Corporate Finance

Which one of the following terms is defined as the management of a firm's long-term investments? Capital budgeting Capital Structure Working capital management Financial allocation

Capital budgeting

In class, we learned that the capital budgeting decisions of managers determine ___________ of the "pie", while capital structure decisions determine __________ of the "pie". the cut; the cut the size; the size the cut; the size the size; the cut

the size; the cut

Use the following information to calculate this firm's quick ratio as of the end of 2016:

1.24

Suppose IBM has a total asset turnover of 1.46 percent, a profit margin of 8.00 percent, an equity multiplier of 1.20, and a dividend payout ratio of 32.00 percent. What is IBM's sustainable growth rate?

10.53 %

Use the following information to calculate this firm's times interest expense (TIE) ratio as of the end of 2016:

10.79

You would like to borrow money three years from now to build a new building. In preparation for applying for that loan, you are in the process of developing target ratios for your firm. Which set of ratios represents the best target mix considering that you want to obtain outside financing in the relatively near future?

Cash coverage ratio = 2.6; debt equity ratio = 0.3

Non-cash items refer to: Accrued expenses The ownership of intangible assets such as patents Inventory items purchased using credit Expenses which do not directly affect cash flows

Expenses which do not directly affect cash flows

The internal growth rate of a firm is best described as the: Maximum growth rate achievable excluding any external equity financing while maintaining a constant debt-equity ratio. Minimum growth rate achievable assuming a 100 percent retention ratio. Maximum growth rate achievable excluding external financing of any kind. Minimum growth rate achievable if the firm maintains a constant equity multiplier.

Maximum growth rate achievable excluding external financing of any kind.

Common-size financial statements present all income statement account values as a percentage of: Sales Total equity Total assets Free cash flows

Sales

Corporate shareholders: Are always managers of the firm Have limited liability Are liable for the firms debts Receive tax-free distributions since all profits are taxed at the corporate tax level

have limited liability

The short-run, day-to-day financial operations of a firm are primarily controlled by managing the: Working capital Capital structure Capital budgeting Total debt levels

Working capital

The Norsk Nook had current assets of $67,200 and current liabilities of $71,100 last year. This year, the current assets are $82,600 and the current liabilities are $85,100. The depreciation expense for the past year is $9,600 and the interest paid is $8,700. What is the amount of the change in net working capital?

$1,400

GT Metals paid $27,500 in dividends and $28,311 in interest over the past year while net working capital increased from $13,506 to $18,219. The company purchased $42,000 in net new fixed assets and had depreciation expenses of $16,805. During the year, the firm issued $25,000 in net new equity and paid off $21,000 in long-term debt. What is the amount of cash flow from assets?

$51,811

The Andersons, Inc. (Ticker: ANDE (Links to an external site.)) is an agriculture company which operates in the grain, ethanol, plant nutrient, and rail sectors in the United States and internationally. Suppose that ANDE currently has $3,600 in cash and that the firm owes $41,800 to suppliers for merchandise and $21,500 to the bank for a long-term loan. Customers, in turn, owe The Andersons, Inc. $18,000 for their purchases. The inventory has a book value of $53,300, but an estimated market value of $61,200. If the company compiled a balance sheet as of today, what would be the book value of the current assets?

$74,900 Add up the current assets. (Cash, purchases, book value)

Find the free cash flow

1,732

Use the following information to calculate this firm's fixed asset turnover ratio as of the end of 2016:

1.17(with margin: 0.03)

3M Company's current price is $198.65 per share. Assuming that 3M currently has 597,000,000 shares outstanding, its current market cap is: Note: Report your answer as in billions rounded to two decimal points (i.e. 1.23 billion). Do not include any unit of measurement in your answer (i.e. $ or the word "billions").

118.59 (with margin: 0)

Use the following information to calculate this firm's days' sales in inventory as of the end of 2016:

177.13

Use the following information to calculate the firm's return-on-equity (ROE) as of the end of 2016:

20.04

A firm has inventory of $11,400, accounts payable of $9,800, cash of $850, net fixed assets of $12,150, long-term debt of $9,500, accounts receivable of $6,600, and total equity of $11,700. What is the common-size percentage for the net fixed assets?

39.19%

Downtown Computer has sales of $521,000, a profit margin of 14.8 percent, a total asset turnover rate of 2.16, and an equity multiplier of 1.30. What is the return on equity?

41.56%

The balance sheet of a firm shows beginning net fixed assets of $348,200 and ending net fixed assets of $371,920. The depreciation expense for the year is $46,080 and the interest expense is $11,460. What is the amount of the net capital spending? Note: Do note include any symbols with your answers (e.g. $ or a comma).

69,800 ( (371,920-348,200)+46,080 )

The Soccer Shoppe has a 9 percent return on assets and a 25 percent payout ratio. What is its internal growth rate?

7.24%

Bonner Automotive has shareholders' equity of $218,700. The firm owes a total of $141,000 of which 40 percent is payable within the next year. The firm has net fixed assets of $209,800. What is the amount of the net working capital?

93,500

All else equal, which one of the following will increase the internal growth rate? A decrease in the retention ratio A decrease in total assets A decrease in net income An increase in the dividend payout ratio

A decrease in total assets

The cash coverage ratio is used to evaluate the: Length of time that a firm can pay its bills if no additional cash becomes available Speed at which a firm generates cash Short-run liquidity of a firm Ability of a firm to pay the interest on its debt

Ability of a firm to pay the interest on its debt

A conflict of interest between shareholders and management.

Agency Problem

Which one of the following terms is defined as a conflict of interest between the corporate shareholders and the corporate managers? Limited Liability Bylaws Financial Distress Agency Problem

Agency Problem

Which one of the following is most apt to align management's priorities with shareholders' interests? Compensating managers with shares of stock that must be held for three years before the shares can be sold Allowing employees to retire early with full retirement benefits Increasing the number of paid holidays that long-term employees are entitled to receive Separating management from ownership

Compensating managers with shares of stock that must be held for three years before the shares can be sold

Which type of business organization has all the respective rights and privileges of a legal person? Corporation Limited Partnership Limited liability company Sole proprietorship

Corporation

Which one of the following is a use of cash? Increase in long term debt Decrease in inventory Decrease in accounts payable Decrease in accounts receivables

Decrease in accounts payable

An increase in current liabilities will have which one of the following effects, all else held constant? Assume all ratios have positive values. Increase in the current ratio Decrease in the quick ratio Increase in the cash ratio Increase in the net working capital to total assets ratio

Decrease in the quick ratio

For a tax-paying firm, an increase in _____ will cause the cash flow from assets to increase. Change in net working capital Depreciation expense Net capital spending Tax expense

Depreciation expense

Which one of the following is a working capital management decision? Determining the amount of equipment needed to complete a job Determining whether to pay cash for a purchase or use the credit offered by the supplier Determining the amount of long-term debt required to complete a project Determining whether or not an investment project should be accepted

Determining whether to pay cash for a purchase or use the credit offered by the supplier

Cash flow to stockholders is defined as Cash flow from assets plus cash flow to creditors Net income minus the addition to retained earnings Dividends paid minus net new equity raised Dividends paid plus the change in retained earnings

Dividends paid minus net new equity raised

Which one of the following accurately describes the three parts of the DuPont identity? Financial leverage, operating efficiency, and profitability ratio. Equity multiplier, profit margin, and total asset turnover. Return on assets, profit margin, and equity multiplier. Operating efficiency, equity multiplier, and profitability ratio.

Equity multiplier, profit margin, and total asset turnover.

Which one of the following is a capital structure decision? Establishing the preferred debt-equity level Setting the terms of sale for credit sales Determining the optimal inventory level Selecting new equipment to purchase

Establishing the preferred debt-equity level

A business formed by two or more individuals who each have unlimited liability for all of the firm's business debts is called a: Sole proprietorship Limited partnership Corporation General partnership

General Partnership

If a firm produces a 13 percent return on assets and also a 13 percent return on equity, then the firm: Is using its assets as efficiently as possible. Has a debt-equity ratio of 1.0. Has an equity multiplier of 1.0. Has no net working capital.

Has an equity multiplier of 1.0.

Which of the following are expenses for accounting purposes but are not operating cash flows for financial purposes? I. Interest expense II. Tax expense III. Cost of goods sold (COGS) IV. Depreciation expense

I and IV only

Maria is the sole proprietor of an antique store that she has operated at the same location for the past 16 years. The store rents the space in which it is located but does own all of the inventory and fixtures. The store has an outstanding loan with the local bank but no other debt obligations. There are no specific loan covenants or assets pledged as security for the loan. Due to a sudden and unexpected downturn in the economy, the store is unable to generate sufficient funds to pay the loan payments due to the bank. Which of the following options does the bank have to collect the money it is owed? I. Sell the inventory and use the cash raised to apply to the debt II. Sell the store fixtures and use the cash raised to apply to the debt III. Take funds from Maria's personal account at the bank to pay the store's debt IV. Sell any assets Maria personally owns and apply the proceeds to the store's debt

I, II, III, and IV only

Fanny Rose Candy Shop reduced its fixed assets this year without affecting the shop's operations, sales, or equity. This reduction will increase which of the following ratios? I. Interval measure II. Return on assets III. Total asset turnover IV. Return on equity

II and III Only

Which one of the following is the financial statement that summarizes a firm's revenue and expenses over a period of time? Balance sheet Statement of cash flows Statement of free cash flows Income statement

Income statement

Which one of the following actions by a financial manager is most apt to create an agency problem? Increasing current profits when doing so lowers the value of the firm's equity. Refusing to lower selling prices if doing so will reduce the net profits. Refusing to borrow money when doing so will create losses for the firm. Agreeing to pay bonuses based on the market value of the company stock rather than on the firm's level of sales.

Increasing current profits when doing so lowers the value of the firm's equity.

Which one of the following is included in net working capital? Dividends Land Depreciation Inventory

Inventory

Why do accountants include depreciation expense in their calculation of net income despite the fact that no cash actually leaves the firm? It increases net fixed assets It is an adjustment for the effects of accrual accounting It helps lower the firms taxes It decreases net working capital

It helps lower the firms taxes

Which one of the following best states the primary goal of financial management? Maximize current dividends per share Minimize operational costs while maximizing the firms revenues Maximize the current market value per share Increase cash flow and avoid financial distress

Maximize the current market value per share

Which one of the following is included in the market value of a firm but not in the book value? Raw materials Reputation of the firm Value of a partially depreciated machine Partially built inventory

Reputation of the firm

Which one of the following statements concerning a sole proprietorship is correct? There are very few sole proprietorships remaining in the US today A sole proprietorship is designed to protect the personal assets of the owner The owner of a sole proprietorship is personally responsible for all of the company's debts The profits of a sole proprietorship are subject to double taxation

The owner of a sole proprietorship is personally responsible for all of the company's debts

The plowback ratio is: Equal to net income divided by the change in total equity. The dollar increase in net income divided by the dollar increase in sales. The percentage of net income available to the firm to fund future growth. The change in retained earnings divided by the dividends paid.

The percentage of net income available to the firm to fund future growth.