Exam 1 Review - FINAN

If a firm has a debt-equity ratio of 1.0, then its total debt ratio must be which one of the following?

.5

Duke's Garage has cash of $68, accounts receivable of $142, accounts payable of $235, an inventory of $318. What is the value of the quick ratio?

.89 68+142/235=.89

The ___________ tax rate is equal to total taxes divided by the total taxable income.

Average

According to the Statement of Cash Flows, an increase in inventory will _____ the cash flow from _____ activities.

Decrease, operating

Reliable Cars has sales of $807,200, total assets of $1,105,100 and a profit margin of 9.68 percent. The firm has a total debt ratio of 64 percent. What is the return on equity?

19.64 % (807,200 x .0968)/(1105100 x .36)=19.64

A firm has $680 in inventory, $2,140 in fixed assets, $210 in accounts receivables, $250 in accounts payable, and $80 in cash. What is the amount of the net working capital?

720

RTF Oil has total sales of $911,400 and costs of $787,300. Depreciation is $52,600 and the tax rate is 34 percent. The firm does not have any interest expense. What is the operating cash flow?

99,790

Which one of the following is a capital structure decision?

Determining how much debt should be assumed to fund a project.

Which of the following is a capital structure decision?

Determining how much inventory will be needed to support a project.

A firm has total debt of $4850 and a debt-equity of .57. What is the value of the total assets?

$13,358.77 4850 + 4850/0.57=$13,358.77

Your firm has total assets of $4,900, fixed assets of $3,200, long-term debt of $2,900, and short-term of $1,400. What is the amount of net working capital?

$300 (4900-3200)=1700 1700-1400=300

Winston Industries had sales of $843,800 and costs of $609,900. The firm paid $38,200 in interest and $18,000 in dividends. It also increased retained earnings by $62,138 for the year. The depreciation was $76,400. What is the average tax rate?

32.83 % Earnings before taxes = $843,800 - 609,900 - 76,400 - 38,200 = $119,300 Net income = $18,000 + 62,138 = $80,138 Taxes = $119,300 - 80,138 = $39,162 Tax rate = $39,162 / $119,300 = .3283, or 32.83 percent

An increase in current liabilities will have which one of the following effects, all else held constant? Assume all ratios have positive values.

Decrease in the quick ratio

An increase in which one of the following will increase a firm's quick ratio without affecting its cash ratio?

Accounts Receivable

Which one of the following is a source of cash?

Acqusition of debt

The cash flow of a firm that is available for distribution to the firm's creditors and stockholders is called the:

Cash flow from assets

Which one of the following best states the primary goal of financial management?

Maximize the current value per share.

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

General Partnership

Which one of the following is an agency cost?

Hiring outside accountants to audit the company's financial statements

An increase in which of the following will increase the return on equity, all else constant I. Total asset turnover. II. Net income. III. Total assets. IV. Debt-equity ratio.

I, ll, lV

Which of the following represent cash outflows from a corporation? I. Issuance of securities. II. Payment of dividends. III. New loan proceeds. IV. Payment of government taxes.

II and IV only

A business partner whose potential financial loss in the partnership will not exceed his or her investment in that partnership is called a:

Limited Partner

The cash coverage ratio directly measures the ability of a firm to meet which one of its following obligations?

Payment of interest to a lender

Which one of the following is classified as a tangible fixed asset?

Production Equipment

Shareholders' equity:

Represents the residual value of a firm

Shareholder A sold 500 shares of ABC stock on the New York Stock Exchange. This transaction:

Was facilitated in the secondary market

Drive-Up has sales of $31.4 million, total assets of $27.6 million, and total debt of 6) $14.9 million. The profit margin is 3.7 percent. What is the return on equity?

(0.037 x $31.4m)/(27.6m - 14.9m) = 9.15

Duke's Garage has cash of $68, accounts receivable of $142, accounts payable of $235, and inventory of $318. What is the value of the quick ratio?

(68+142)/235= .89

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

Net cash flow from the firm

During the year, Al's Tools decreased its accounts receivable by $160, increased its 7) inventory by $115, and decreased its accounts payable by $70. How did these three accounts affect the firm's cash flows for the year?

Net use of cash of $25

The Lakeside Inn had operating cash flow of $48,450. Depreciation was $6,700 and 8) interest paid was $2,480. A net total of $2,620 was paid on long-term debt. The firm spent $24,000 on fixed assets and decreased net working capital by $1,330. What is the amount of the cash flow to stockholders?

Remember the relationship equation OCF - NCS - NWC = CFFA = CFTC + CFTS OCF and NWC were given. NCS = $24,000 Therefor, CFFA = $48,450 - $24,000 - (- $1330) = $25,700 Then calculate CFTC CFTC = Interest Paid - Net New Borrowing CFTC = $2,480 - ( - $2,620) = $5,100 Then plug everything back into the original equation CFFA = CFTC + CFTS CFFA - CFTC = CFTS $25, 780 - $5,100 = $20,680 = CFTS

Which one of the following is a primary market transaction?

Sale of a new share of stock to an individual investor