Business Finance Test 1

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?

.08

What are the three major forms of business organization?

1. Sole proprietorship 2. Partnership 3. Corporation

Spring Falls Gifts has sales of $680,300, total assets of $589,100, and a profit margin of 4.3 percent. What is the return on assets?

4.97%

Good Foods has net income of $82,490, total equity of $518,700, and total assets of $1,089,500. The dividend payout ratio is .30. What is the internal growth rate?

5.60%

GAAP Matching Principle

Recognize revenue when it is fully earned Match expenses required to generate revenue to the period of recognition

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

cash coverage ratio

Donovan's would like to increase its internal rate of growth. Decreasing which one of the following will help the firm achieve its goal?

dividend payout ratio

Internal Growth Rate

how much the firm can grow assets using retained earnings as the only source of financing

Sustainable Growth Rate

how much the firm can grow by using internally generated funds and issuing debt to maintain a constant debt ratio

The present value of a lump sum future amount

increases as the interest rate decreases

Financial Ratios

liquidity, turnover, profitability, leverage, market value

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

losses limited to capital invested

The primary goal of financial management is most associated with increasing the:

market value of the firm

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

maximize the market value of the equity

If a firm has an inventory turnover of 15, the firm:

sells its entire inventory an average of 15 times each year

Book Value

the balance sheet value of the assets, liabilities, and equity

An agency issue is most apt to develop when:

the control of a firm is separated from the firm's ownership.

Market Value

the price at which the assets, liabilities, or equity can actually be bought or sold

What are the three types of financial management decisions?

1. Capital budgeting: long-term investments should business take on? 2. Capital structure: how should we pay for our assets? 3. Working Capital Management: How to manage day-to-day finances?

What are the four basic areas of finance?

1. corporate finance 2. investments 3. financial institutions 4. international finance

AZ Sales has total revenue of $318,400, cost of goods sold equal to 72 percent of sales, and a profit margin of 8.1 percent. Net fixed assets are $154,500 and current assets are $89,500. What is the total asset turnover rate?

1.30

Briar Patch Fruits has sales of $529,600, cost of goods sold of $408,350, depreciation of $25,400, and interest expense of $9,100. The tax rate is 35 percent. What is the times interest earned ratio?

10.53

ABD common stock is selling for $36.08 a share. The company has earnings per share of $.34 and a book value per share of $12.19. What is the market-to-book ratio?

2.96

DJ's has a total asset turnover rate of 1.13, an equity multiplier of 1.46, a profit margin of 5.28 percent, a retention ratio of .74, and total assets of $138,000. What is the sustainable growth rate?

6.89%

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?

7,553.52

Income Statement

A financial statement that reports a company's revenues and expenses and resulting net income or net loss for a specific period of time.

Balance Sheet

A financial statement that reports assets, liabilities, and owner's equity on a specific date.

Standardized statements are useful for

Comparing financial information year-to-year Comparing companies of different sizes, particularly within the same industry

Problems with financial analysis

Conglomerates No readily available comparables Global competitors Different accounting procedures Different fiscal year ends Differences in capital structure Seasonal variations and one-time events

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

Corporate accounting and financial fraud

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?

Corporation

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

Discount 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)

Determinants of Growth

Profit margin - operating efficiency Total asset turnover - asset use efficiency Financial leverage - choice of optimal debt ratio Dividend policy - choice of how much to pay to shareholders versus reinvesting in the firm

What are agency problems, and why do they exist within a corporation?

Stockholders hire managers to run the company. Conflict of interest between principal and agent.

The future value is directly related to the interest rate. T or F

True

Security dealers

buy and sell from their own inventory

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

Internal growth rate

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?

.41

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

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

chief financial officer

Builder's Outlet just hired a new chief financial officer. To get a feel for the company, she wants to compare the firm's sales and costs over the past three years to determine if any trends are present and also determine where the firm might need to make changes. Which one of the following statements will best suit her purposes?

common-size income statement

Benchmarking

ratios need to be compared to something// time-trend - peer group

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

Enterprise Value (EV)

total market value of the stock + book value of all liabilities

The daily financial operations of a firm are primarily controlled by managing the:

working capital