Business finance HW 1,2,3,4&5 Business Finance test/Final Questions

Suppose Healey Corporation has the following characteristics: Shares outstanding: 68,500 Current share price: $13.50 Total debt: $438,500 Total cash: $63,100 Based on the formula above, what is the enterprise value of this company?

$1,300,150

Galway Plumbing Supply has a return on equity of 19.3 percent, a profit margin of 10.1 percent, and total equity of $645,685. What is the net income?

$124,617.21

Discount Outlet has net income of $389,100, a profit margin of 2.8 percent, and a return on assets of 8.6 percent. What is the capital intensity ratio?

.33

Khalid Warehouse has total assets of $485,390, net fixed assets of $250,000, current liabilities of $23,456, and long-term liabilities of $148,000. What is the total debt ratio?

.35

Bed Bug Inn has annual sales of $137,000. Earnings before interest and taxes are equal to 5.8 percent of sales. For the period, the firm paid $4,700 in interest. What is the profit margin if the tax rate is 21 percent?

1.87%

Northside City Mart has a market-to-book ratio of 2.8, net income of $323,500, a book value per share of $31.25, and 7,500 shares of stock outstanding. What is the price-earnings ratio?

2.03

A firm has sales of $811,000 for the year. The profit margin is 5.1 percent and the retention ratio is 56 percent. What is the common-size percentage for the dividends paid?

2.24%

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?

21.55%

Peterboro Supply has a current accounts receivable balance of $391,648. Credit sales for the year just ended were $5,338,411. How long did it take on average for credit customers to pay off their accounts during the past year? Assume a 365-day year.

26.78 days

The potential conflict of interest between a firm's owners and its managers is referred to as which type of conflict?

Agency

Which one of the following statements concerning the balance sheet is correct?

Assets are listed in descending order of liquidity.

The financial statement that summarizes a firm's accounting value as of a particular date is called the:

Balance sheet

Jordan and Carmen 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?

Corporation

Which one of these transactions will increase the liquidity of a firm?

Credit sale of inventory at cost

Production equipment is classified as:

a tangible fixed asset.

Net working capital includes:

an invoice from a supplier.

Security dealers:

buy and sell from their own inventory.

Highly liquid assets:

can be sold quickly at close to full value.

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

capital structure

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:

compound interest

Tomas earned $89 in interest on his savings account last year and has decided to leave the $89 in his account this coming year so it will earn interest. This process of earning interest on prior interest earnings is called:

compounding

Net working capital is defined as:

current assets minus current liabilities.

The goal of financial management is to increase the:

current market value per share.

The interest rate used to compute the present value of a future cash flow is called the:

discount rate

Computing the present value of a future cash flow to determine what that cash flow is worth today is called:

discounted cash flow valuation

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:

discounting

Calculating the present value of a future cash flow to determine its worth today is commonly called:

discounting cash flow valuation

Cash flow to stockholders is defined as:

dividends paid minus net new equity raised.

Net capital spending is equal to:

ending net fixed assets minus beginning net fixed assets plus depreciation.

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:

Kurt will have a larger account value than stacey will.

Which one of the following is an advantage of being a limited partner?

Losses limited to capital invested

What is the primary goal of financial management for a sole proprietorship?

Maximize the market value of the equity

Which one of these is correct?

Net income is distributed either to dividends or retained earnings.

Which one of the following statements correctly applies to a sole proprietorship?

Obtaining additional equity is dependent on the owner's personal finances

Which of the following statements is true with regard to this principle?

Revenue is recognized at the time of sale. Costs associated with the sale of that product likewise would be recognized at that time.

Vera opened a used bookstore and is both the 100 percent owner and the store's manager. Which type of business entity does Vera own if she is personally liable for all the store's debts?

Sole proprietorship

An employee has a claim on the cash flows of Westlake Machines. This claim is defined as a claim by one of the firm's:

Stakeholders.

Which one of the following correctly defines a common chain of command within a corporation?

The controller reports directly to the chief financial officer.

Which one of the following statements about a limited partnership is correct?

There must be at least one general partner.

Financial ratios are traditionally grouped in all but which of the following categories?

Working capital management

Net working capital decreases when:

a dividend is paid to current shareholders.

It is important to review not just the current ratio, but also the quick ratio and cash ratio because:

a low current ratio may not necessarily indicate a problem with a company.

Shareholders' equity is equal to:

net fixed assets minus long-term debt plus net working capital.

By definition, a bank that pays simple interest on a savings account will pay interest:

only on the principal amount originally invested

Paid-in surplus is classified as:

owners' equity.

Katlyn needs to invest $5,318 today for her savings account to be worth $8,000 six years from now. Which one of the following terms refers to the $5,318?

present value

Limited liability companies are primarily designed to:

provide limited liability while avoiding double taxation.

A negative cash flow to stockholders indicates a firm:

received more from selling stock than it paid out to shareholders.

An income statement prepared according to GAAP:

records expenses based on the matching principle.

Market values:

reflect expected selling prices given the current economic situation.

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

Net income increases when:

revenue increases.

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:

secondary market.

Jessica invested $2,000 today in an investment that pays 6.5 percent annual interest. Which one of the following statements is correct, assuming all interest is reinvested?

she could have the same future value and invest less than 2,000 initially if she could earn more than 6.5 percent interest

Frey's has a profit margin of 3.8 percent on sales of $287,200. The firm currently has 5,000 shares of stock outstanding at a market price of $7.11 per share. What is the price-earnings ratio?

3.26

For the most recent year, Wilson Enterprises had sales of $689,000, cost of goods sold of $492,300, depreciation expense of $61,200, additions to retained earnings of $48,560, and dividends per share of $2.18. There are 12,000 shares of common stock outstanding and the tax rate is 21 percent. What is the times interest earned ratio?

3.31

Simmons Medical Group has sales of $980,000, cost of goods sold of $765,250, and accounts receivable of $88,640. How long, on average, does it take the firm's customers to pay for their purchases? Assume a 365-day year.

33.01 days

Rob wants to invest $15,000 for 7 years. Which one of the following rates will provide him with the largest future value?

4 percent interest, compounded annually

Xinya Controls has a profit margin of 7.5 percent and net income of $112,545. What is the common-size percentage for the cost of goods sold if that expense amounted to $855,425 for the year?

57.01%

Firefly, Incorporated, has sales of $1,366,400, cost of goods sold of $897,575, and inventory of $148,630. What is the inventory turnover rate?

6.04 times

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?

6.38%

Jenny needs to borrow $5,500 for four years. The loan will be repaid in one lump sum at the end of the loan term. Which one of the following interest rates is best for Jenny?

6.5 percent simple intrest

Last year, a firm earned $67,800 in net income on sales of $934,600. Total assets increased by $62,000 and total equity increased by $43,500 for the year. No new equity was issued, and no shares were repurchased. What is the retention ratio?

64.16%

Lisa has $1,000 in cash today. Which one of the following investment options is most apt to double her money?

8 percent interest for 9 years

Which of the following statements is false?

Acorns is a creative crowdfunding app, allowing smaller investors to join together to fund design ventures.

Which one of the following functions is generally a responsibility assigned to the corporate treasurer?

Capital expenditures

Which one of the following is a measure of long-term solvency?

Cash coverage ratio

Which one of the following occupations best fits into the corporate area of finance?

Chief financial officer

Which one of the following is an intangible fixed asset?

Copyright

The Sarbanes-Oxley Act in 2002 was primarily prompted by which one of the following from the 1990s?

Corporate accounting and financial fraud

The cash ratio is used to evaluate the:

length of time that a firm can pay its bills if no additional cash becomes available.

Which one of the following is the maximum growth rate that a firm can achieve without any additional external financing?

Internal growth rate

Which one of the following is the correct formula for the current value of $600 invested today at 5 percent interest for 6 years?

PV = $600 ➗ (1+.05)^6

Which one of the following is the correct formula for computing the present value of $600 to be received in 6 years? The discount rate is 7 percent.

PV = 600 ➗(1+ .07)^6

Tressler Industries opted to repurchase 5,000 shares of stock last year in lieu of paying a dividend. The cash flow statement for last year must have which one of the following assuming that no new shares were issued?

Positive cash flow to stockholders

All else held constant, which one of the following will decrease if a firm increases its net income?

Price-earnings ratio

Which one of the following is contained in the corporate bylaws?

Procedures for electing corporate directors

Which one of the following is included in the market value of a firm but not in the book value?

Reputation of the firm

GAAP, as they relate to the income statement includes the recognition principle: to recognize revenue when the earnings process is virtually complete, and the value of an exchange of goods or services is known or can be reliably determined.

Revenue is recognized at the time of sale. Costs associated with the sale of that product likewise would be recognized at that time.

t so he can have $35 later. This $35 is referred to as the:

future value

Deandre and Mason both enjoy sunshine, water, and surfboards. Thus, the two friends decided to create a business together renting surfboards, paddle boats, and inflatable devices in California. Deandre and Mason will equally share in the decision making and in the business profits or losses. Which type of business did they create if they both have full personal liability for the firm's debts?

general partnership

Over the past year, a firm decreased its current assets and increased its current liabilities. As a result, the firm's net working capital:

had to decrease.

A sole proprietorship:

has its profits taxed as personal income.

Corporate shareholders:

have the ability to change the corporation's bylaws.

The accounting statement that measures the revenues, expenses, and net income of a firm over a period is called the:

income statement.

The future value of a lump-sum investment will increase if you:

increase the time period

The present value of a lump-sum future amount:

increases as the interest rate decreases

Kendall is investing $3,333 today at 3 percent annual interest for three years. Which one of the following will increase the future value of that amount?

increasing the interest rate

All else held constant, the future value of a lump-sum investment will decrease if the:

interest is changed to simple interest from compound interest

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:

intrest on inters

A firm's liquidity level decreases when:

inventory is purchased with cash.

Net working capital increases when:

inventory is sold at a profit.

The relationship between the present value and the investment time period is best described as:

inverse

The primary goal of financial management is to maximize:

the market value of existing stock.

Today, Charity wants to invest less than $3,000 with the goal of receiving $3,000 back some time in the future. Which one of the following statements is correct?

the period of time she has to wait decreases as the amount she invests increases

Shareholders' equity is best defined as:

the residual value of a firm.

In a general partnership, each partner is personally liable for:

the total debts of the partnership, even if he or she was unaware of those debts.

Common-size financial statements present all balance sheet account values as a percentage of:

total assets.

South Central Bank pays 2.5 percent interest, compounded annually, on its savings accounts. Northern Bank pays 2.5 percent simple interest on its savings accounts. You want to deposit sufficient funds today so that you will have $1,500 in your account 2 years from today. The amount you must deposit today:

will be greater if you invest with Northern Bank

Raleigh BBQ has $48,000 in current assets and $39,000 in current liabilities. Decisions related to these accounts are referred to as:

working capital management.