequency of the payments D. Annuity interest rate E. Timing of the annuity payments

E. Timing of the annuity payments

The Wood Shop generates $.97 in sales for every $1 invested in total assets. Which one of the following ratios would reflect this relationship? A. Receivables turnover B. Equity multiplier C. Profit margin D. Return on assets E. Total asset turnover

E. Total asset turnover

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

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

Which one of the following terms is defined as the total tax paid divided by the total taxable income? A. Average tax rate B. Variable tax rate C. Marginal tax rate D. Absolute tax rate E. Contingent tax rate

A. Average tax rate

Uptown Markets is financed with 45 percent debt and 55 percent equity. This mixture of debt and equity is referred to as the firm's: A. capital structure. B. capital budget. C. asset allocation. D. working capital. E. risk structure.

A. capital structure.

Which one of the following forms of business organization offers liability protection to some of its owners but not to all of its owners? A. Sole proprietorship B. General partnership C. Limited partnership D. Limited liability company E. Corporation

C. Limited partnership

Cash flow from assets is defined as: A. the cash flow to shareholders minus the cash flow to creditors. B. operating cash flow plus the cash flow to creditors plus the cash flow to shareholders. C. operating cash flow minus the change in net working capital minus net capital spending. D. operating cash flow plus net capital spending plus the change in net working capital. E. cash flow to shareholders minus net capital spending plus the change in net working capital.

C. operating cash flow minus the change in net working capital minus net capital spending.

Financial statement analysis: A. is primarily used to identify account values that meet the normal standards. B. is limited to internal use by a firm's managers. C. provides useful information that can serve as a basis for forecasting future performance. D. provides useful information to shareholders but not to debtholders. E. is enhanced by comparing results to those of a firm's peers but not by comparing results to prior periods.

C. provides useful information that can serve as a basis for forecasting future performance.

You contacted your stock broker this morning and placed an order to sell 300 shares of a stock that trades on the NYSE. This sale will occur in the: A. dealer market. B. over-the-counter market. C. secondary market. D. primary market. e. tertiary market.

C. secondary market.

Theo?s BBQ has $48,000 in current assets and $39,000 in current liabilities. Decisions related to these accounts as referred to as: A. capital structure decisions. B. capital budgeting decisions. C. working capital management. D. operating management. E. fixed account structure.

C. working capital management.

Which one of the following qualifies as an annuity payment? A. Weekly grocery bill B. Clothing purchases C. Car repairs D. Auto loan payment E. Medical bills

D. Auto loan payment

Which one of these is correct? A. Depreciation has no effect on taxes. B. Interest paid is a noncash item. C. Taxable income must be a positive value. D. Net income is distributed either to dividends or retained earnings. E. Taxable income equals net income ? (1 + Average tax rate).

D. Net income is distributed either to dividends or retained earnings.

Probably the least effective means of aligning management goals with shareholder interests is: A. the potential for a proxy fight by an unhappy segment of shareholders. B. basing all management bonuses on performance goals. C. holding management salaries steady while increasing stock option grants. D. the threat of a takeover of the firm. E. automatically increasing management salaries on an annual basis.

E. automatically increasing management salaries on an annual basis.

Lester had $6,270 in his savings account at the beginning of this year. This amount includes both the $6,000 he originally invested at the beginning of last year plus the $270 he earned in interest last year. This year, Lester earned a total of $282.15 in interest even though the interest rate on the account remained constant. This $282.15 is best described as: A. simple interest. B. interest on interest. C. discounted interest. D.complex interest. E. compound interest.

E. compound interest.

All else held constant, the present value of an annuity will decrease if you: A. increase the annuity's future value. B. increase the payment amount. C. increase the time period. D. decrease the discount rate. E. decrease the annuity payment.

E. decrease the annuity payment.

A firm has a current ratio of 1.4 and a quick ratio of .9. Given this, you know for certain that the firm: A. pays cash for its inventory. B. has more than half its current assets invested in inventory. C. has more cash than inventory. D. has more current liabilities than it does current assets. E. has positive net working capital.

E. has positive net working capital.

Limited liability companies are primarily designed to: A. allow a portion of their owners to enjoy limited liability while granting the other portion of their owners control over the entity. B. provide the benefits of the corporate structure only to foreign-based entities. C. spin off a wholly owned subsidiary. D. allow companies to reorganize themselves through the bankruptcy process. E. provide limited liability while avoiding double taxation.

E. provide limited liability while avoiding double taxation.

If a firm has an inventory turnover of 15, the firm: A. sells its entire inventory every 15 days. B. stocks its inventory only once every 15 days. C. delivers inventory to its customers every 15 days. D. sells its inventory by granting customers 15 days' of free credit. E. sells its entire inventory an average of 15 times each year.

E. sells its entire inventory an average of 15 times each year.

Operating cash flow is defined as: A. a firm's net profit over a specified period of time. b. the cash that a firm generates from its normal business activities. C. a firm's operating margin. D. the change in the net working capital over a stated period of time. E. the cash that is generated and added to retained earnings.

b. the cash that a firm generates from its normal business activities.