Fin 2150

Kroeger Exporters has total assets of $74,300, net working capital of $22,900, owners' equity of $38,600, and long-term debt of $23,900. What is the value of the current assets?

$34,700

Assume that a firm issues a six-month note to purchase inventory. Which of the following is true if the current ratio before the purchase is 1.0?

The firm's quick ratio might decrease.

Which one of the following statements concerning the market and book values is correct?

The market value tends to provide a better guide to the actual worth of an asset than does the book value

Financial ratios are often reported by industry or line of business because differences in the type of business can make ratio comparisons uninformative or even misleading.

True

Financial ratios are used by managers inside the company and by lenders, credit-rating agencies, and investors outside of the company.

True

Giving the company's CEO stock options as part of his or her compensation package is an example of an agency cost.

True

Shareholder wealth maximization means maximizing the price of the existing common stock

True

The root cause of agency problems is conflicts of interest

True

The sole proprietorship has no legal business structure separate from its owner

True

Lester's BBQ has $121000 in current assets and $109000 in current liabilities. These values are referred to as the firm's:

Working capital

In order to reduce agency problems, managers may be provided compensation that includes

an option to buy the company's stock

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

only on the principal amount originally invested

Which of the following are advantages of the corporate form of organization?

-Ability to raise large sums of equity capital -Ease of ownership transfer -Limited liability for all owners

Which of the following will increase the future value of a lump sum investment?

-Increasing the interest rate -Increasing the time period

The Walker Corporation has current assets of $15,000, inventories of $7,000, and a current ratio of 2.5. What i the Walker corporation's quick or acid test ratio?

1.33

All of the following statements about agency problems are true EXCEPT

Agency costs are paid by the managers who do not act in the shareholders' best interest.

Which one of the following statements is true concerning annuities?

All else, equal, an increase in the discount rate decreases the present value and increases the future value of an annuity.

Capital budgeting includes the evaluation of which of the following?

Size, timing, and risk of future cash flows

We use which two terms interchangeably?

Earnings before interest and taxes (EBIT) and operating income

Which one of the following is a capital structure decision?

Establishing the preferred debt-equity level

Changes in depreciation expense do not affect operating income because depreciation is a non-cash expense.

False

The more debt a company uses to finance its assets, the lower will be its operating income due to higher interest expense.

False

Why is the acid-test or quick ratio considered to be a more refined measure of liquidity?

Inventory is not included in the numerator of the acid-test or quick ratio because inventory is generally the least liquid of the firm's current assets.

Which of the following goals of the firm are synonymous to the maximization of shareholder wealth?

Maximization of the total market value of the firm's common stock

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