FRL 300 Final Conceptual

Which one of the following represents the most liquid asset?

$100 of inventory that is sold today for $100 cash

You own one share of a cumulative preferred stock which pays quarterly dividends. The firm has recently suffered some financial setbacks and has failed to pay the last two dividends. However, new funding has been arranged and the firm intends to restore all dividends, both common and preferred, this quarter. As a preferred shareholder, you should expect to receive the equivalent of ____ quarter(s) of dividends when the next dividend is paid.

3

Which one of the following statements concerning net working capital is correct?

A decrease in the cash balance also decreases net working capital.

Which one of the following statements related to the cash flow to creditors is correct?

A positive cash flow to creditors represents a net cash outflow from the firm

Andy deposited $3,000 this morning into an account that pays 5 percent interest, compounded annually. Barb also deposited $3,000 this morning into an account that pays 5 percent interest, compounded annually. Andy will withdraw his interest earnings and spend it as soon as possible. Barb will reinvest her interest earnings into her account. Given this, which one of the following statements is true?

Barb will earn interest on interest.

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

Costs of goods sold are recorded based on the matching principle.

Which one of these statements related to preferred stock is correct?

Cumulative preferred shares are more valuable than comparable non-cumulative shares.

The common set of standards and procedures by which audited financial statements are prepared is known as the:

Generally Accepted Accounting Principles.

Which of the following are included in current liabilities?

I and III only, note payable to a supplier in eight months & account payable to a supplier that is due next week

Which of the following are included in the market value of a firm but are excluded from the firm's book value?

I, III, and IV only//value of management skills, value of the firm's reputation, value of employee's experience

Which one of the following statements related to liquidity is correct?

Liquid assets are valuable to a firm.

A positive cash flow to stockholders indicates which one of the following with certainty?

The dividends paid exceeded the net new equity raised.

Which one of the following statements related to an income statement is correct? Assume accrual accounting is used.

The labor costs for producing a product are expensed when the product is sold

Which one of the following accounts is the most liquid?

accounts receivable

Net working capital increases when inventory is sold for

cash at a profit

The cash flow related to interest payments less any net new borrowing is called the:

cash flow to creditors.

Which one of the following types of stock is defined by the fact that it receives no preferential treatment in respect to either dividends or bankruptcy proceedings?

common

Interest earned on both the initial principal and the interest reinvested from prior periods is called:

compound interest.

You recently purchased a grocery store. At the time of the purchase, the store's market value equaled its book value. The purchase included the building, the fixtures, and the inventory. Which one of the following is most apt to cause the market value of this store to be lower than the book value?

construction of a new restricted access highway located between the store and the surrounding residential areas

Net working capital is defined as:

current assets minus current liabilities.

Cash flow to stockholders is defined as:

dividend payments less net new equity raised.

features of preferred stock

dividends, does not carry voting rights

Noncash items refer to:

expenses which do not directly affect cash flows.

Cash flow from assets is also known as the firm's:

free cash flow.

Which one of the following is included in a firm's market value but yet is excluded from the firm's accounting value?

good reputation of the company

Which one of the following is the financial statement that summarizes a firm's revenue and expenses over a period of time?

income statement

Which of the following are current assets?

inventory, cash

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

operating cash flow

Which one of the following is a type of equity security that has a fixed dividend and a priority status over other equity securities?

preferred stock

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

selling inventory at a profit

Sara invested $500 six years ago at 5 percent interest. She spends her earnings as soon as she earns any interest so she only receives interest on her initial $500 investment. Which type of interest is Sara earning?

simple interest

features of common stock

voting rights, proxy voting, classes of stock, share proportionally in declared dividends and remaining assets during liquidation, preemptive right