Bus. Fin. Chap. 1-4
Jenna has been promoted and is now in charge of all external financing. In other words, she is in charge of: -capital structure management. -asset allocation. -risk management. -capital budgeting. -working capital management.
Capital structure management. Section: 1.2 Business Finance and the Financial Manager
Which one of the following functions should be assigned to the corporate treasurer rather than to the controller? -Data processing -Cost accounting -Tax management -Cash management -Financial accounting
Cash management Section: 1.2 Business Finance and the Financial Manager
The Wood Shed has cash of $5,800, accounts receivable of $18,600, inventory of $53,100, and net working capital of $2,100. What is the cash ratio? = .11 = .08 = .26 = .21 = .45
Cash ratio = $5,800 / ($5,800 + 18,600 + 53,100 - 2,100) = .08 Section: 3.2 Ratio Analysis
The Dry Dock has inventory of $431,700, accounts payable of $94,200, cash of $51,950, and accounts receivable of $103,680. What is the cash ratio? = .64 = .55 = .53 = .98 = 1.34
Cash ratio = $51,950 / $94,200 = .55 Section: 3.2 Ratio Analysis
Donut Delite has total assets of $31,300, long-term debt of $8,600, net fixed assets of $19,300, and owners' equity of $21,100. What is the value of the net working capital? = $9,800 = $10,400 = $18,900 = $21,300 = $23,200
Net working capital = $21,100 + 8,600 -19,300 = $10,400 Section: 2.1 The Balance Sheet
The Green Carpet has current liabilities of $72,100 and accounts receivable of $107,800. The firm has total assets of $443,500 and net fixed assets of $323,700. The owners' equity has a book value of $191,400. What is the amount of the net working capital? = $50,100 = $47,700 = $6,500 = -$18,800 = -$29,700
Net working capital = $443,500-323,700 -72,100 = $47,700 Section: 2.1 The Balance Sheet
The sustainable growth rate is defined as the maximum rate at which a firm can grow given which of the following conditions? -No new external financing of any kind -No new debt but additional external equity equal to the increase in retained earnings -New debt and external equity in equal proportions -New debt and external equity, provided the debt-equity ratio remains constant -No new external equity and a constant debt-equity ratio
No new external equity and a constant debt-equity ratio. Section: 3.4 Internal and Sustainable Growth
Which one of the following decreases net income but does not affect the operating cash flow of a firm that owes no taxes for the current year? -Indirect cost -Direct cost -Noncash item -Period cost -Variable cost
Noncash item. Section: 2.2 The Income Statement
The equity multiplier is equal to: -one plus the debt-equity ratio. -one plus the total asset turnover. -total debt divided by total equity. -total equity divided by total assets. -one divided by the total asset turnover.
One plus the debt-equity ratio. Section: 3.2 Ratio Analysis
By definition, a bank that pays simple interest on a savings account will pay interest: -only at the beginning of the investment period. on interest. -only on the principal amount originally invested. -on both the principal amount and the reinvested interest. -only if all previous interest payments are reinvested.
Only on the principal amount originally invested. Section: 4.1 Future Value And Compounding
Donegal's has compiled the following information: (bus. fin. pic) What is the operating cash flow for the year? = $90,900 = $96,700 = $114,700 = $93,500 = $102,600
Operating cash flow = $406,300-218,900-38,600-34,100 = $114,700 Section: 2.4 Cash Flow
Tower Pharmacy pays out a fixed percentage of its net income to its shareholders in the form of annual dividends. Given this, the percentage shown on a common-size income statement for the dividend account will: -remain constant over time. -be equal to the dividend amount divided by the net -income. -vary in direct relation to the net profit percentage. -vary in direct relation to changes in the sales level. -vary but not in direct relation to any other variable.
vary in direct relation to the net profit percentage. Section: 3.1 Standardized Financial Statements
A firm has sales of $311,000 and net income of $31,600. The price-sales ratio is 3.24 and market price is $36 per share. How many shares are outstanding? =20,608 =27,990 =28,356 =30,515 =31,011
Price-sales ratio = 3.24 = $36/($311,000/Outstanding shares) Outstanding shares = 27,990 Section: 3.2 Ratio Analysis
BR Trucking has total sales of $911,300, a total asset turnover of 1.1, and a profit margin of 5.87 percent. Currently, the firm has 18,500 shares outstanding. What are the earnings per share? =$2.92 =$2.97 =$2.86 =$2.58 =$2.89
Earnings per share = (.0587 ×$911,300)/18,500 = $2.89 Section: 3.2 Ratio Analysis
Net capital spending is equal to: -ending net fixed assets minus beginning net fixed assets plus depreciation. -beginning net fixed assets minus ending net fixed assets plus depreciation. -ending net fixed assets minus beginning net fixed assets minus depreciation. -ending total assets minus beginning total assets plus depreciation. -ending total assets minus beginning total assets minus depreciation.
Ending net fixed assets minus beginning net fixed assets plus depreciation. Section: 2.4 Cash Flow
Taylor, Inc. has sales of $11,898, total assets of $9,315, and a debt-equity ratio of .55. If its return on equity is 14 percent, what is its net income? =$841.35 =$887.16 =$904.10 =$911.16 =$927.46
Net income = [$9,315 / (1 + .55)]× .14 = $841.35 Section: 3.3 The DuPont Identity
Suppose that in 2015, a $10 silver certificate from 1898 sold for $11,700. For this to have been true, what would the annual increase in the value of the certificate have been? =6.22 percent =6.01 percent =7.23 percent =6.49 percent =7.07 percent
$11,700 = $10 ×(1 + r)(2015- 1898) r = 6.22 percent Section: 4.3 More On Present And Future Values
How long will it take to double your savings if you earn 6.4 percent interest, compounded annually? =11.89 years =12.02 years =11.39 years =11.17 years =10.58 years
$2 = $1 ×(1 + .064)t t = 11.17 years Section: 4.3 More On Present And Future Values
You expect to receive $5,000 at graduation one year from now. Your plan is to invest this money at 6.5 percent, compounded annually, until you have $50,000. At that time, you plan to travel around the world. How long from now will it be until you can begin your travels? =36.57 years =31.08 years =34.55 years =32.08 years =37.57 years
$50,000 = $5,000 ×(1 + .065)t t = 36.57 years Wait time = 1 + 36.57 = 37.57 years Section: 4.3 More On Present And Future Values
Rob wants to invest $15,000 for 7 years. Which one of the following rates will provide him with the largest future value? =3 percent simple interest =3 percent interest, compounded annually =2 percent interest, compounded annually =4 percent simple interest =4 percent interest, compounded annually
4 percent interest, compounded annually. Section: 4.1 Future Value And Compounding
Production equipment is classified as: -a net working capital item. -a current liability. -a current asset. -a tangible fixed asset. -an intangible fixed asset.
A tangible fixed asset. Section: 2.1 The Balance Sheet
One advantage of the corporate form of organization is the: -taxation of the corporate profits. -unlimited liability for its shareholders. -double taxation of profits. -ability to raise larger sums of equity capital than other organizational forms. -ease of formation compared to other organizational forms.
Ability to raise larger sums of equity capital than other organizational forms. Section: 1.3 Forms of Business Organization
Able Co. has $267,000 in taxable income and Bravo Co. has $1,600,000 in taxable income. Suppose both firms have identified a new project that will increase taxable income by $10,000. The additional project will increase Able Co.'s taxes by _____ and Bravo Co.'s taxes by ____. (bus.fin.2 pic) = $1,500; $1,500 = $1,500; $3,400 = $3,400; $3,900 = $3,900; $3,400 = $3,400; $3,400
Able Co. tax = $10,000 ×.39 = $3,900 Bravo Co. tax = $10,000 ×.34 = $3,400 Section: 2.3 Taxes
It takes K's Boutique an average of 53 days to sell its inventory and an average of 16.8 days to collect its accounts receivable. The firm has sales of $942,300 and costs of goods sold of $692,800. What is the accounts receivable turnover rate? Assume a 365-day year. =23.69 =11.41 =21.73 =24.23 =19.55
Accounts receivable turnover = 365 / 16.8 = 21.73 Section: 3.2 Ratio Analysis
Andersen's Nursery has sales of $318,400, costs of $199,400, depreciation expense of $28,600, interest expense of $1,100, and a tax rate of 35 percent. The firm paid out $23,400 in dividends. What is the addition to retained earnings? = $36,909 = $34,645 = $44,141 = $37,208 = $40,615
Addition to retained earnings = [($318,400 -199,400 -28,600 -1,100)(1 -.35)] - $23,400 Addition to retained earnings = $34,645 Section: 2.2 The Income Statement
The shareholders of Weil's Markets would benefit if the firm were to be acquired by Better Foods. However, Weil's board of directors rejects the acquisition offer. This is an example of: -a corporate takeover. -a capital structure issue. -a working capital decision. -an agency conflict. -a compensation issue.
An agency conflict. Section: 1.5 The Agency Problem and Control for the Corporation
You want to invest an amount of money today and receive back twice that amount in the future. You expect to earn 6 percent interest. Approximately how long must you wait for your investment to double in value? -6 years -7 years -8 years -12 years -14 years
Approximate time period = 72/6 = 12 years Section: 4.3 More On Present And Future Values
Which one of the following statements concerning the balance sheet is correct? -Total assets equal total liabilities minus total equity. -Net working capital is equal total assets minus total liabilities. -Assets are listed in descending order of liquidity. -Current assets are equal to total assets minus net working capital. -Shareholders' equity is equal to net working capital minus net fixed assets plus long-term debt.
Assets are listed in descending order of liquidity. Section: 2.1 The Balance Sheet
Highly liquid assets: -increase the probability a firm will face financial distress. -appear on the right side of a balance sheet. -generally produce a high rate of return. -can be sold quickly at close to full value. -include all intangible assets.
Can be sold quickly at close to full value. Section: 2.1 The Balance Sheet
The Sarbanes-Oxley Act in 2002 was primarily prompted by which one of the following from the 1990s? -Increased stock market volatility -Corporate accounting and financial fraud -Increased executive compensation -Increased foreign investment in U.S. stock markets -Increased use of tax loopholes
Corporate accounting and financial fraud. Section: 1.4 The Goal of Financial Management
Matt and Alicia created a firm that is a separate legal entity and will share ownership of that firm on a 75/25 basis. Which type of entity did they create if they have no personal liability for the firm's debts? -Limited partnership -Corporation -Sole proprietorship -General partnership -Public company
Corporation. Section: 1.3 Forms of Business Organization
Net working capital is defined as: -the depreciated book value of a firm's fixed assets. -the value of a firm's current assets. -available cash minus current liabilities. -total assets minus total liabilities. -current assets minus current liabilities.
Current assets minus current liabilities. Section: 2.1 The Balance Sheet
A firm has total assets of $638,727, current assets of $203,015, current liabilities of $122,008, and total debt of $348,092. What is the debt-equity ratio? =1.03 =1.20 =1.31 =1.43 =.87
Debt-equity ratio = $348,092 / ($638,727 - 348,092) = 1.20 Section: 3.2 Ratio Analysis
A fire has destroyed a large percentage of the financial records of the Strongwell Co. You have the task of piecing together information in order to release a financial report. You have found the return on equity to be 13.8 percent. Sales were $979,000, the total debt ratio was .42, and total debt was $548,000. What is the return on assets? =6.92 percent =8.00 percent =8.45 percent =9.03 percent =9.29 percent
Debt-equity ratio = .42/(1 -.42) = .72414 Return on assets = .138/(1 + .72414) = .0800, or 8.00 percent. Section: 3.2 Ratio Analysis
Computing the present value of a future cash flow to determine what that cash flow is worth today is called: -compounding. -factoring. -time valuation. -simple cash flow valuation. -discounted cash flow valuation.
Discounted cash flow valuation. Section: 4.2 Present Value And Discounting
Lucas expects to receive a sales bonus of $7,500 one year from now. The process of determining how much that bonus is worth today is called: -aggregating. -discounting. -simplifying. -compounding. -extrapolating.
Discounting. Section: 4.2 Present Value And Discounting
Donovan's would like to increase its internal rate of growth. Decreasing which one of the following will help the firm achieve its goal? -Return on assets -Net income -Retention ratio -Dividend payout ratio -Return on equity
Dividend payout ratio. Section: 3.4 Internal and Sustainable Growth
All else held constant, the book value of owners' equity will decrease when: -the market value of inventory increases. -dividends exceed net income for a period. -cash is used to pay an accounts payable. -a long-term debt is repaid. -taxable income increases.
Dividends exceed net income for a period. Section: 2.1 The Balance Sheet
Last year, The Pizza Joint added $6,230 to retained earnings from sales of $104,650. The company had costs of $87,300, dividends of $2,500, and interest paid of $1,620. Given a tax rate of 34 percent, what was the amount of the depreciation expense? = $2,407 = $1,908 = $2,503 = $3,102 = $3,414
Earnings before interest and taxes = [($6,230 + 2,500)/(1 -.34)] + $1,620 = $14,847 Depreciation = $104,650-87,300-14,847 = $2,503 Section: 2.2 The Income Statement
The DuPont identity can be accurately defined as: -Return on equity × Total asset turnover × Equity multiplier. -Equity multiplier × Return on assets. -Profit margin × Return on equity. -Total asset turnover × Profit margin × Debt-equity ratio. -Equity multiplier × Return on assets × Profit margiN
Equity multiplier × Return on assets. Section: 3.3 The DuPont Identity
The ratios that are based on financial statement values and used for comparison purposes are called: -financial ratios. -industrial statistics. -equity standards. -accounting returns. -analytical standards.
Financial ratios. Section: 3.2 Ratio Analysis
Your parents spent $7,800 to buy 200 shares of stock in a new company 12 years ago. The stock has appreciated 14.6 percent per year on average. What is the current value of those 200 shares? =$36,408.70 =$40,023.03 =$39,580.92 =$40,515.08 =$37,449.92
Future value = $7,800 ×(1 + .146)12 = $40,023.03 Section: 4.1 Future Value And Compounding
You have $5,000 you want to invest for the next 45 years. You are offered an investment plan that will pay you 6 percent per year for the next 15 years and 10 percent per year for the last 30 years. How much will you have at the end of the 45 years? =$201,516.38 =$219,062.14 =$209,092.54 =$203,096.74 =$221,408.97
Future value A = $5,000 ×(1 + .06)15 ×(1 + .10)30 = $209,092.54 Section: 4.1 Future Value And Compounding
Western Bank pays 5 percent simple interest on its savings account balances, whereas Eastern Bank pays 5 percent compounded annually. If you deposited $6,000 in each bank, how much more money would you earn from the Eastern Bank account at the end of 3 years? =$55.84 =$45.75 =$60.47 =$40.09 =$50.14
Future value Western = $6,000 + ($6,000 ×.05 ×3) = $6,900 Future value Eastern = $6,000 × (1 + .05)3 = $6,945.75 Difference = $6,945.75- 6,900 = $45.75 Section: 4.1 Future Value And Compounding
Marcos is investing $5 today at 7 percent interest so he can have $35 later. This $35 is referred to as the: -true value. -future value. -present value. -discounted value. -complex value.
Future value. Section: 4.1 Future Value And Compounding
The DuPont identity can be used to help a financial manager determine the: I. degree of financial leverage used by a firm. II. operating efficiency of a firm. III. utilization rate of a firm's assets. IV. rate of return on a firm's assets. -II and III only -I and III only -II, III, and IV only -I, II, and III only -I, II, III, and IV
I, II, III, and IV Section: 3.3 The DuPont Identity
The present value of a lump sum future amount: -increases as the interest rate decreases. -decreases as the time period decreases. -is inversely related to the future value. -is directly related to the interest rate. -is directly related to the time period.
Increases as the interest rate decreases. Section: 4.2 Present Value And Discounting
All else held constant, the future value of a lump sum investment will decrease if the: -amount of the lump sum investment increases. -time period is increased. -interest is left in the investment. -interest rate increases. -interest is changed to simple interest from compound interest.
Interest is changed to simple interest from compound interest. Section: 4.1 Future Value And Compounding
Ben invested $7,500 twenty years ago with an insurance company that has paid him 6 percent simple interest on his funds. Charles invested $7,500 twenty years ago in a fund that has paid him 6 percent interest, compounded annually. How much more interest has Charles earned than Ben over the past 20 years? =$0 =$6,827.04 =$7,553.52 =$7,109.16 =$8,266.49
Interest on interest = $7,500 ×(1 + .06)20- [$7,500 + ($7,500 ×.06 ×20)] = $7,553.52 Section: 4.1 Future Value And Compounding
Jamie earned $14 in interest on her savings account last year. She has decided to leave the $14 in her account so that she can earn interest on the $14 this year. The interest earned on last year's interest earnings is called: -simple interest. -complex interest. -accrued interest. -interest on interest. -discounted interest.
Interest on interest. Section: 4.1 Future Value And Compounding
Cash flow to creditors is defined as: -interest paid minus net new borrowing. -interest paid plus net new borrowing. -operating cash flow minus net capital spending minus the change in net working capital. -dividends paid plus net new borrowing. -cash flow from assets plus net new equity.
Interest paid minus net new borrowing. Section: 2.4 Cash Flow
Fried Donuts has sales of $764,900, total assets of $687,300, total equity of $401,300, net income of $68,200, and dividends paid of $27,000. What is the internal growth rate? =5.48 percent =6.38 percent =5.98 percent =7.34 percent =7.92 percent
Internal growth rate = {($68,200/$687,300) ×[($68,200 -27,000)/$68,200]}/(1 -{($68,200/$687,300) ×[($68,200 -27,000)/$68,200]}) = .0638, or 6.38 percent Section: 3.4 Internal and Sustainable Growth
Stacey deposits $5,000 into an account that pays 2 percent interest, compounded annually. At the same time, Kurt deposits $5,000 into an account paying 3.5 percent interest, compounded annually. At the end of three years: -Both Stacey and Kurt will have accounts of equal value. -Kurt will have twice the money saved that Stacey does. -Kurt will earn exactly twice the amount of interest that Stacey earns. -Kurt will have a larger account value than Stacey will. -Stacey will have more money saved than Kurt.
Kurt will have a larger account value than Stacey will. Section: 4.1 Future Value And Compounding
The cash ratio is used to evaluate the: -liquidity of a firm. -speed at which a firm generates cash. -length of time that a firm can pay its bills if no additional cash becomes available. -ability of a firm to pay the interest on its debt. -relationship between the firm's cash balance and its current liabilities.
Liquidity of a firm. Section: 3.2 Ratio Analysis
The concept of marginal taxation is best exemplified by which one of the following? -Kirby's paid $120,000 in taxes while its primary competitor paid only $80,000 in taxes. -Johnson's Retreat paid only $45,000 on total revenue of $570,000 last year. -Mitchell's Grocer increased its sales by $52,000 last year and had to pay an additional $16,000 in taxes. -Burlington Centre paid no taxes last year due to carryforward losses. -The Blue Moon paid $2.20 in taxes for every $10 of revenue last year.
Mitchell's Grocer increased its sales by $52,000 last year and had to pay an additional $16,000 in taxes. Section: 2.3 Taxes
On December 31, 2015, The Play House had net fixed assets of $812,650 while the December 31, 2016 balance sheet showed net fixed assets of $784,900. Depreciation for 2016 was $84,900. What was the firm's net capital spending for 2016? = $51,600 = $42,410 = $57,150 = $54,400 = $46,620
Net capital spending = $784,900-812,650 + 84,900 = $57,150 Section: 2.4 Cash Flow
Shareholders' equity is equal to: -total assets plus total liabilities. -net fixed assets minus total liabilities. -net fixed assets minus long-term debt plus net working capital. -net working capital plus total assets. -total assets minus net working capital.
Net fixed assets minus long-term debt plus net working capital. Section: 2.1 The Balance Sheet
Sunshine Rentals has a debt-equity ratio of .67. The return on assets is 8.1 percent, and total equity is $595,000. What is the net income? =$82,147.09 =$81,311.29 =$80,485.65 =$78,887.02 =$83,013.69
Net income = .081 ×(1 + .67) ×$595,000 = $80,485.65 Section: 3.3 The DuPont Identity
Cash flow from assets is defined as: -the cash flow to shareholders minus the cash flow to creditors. -operating cash flow plus the cash flow to creditors plus the cash flow to shareholders. -operating cash flow minus the change in net working capital minus net capital spending. -operating cash flow plus net capital spending plus the change in net working capital. -cash flow to shareholders minus net capital spending plus the change in net working capital.
Operating cash flow minus the change in net working capital minus net capital spending. Section: 2.4 Cash Flow
Gino's Winery has net working capital of $29,800, net fixed assets of $64,800, current liabilities of $34,700, and long-term debt of $23,000. What is the value of the owners' equity? = $36,900 = $66,700 = $71,600 = $89,400 = $106,300
Owners' equity = $29,800 + 64,800 -23,000 = $71,600 Section: 2.1 The Balance Sheet
Lawler's BBQ has sales of $311,800, a profit margin of 3.9 percent, and dividends of $4,500. What is the plowback ratio? =46.32 percent =49.78 percent =50.23 percent =58.09 percent =62.99 percent
Plowback ratio = 1 - [$4,500/(.039 ×$311,800)] = .6299, or 62.99 percent. Section: 3.4 Internal and Sustainable Growth
Last year, Teresa's Fashions earned $2.03 per share and had 15,000 shares of stock outstanding. The firm paid a total of $16,672 in dividends. What is the retention ratio? =45.25 percent =64.07 percent =52.00 percent =40.21 percent =54.75 percent
Plowback ratio = 1 - [($16,672 / 15,000)/$2.03] = .4525, or 45.25 percent. Section: 3.4 Internal and Sustainable Growth
Which one of the following indicates that a firm has generated sufficient internal cash flow to finance its entire operations for the period? -Positive operating cash flow -Negative cash flow to creditors -Positive cash flow to stockholders -Negative net capital spending -Positive cash flow from assets
Positive cash flow from assets. Section: 2.4 Cash Flow
You want to have $40,000 for a down payment on a house 4 years from now. If you can earn 5.6 percent, compounded annually on your savings, how much do you need to deposit today to reach your goal? =$32,166.54 =$34,420.73 =$27,880.69 =$28,211.17 =$30,886.40
Present value = $40,000/(1 + .056)4 = $32,166.54 Section: 4.2 Present Value And Discounting
A negative cash flow to stockholders indicates a firm: -had a net loss for the year. -had a positive cash flow to creditors. -paid dividends that exceeded the amount of the net new equity. -repurchased more shares than it sold. -received more from selling stock than it paid out to shareholders.
Received more from selling stock than it paid out to shareholders. Section: 2.4 Cash Flow
Given an interest rate of zero percent, the future value of a lump sum invested today will always: -remain constant, regardless of the investment time period. -decrease if the investment time period is shortened. -decrease if the investment time period is lengthened. -be equal to $0. -be infinite in value.
Remain constant, regardless of the investment time period. Section: 4.1 Future Value And Compounding
Which one of the following is included in the market value of a firm but not in the book value? -Raw materials -Partially built inventory -Long-term debt -Reputation of the firm -Value of a partially depreciated machine
Reputation of the firm. Section: 2.1 The Balance Sheet
The Toy Store has beginning retained earnings of $318,423. For the year, the company earned net income of $11,318 and paid dividends of $7,500. The company also issued $25,000 worth of new stock. What is the value of the retained earnings account at the end of the year? =$320,445 =$322,695 =$327,375 =$322,241 =$335,255
Retained earnings = $318,423 + 11,318-7,500 = $322,241 Section: 2.1 The Balance Sheet
Tessler Farms has a return on equity of 11.28 percent, a debt-equity ratio of 1.03, and a total asset turnover of .87. What is the return on assets? =5.56 percent =8.06 percent =13.67 percent =15.24 percent =17.41 percent
Return on assets = .1128 /(1 + 1.03) = .0556, or 5.56 percent. Section: 3.3 The DuPont Identity
Mercier United has net income of $128,470. There are currently 32.67 days' sales in receivables. Total assets are $1,419,415, total receivables are $122,306, and the debt-equity ratio is .40. What is the return on equity? =11.42 percent =12.67 percent =13.09 percent =13.48 percent =15.03 percent
Return on equity = ($128,470/$1,419,415) ×(1 + .40)] = .1267, or 12.67 percent. Section: 3.3 The DuPont Identity
Computer Geeks has sales of $618,900, a profit margin of 13.2 percent, a total asset turnover rate of 1.54, and an equity multiplier of 1.06. What is the return on equity? =18.91 percent =12.67 percent =18.28 percent =22.11 percent =21.55 percent
Return on equity = .132 ×1.54 ×1.06 = .2155, or 21.55 percent. Section: 3.3 The DuPont Identity
Margie opened a used bookstore and is both the 100 percent owner and the store's manager. Which type of business entity does Margie own if she is personally liable for all the store's debts? -Sole proprietorship -Limited partnership -Corporation -Joint stock company -General partnership
Sole proprietorship. Section: 1.3 Forms of Business Organization
Levi had an unexpected surprise when he returned home this morning. He found that a chemical spill from a local manufacturer had spilled over onto his property. The potential claim that he has against this manufacturer is that of a(n): -general creditor. -debtholder. -shareholder. -stakeholder. -agent.
Stakeholder Section: 1.5 The Agency Problem and Control fo the Corporation
A firm has a return on equity of 17.8 percent, a return on assets of 11.3 percent, and a 65 percent dividend payout ratio. What is the sustainable growth rate? =5.72 percent =6.84 percent =7.12 percent =11.38 percent =6.64 percent
Sustainable growth rate = [.178 ×(1 -.65)]/{1 - [.178 ×(1 -.65)]} = .0664 or 6.64 percent Section: 3.4 Internal and Sustainable Growth
The matching principle states that: -costs should be recorded on the income statement whenever those costs can be reliably determined. -costs should be recorded when paid. -the costs of producing an item should be recorded when the sale of that item is recorded as revenue. -sales should be recorded when the payment for that sale is received. -sales should be recorded when the earnings process is virtually completed and the value of the sale can be determined.
The costs of producing an item should be recorded when the sale of that item is recorded as revenue. Section: 2.2 The Income Statement
The primary goal of financial management is to maximize: -current profits. -market share. -current dividends. -the market value of existing stock. -revenue growth.
The market value of existing stock. Section: 1.4 The Goal of Financial Management
Assume earnings before interest and taxes of $38,218 and net income of $14,042. The tax rate is 34 percent. What is the times interest earned ratio? =2.08 =1.73 =3.09 =2.59 =2.26
Times interest earned ratio = $38,218 / {$38,218 - [$14,042 / (1 - .34)]} = 2.26 Section: 3.2 Ratio Analysis
The Wood Shop generates $.97 in sales for every $1 invested in total assets. Which one of the following ratios would reflect this relationship? -Receivables turnover -Equity multiplier -Profit margin -Return on assets -Total asset turnover
Total asset turnover Section: 3.2 Ratio Analysis
Whitt's BBQ has sales of $1,318,000, a profit margin of 7.4 percent, and a capital intensity ratio of .78. What is the total asset turnover rate? =1.04 =1.08 =1.13 =1.43 =1.28
Total asset turnover = 1 / .78 = 1.28 Section: 3.2 Ratio Analysis
A firm has inventory of $46,500, accounts payable of $17,400, cash of $1,250, net fixed assets of $318,650, long-term debt of $109,500, and accounts receivable of $16,600. What is the common-size percentage of the equity? = 70.60 percent = 70.12 percent = 66.87 percent = 42.08 percent = 68.75 percent
Total assets = Total liabilities and equity = $1,250 + 16,600 + 46,500 + 318,650 = $383,000 Equity common-size percentage = ($383,000 - 17,400 - 109,500) / $383,000 = .6687, or 66.87 percent Section: 3.1 Standardized Financial Statements
Wiley's has total equity of $679,400, long-term debt of $316,900, net working capital of $31,600, and total assets of $1,123,900. What is the total debt ratio? =.53 =.40 =.67 =.49 =.63
Total debt ratio = ($1,123,900 - 679,400) / $1,123,900 = .40 Section: 3.2 Ratio Analysis
Towne Realty has total assets of $346,200, net fixed assets of $277,400, current liabilities of $16,100, and long-term liabilities of $124,600. What is the total debt ratio? =.47 =.41 =.68 =.56 =.52
Total debt ratio = ($16,100 + 124,600) / $346,200 = .41 Section: 3.2 Ratio Analysis
Theo's BBQ has $48,000 in current assets and $39,000 in current liabilities. Decisions related to these accounts as referred to as: -capital structure decisions. -capital budgeting decisions. -working capital management. -operating management. -fixed account structure
Working capital management. Section: 1.2 Business Finance and the Financial Manager
The future value of a lump sum investment will increase if you: -decrease the interest rate. -decrease the number of compounding periods. -increase the time period. -decrease the time period. -decrease the lump sum amount.
increase the time period. Section: 4.1 Future Value And Compounding
