Fin 3010 Exam 1

Echo Point has sales of $2,800, total assets of $1,900, and a debt-equity ratio of .5. Its return on equity is 15 percent. What is the net income?

$190

Which one of the following is a source of cash?

Acquisition of debt

For a corporation that earned positive taxable income, which one of the following statements is correct?

An increase in depreciation expense will increase the operating cash flow.

On a common-base year financial statement, inventory for the current year will be expressed relative to which one of the following?

Base-year inventory

Which one of the following standardizes items on the income statement and balance sheet relative to their values as of a chosen point in time?

Common-base year statement

Which form of business would be the best choice if it were necessary to raise large amounts of capital?

Corporation

Which one of the following statements regarding corporations is correct?

Corporations can have an unlimited life.

A firm's liquidity is measured with which one of the following ratios?

Current ratio

On the statement of cash flows, which one of the following is considered an operating activity?

Decrease in accounts payable

Which one of the following questions is least likely to be addressed by financial managers?

In which region of the country should a new product be launched?

Which one of the following statements related to an income statement is correct?

Income taxes reduce both net income and operating cash flow.

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

Maximize the current value per share

Which one of the following is the financial statement that shows the accounting value of a firm's equity as of a particular date?

balance sheet

The cash flow related to interest payments less any net new borrowing is called the:

cash flow to creditors

Net working capital is defined as:

current assets minus current liabilities

Corporate bylaws:

determine how a corporation regulates itself.

Which one of the following statements related to liquidity is correct?

liquid assets are valuable to a firm

As the degree of financial leverage increases, the:

probability a firm will encounter financial distress increases

The sources and uses of cash over a stated period of time are reflected on the:

statement of cash flows.

Cookies by Casey has sales of $487,000 with costs of $263,000. Interest expense is $26,000 and depreciation is $42,000. The tax rate is 21 percent. What is the net income?

$123,240

Boutique Marketing has total debt of $4,910 and a debt-equity ratio of .52. What is the value of the total assets?

$14,352.31

Herrera Corporation has total sales of $3,110,400 and costs of $2,776,000. Depreciation is $258,000 and the tax rate is 21 percent. The firm is all-equity financed. What is the operating cash flow?

$318,356

Pham Burgers has beginning net fixed assets of $684,218, ending net fixed assets of $679,426, and depreciation expense of $48,859. What is the net capital spending for the year if the tax rate is 21 percent?

$44,067

Which one of the following represents the most liquid asset?

$500 worth of inventory that is sold today for $500 in cash

Mikeska Equipment Repair has net working capital of $560. Long-term debt is $3,970, total assets are $7,390, and fixed assets are $3,910. What is the amount of the total liabilities?

$6,890

The Somerville Corporation has cost of goods sold of $11,518, interest expense of $315, dividends of $420, depreciation of $811, and a change in retained earnings of $296. What is the taxable income given a tax rate of 21 percent?

$906.33

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

0.5

Coulter Supply has a total debt ratio of .46. What is the equity multiplier?

1.85

Custom Framing has a net profit margin of 5.6 percent, a return on assets of 12.5 percent, and an equity multiplier of 1.49. What is the return on equity?

18.63%

Anytime Coffee has 160,000 shares of stock outstanding, sales of $1.94 million, net income of $126,400, a price-earnings ratio of 21.3, and a book value per share of $7.92. What is the market-to-book ratio?

2.12

Which one of the following is a use of cash?

Decrease in accounts payable

Which one of the following is a disadvantage of the corporate form of business?

Distributed profits may experience double taxation.

Which one of the following accurately lists the three components of the DuPont identity?

Equity multiplier, net profit margin, and total asset turnover

Which one of the following statements is correct?

Historical information is useful when projecting a company's future performance.

Which one of the following is an expense for accounting purposes, but is not an operating cash flow for financial purposes?

Interest expense

Which one of the following is a primary market transaction?

Sale of a new share of stock from a corporation to an individual investor

Which one of the following questions involves a capital budgeting decision?

Should the firm purchase a new machine for the production line?

Which one of the following involves a working capital management decision?

What is the maximum level of cash to be kept in the firm's bank account?

Which one of the following accounts is the most liquid?

accounts receivable

Corporate dividends represent:

aftertax income from the corporation which becomes taxable income for the recipient.

Which one of the following is a current liability?

an invoice payable to a supplier in 45 days

Deciding which long-term investment a firm should make is a ______ decision.

capital budgeting

Determining the number of shares of stock to issue is an example of a ______ decision.

capital structure

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

cash flow from assets

All other things beings equal, and assuming all ratios have positive values, an increase in current liabilities will:

decrease the quick ratio.

Which one of the following is classified as a current asset?

inventory

Eduardo sold 500 shares of Northcutt Corporation stock on the New York Stock Exchange. This transaction:

occurred in the secondary market.

The cash flow that results from a company's ongoing, normal business activities is called:

operating cash flow

A common-size income statement is an accounting statement that expresses all of a firm's expenses as a percentage of:

sales

Ultimately, the ______ control(s) the corporation.

shareholders

A firm owned by a single person who has unlimited liability for the firm's debt is called a:

sole proprietorship

Dominic's Custom Draperies has a fixed asset turnover rate of 1.13 and a total asset turnover rate of .94. Its competitor, Window Fashions, has a fixed asset turnover rate of 1.26 and a total asset turnover rate of .91. Both companies have similar operations. Based on this information, Dominic's must be _____ than Window Fashions.

utilizing its total assets more efficiently

Which one of the following would cause a cash outflow from a corporation?

Paying dividends

Which of the following actions would be most likely to decrease agency costs for the firm?

Reward high performing employees with shares of stock

Cash flow to stockholders is defined as:

dividend payments less net new equity raised.

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

general partnership.

Hulsey Outdoor had a return on assets of 15 percent and a return on equity of 15 percent. Given this information, the firm:

has an equity multiplier of 1.0.

Which one of the following financial statements summarizes a firm's revenue and expenses during a period of time?

income statement

The Sarbanes-Oxley Act of 2002 holds a public company's ______ responsible for the accuracy of the company's financial statements.

managers

The ______ tax rate is the percentage of the last dollar you earned that must be paid in taxes.

marginal

A firm's ______ is the firm's mix of short-term assets and short-term liabilities.

net working capital

Which one of the following is excluded from a firm's accounting value, but included in its market value?

recognition of the firm's brand

shareholders' equity

represents the residual value of a firm

You recently purchased a restaurant that had equal market and book values. The purchase included the building, fixtures, and inventory. Which one of the following would be most likely to cause the market value of the restaurant to fall below its book value?

A pandemic that required restaurants to limit the number customers allowed inside

Which one of the following questions is a working capital management decision?

How much inventory should the company keep on hand?

The DuPont identity can be used to help managers answer which of the following questions related to a company's operations? I. How many sales dollars are being generated per each dollar of assets? II. How many dollars of assets have been acquired per each dollar in shareholders' equity? III. How much net profit is being generated per dollar of sales? IV. Does the company have the ability to meet its debt obligations in a timely manner?

I, II, and III only

During the year, Manbeck Gardens decreased its accounts receivable by $160, increased its inventory by $115, and decreased its accounts payable by $70. How did these three accounts affect the sources or uses of cash by the firm?

Net use of cash of $25

Which one of the following is a cash flow from a corporation into the financial markets?

Payment of loan interest

A positive cash flow to stockholders indicates which one of the following with certainty?

The dividends paid exceeded the net new equity raised.

Hamner Time has sales of $122,000, costs of $54,600, depreciation of $32,800, interest of $12,000, and a tax rate of 21 percent. The firm has total assets of $422,900, long-term debt of $146,800, and current liabilities of $65,200. What is the return on equity?

8.47%

Total income taxes divided by total taxable income equals the ______ tax rate.

average

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

computer equipment

A ______ has all the respective rights and privileges of a legal person.

corporation

Agency problems are most likely to be associated with:

corporations

For the past year, Zhao Events had taxable income of $198,600, beginning common stock of $68,000, beginning retained earnings of $318,750, ending common stock of $71,500, ending retained earnings of $316,940, interest expense of $11,300, and a tax rate of 21 percent. What is the amount of dividends paid during the year?

$158,704

The balance sheet of Perez Printing shows $680 in inventory, $2,140 in fixed assets, $210 in accounts receivables, $250 in accounts payable, and $80 in cash. How much net working capital does the company have?

$720

The relationship between the return on assets and the return on equity is identified by the:

DuPont identity.

Which one of the following questions involves a capital structure decision?

How much debt should the firm incur to fund a project?