FIN 3716 TEST 1

Consider the above statement of cash flows. If all amounts shown above are in millions of dollars, what were AOS Industries' retained earnings for 2008? A) $5.2 million B) $2.2 million C) $4.4 million D) $3.1 million

B) $2.2 million

Use the figure for the question(s) below. Using the above information, how much would you pay for a share of BHP Billiton stock? A) $41.91 B) $41.93 C) $41.65 D) $41.59

B) $41.93

Use the figure below for the question (s) below. Using the above information, how much would you receive if you sold a share of Washington Post stock? A) $683.00 B) $677.62 C) $678.50 D) $677.64

B) $677.62

Which of the following is a major duty of a financial manager? I. To make investment decisions II. To make financing decisions III. To manage cash flow from operating activities A) I only B) I and II only C) I and III only D) all of the above

D) All of the above

Convex Industries has inventories of $218 million, current assets of $1.4 billion, and current liabilities of $504 million. What is its quick ratio? A) 1.17 B) 0.94 C) 2.81 D) 2.35

D) 2.35

Consider the above statement of cash flows. Which of the following is true of AOS Industries' operating cash flows? A) It collected more cash from its customers than it charged. B) It sold more inventory than it bought. C) It charged more on its accounts payable back than it paid back. D) All of the above are true.

D) All of above are true.

A firm's statement of cash flows uses the balance sheet and the income statement to determine the amount of cash a firm has generated and how it has used that cash during a given period. True/False?

True.

Corporations have come to dominate the business world through their ability to raise large amounts of capital by sale of ownership shares to anonymous outside investors. True/False?

True.

Costs and benefits must be put in common terms if they are to be compared. True/False?

True.

In general, a successful firm will have a market-to-book ratio that is substantially greater than 1. True/False?

True.

In general, if an action increases a firm's value by providing benefits with a value greater than any costs involved, then that action is good for the firm's investors. True/False?

True.

Price-earnings ratios tend to be high for fast-growing firms. True/False?

True.

Stock markets provide liquidity for a firm's shares. True/False?

True.

Stockholders' equity is the difference between a firm's assets and liabilities, as shown on the balance sheet. True/False?

True.

The Valuation Principle shows how to make the costs and benefits of a decision comparable so that we can evaluate them properly. True/False?

True.

The income statement reports the firm's revenues and expenses, and it computes the firm's bottom line of net income, or earnings. True/False?

True.

The principal goal of a financial manager is to maximize the wealth of the stockholders. True/False?

True.

Whenever a good trades in a competitive market, the price determines the value of the good. True/False?

True.

A 30-year mortgage loan is a ____________. A) long-term liability B) current liability C) current asset D) long-term asset

A) long-term liability

A sole proprietorship is owned by _________. A) one person B) two or more persons C) shareholders D) bankers

A) one person

[ 2.8: financial reporting in practice! ]

*da lord is ur source keep going okie baboo heh

[ 2.6: the statement of cash flows! ]

*do not lose heart! keep going :D

[ chapter 3: time value of money: an introduction! ]

*keep on keeping on baboo!!!!

[ 2.5: income statement analysis! ]

*keep on keeping on hunny bunny, u've got this hehe. <3

[ 2.7: other financial statement information ]

*u got dis :D u got dis :D u got dis :D

[ 3.1: cost-benefit analysis ]

*u got dis okie.

[ 2.3: balance sheet analysis! ]

*you've got this :)

[ 2.2: the balance sheet! ]

*you've got this baboo, you really do!

[ 2.4: the income statement ]

*you've got this ban ban :D

[ 1.3: the financial manager ]

*you've got this!

[ 1.4: the financial manager's place in the corporation! ]

*you've got this!

[ 1.5: the stock market! ]

*you've got this!

[ 1.6: financial institutions! ]

*you've got this!

[ ch 1.1: why study finance ]

*you've got this!

[ ch2: introduction to financial statement analysis! ]

*you've got this!

[1.2: the 4 types of firms ]

*you've got this!

[ 2.1: firms' disclosure of financial information ]

*you've really got this hunny bunny :D

State the names of some firms discussed in the chapter that had inaccurate reporting in their financial statements. A: Enron, WorldCom

..

What is the most common type of firms in the United States and the world? A) sole proprietorships B) partnerships C) limited partnerships D) corporations

A) sole proprietorships (think of Brynn's mimi's jewelry shop! haha)

Over four-fifths of all U.S. business revenue is generated by which type of firms? A) sole proprietorships B) partnerships C) limited partnerships D) corporations

D) corporations

An S corporation earns $6.00 per share before taxes. The corporation tax is 35%, the personal tax rate on dividends is 20%, and the personal tax rate on non-dividend income is 39%. What is the total amount of taxes paid if the company pays a $2.00 dividend? A) $1.87 B) $2.81 C) $3.28 D) $2.34

$2.34

According to the text, did Enron and WorldCom follow Generally Accepted Accounting Principles (GAAP) in their financial reporting process? A: Many of the problems of Enron and WorldCom were kept hidden from boards and shareholders, until it was too late. People felt that the accounting statements of these companies, while often remaining true to the letter of GAAP, did not present an accurate picture of the financial health of the company.

...

Briefly discuss the issues in the agency conflict problem. A: The agency conflict problem arises out of the principal-agent relationship existing between the shareholders and managers of a corporation. Although managers are required to put the shareholders interest ahead of their own, in practice they tend to put their own interest ahead of the shareholders' interests.

...

Explain some of the measures taken to reduce the agency conflict problem. A: The agency conflict problem can be reduced by taking measures that align the managers interest with those of the shareholders. For example, incentive-based compensation, such as employee stock options, helps align the interests of these two constituents.

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How can we cross check the statement of cash flows? A: The last item in the statement of cash flows should equal the difference in cash balances between two adjacent balance sheets.

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How does a firm select the date for preparation of its balance sheet? A: The balance sheet is prepared on the fiscal closing date for the accounts of a firm that may or may not coincide with the calendar year-end of December 31st.

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How does a firm select the dates for preparation of its income statement? A: The income statement is prepared on the fiscal closing date for the accounts of a firm that may or may not coincide with the calendar year-end of December 31st. Typically the income statement spans the flow between two adjacent balance sheets.

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How is a corporation different from most of the other forms of business organizations? A: A corporation has a separate legal identity from those of its owners. This separation gives the owners limited liability for the actions of the corporation. The down side is the process of double taxation for each dollar earned by the corporation, once when it is earned by the corporation and subsequently when it is passed on to the owners.

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Refer to the balance sheet above. If on December 31, 2005 Luther has 8 million shares outstanding at $15 per share, then what is Luther's enterprise value? A: Enterprise value = $276.90

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Refer to the partial balance sheet above. If on December 31, 2005 Luther has 8 million shares outstanding trading at $15 per share, then what is Luther's market-to-book ratio? A: Market-to-book = Market value of equity / Book value of equity Market-to-book = 8 million x $15 / $63.6 = 1.89

...

What are the four financial statements that all public companies must produce? A: 1. balance sheet 2. income statement 3. statement of cash flows 4. statement of stockholders' equity

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What are the main differences between a limited partnership and a limited liability corporation? A: A limited partnership is required to have at least one general partner. A limited liability corporation is similar to a limited partnership but without the general partner.

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What are the main differences between a partnership and a sole proprietorship? A: While a sole proprietor has the same identity as its single owner, a partnership of general partners has the same identity as its partners. Each general partner is responsible for the decisions taken by that partner as well as any other general partner.

...

What are the main differences between the NYSE and NASDAQ stock markets? A: The NYSE has a physical location, a geographic address where traders gather to trade, but NASDAQ is an electronic market. Moreover, while the NYSE has one specialist in each stock, NASDAW has multiple market makers serving the functions fo both matching buyers and sellers and trading on their own account.

...

What are the terms for the 2 types of prices quoted for a stock on an exchange? A: The two quotes associated with a stock quoted on the exchange are bid price and ask price.

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What is the general relation of the two types of prices quoted for a stock on an exchange? A: The two prices are bid price and ask price. The ask price is higher than the bid price to deter a buyer from buying a stock and selling it back immediately, assuming everything else remains unchanged.

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What is the need for the notes to the financial statements when a firm's operations are already documented in the financial statements? A: Not all actions of the firm can be directly converted to an entry on the financial statements. For example, the firm may be involved in off balance sheet transactions, which have to be reported through notes to the financial statements.

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What is the principal guiding factor for the financial manager of a firm? A: Maximizing stockholder wealth is the paramount guiding factor for a firm's financial manager.

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What is the role of an auditor in financial statement analysis? Key points: 1) to ensure that the annual financial statements are prepared accurately 2) to ensure that the annual financial statements are prepared according to Generally Accepted Accounting Principles (GAAP) 3) to verify that the information used in preparing the annual financial statements is reliable

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What is the term for the applicable price that I will pay, if I have to buy a stock? A: The buyer of a stock pays the ASK price when he buys the stock. (Buyer, Ask -- BA)

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What is the term for the applicable price that the seller gets when he sells a stock on the exchange? A: The seller gets the BID price when he sells a stock on the exchange. (Seller, Bid -- SB)

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What role do external auditors play in a firm's financial reporting process? A: As the name implies, external auditors act as third party monitors to a firm's financial reporting process.

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What role does Generally Accepted Accounting Principles (GAAP) play in the accounting process? A: All firms quotes on a U.S. exchange are required to use GAAP in their financial reporting process. This standardization process makes it easier to adjust and/or compare the financial figures across different firms.

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What will be the effect of the balance sheet if a firm buys a new processing plant through a new loan? A: The Assets side will increase under Net property, plant, and equipment with the net effect of the new processing plant, while the Liabilities side will correspondingly show the new debt that was incurred in paying for the plant.

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What will be the effect on the income statement if a firm buys a new processing plant through a new loan? A: The effect on the income statement will be in the form of a depreciation expense for the first year on the new processing plant.

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What will be the effect on the statement of cash flows if a firm buys a new processing plant through a new loan? A: The new loan entry should show as a cash inflow for the firm, while the payment for the new processing plant will be entered as a cash outflow. (inflow bc the loan brought money IN, outflow when we paid for it!)

...

Which of the following would be more typically the responsibility of a controller rather than a treasurer? A) overseeing accounting and tax functions B) capital budgeting C) managing credit D) making investment decisions

A) overseeing accounting and tax functions

Consider the above Income Statement for Xenon Manufacturing. All values are in millions of dollars. If Xenon Manufacturing has 20 million shares outstanding, what is its EPS in 2008? A) $0.50 B) $0.25 C) $0.40 D) $0.60

A) $0.50

Valiant Corp. is a C corporation that earned $3.4 per share before it paid any taxes. Valiant Corp. retained $1 of after-tax earnings reinvestment and distributed what remained in dividend payments. If the corporate tax rate was 35% and dividend earnings were taxed at 12.5%, what was the value of the dividend earnings received after-tax by a holder of 100,000 shares of Valiant Corp.? A) $105,875 B) $127,050 C) $148,225 D) $84,700

A) $105,875

Refer to the balance sheet above. What is Luther's net working capital in 2006? A) $16.8 million B) $296.0 million C) $33.6 million D) $8.4 million

A) $16.8 million

Use the figure for the question(s) below. How much money would a stock exchange make from buying and selling 500 shares of the stock under the conditions shown above? A) $250 B) $3,000 C) $5,875 D) $210,375

A) $250

An S corporation earns $9.10 per share before taxes. The corporate tax rate is 39%, the personal tax rate on dividends is 15%, and the personal tax rate on non-dividend income is 36%. What is the total amount of taxes paid if the company pays a $5.00 dividend? A) $3.28 B) $3.93 C) $2.62 D) $4.59

A) $3.28

In 2009, an agricultural company introduced a new cropping process which reduced the cost of growing some of its crops. If sales in 2008 and 2009 were steady at $30 million, but the gross margin increased from 2.8% to 3.9% between those years, by what amount was the cost of sales reduced? A) $330,000 B) $660,000 C) $264,000 D) $462,000

A) $330,000

The above diagram shows a balance sheet for a certain company. If the company buys new property, plant and equipment today using its entire cash balance, what will its net working capital be? A) -$12 million B) $12 million C) -$24 million D) $24 million

A) -$12 million

Refer to the balance sheet above. Luther's quick ratio for 2006 is closest to ___________. A) 0.87 B) 1.75 C) 0.88 D) 1.31

A) 0.87

Manufacturer A has a profit margin of 2.2%, an asset turnover of 1.7 and an equity multiplier of 5.0. Manufacturer B has a profit margin of 2.5%, an asset turnover of 1.2 and an equity multiplier of 4.7. How much asset turnover should manufacturer B have to match manufacturer A's ROE? A) 1.59% B) 3.18% C) 2.23% D) 1.27%

A) 1.59%

Refer to the income statement above. Luther's net profit margin for the year ending December 31, 2005 is closest to ___________. A) 11.61% B) 5.80% C) 9.28% D) 13.93%

A) 11.61%

Refer to the income statement above. Luther's return on assets (ROA) for the year ending December 31, 2005 is closest to ___________. A) 17.43% B) 34.86% C) 13.94% D) 1.99%

A) 17.43%

Which of the following types of firms does NOT have limited liability? A) sole proprietorships B) limited proprietorships C) corporations D) none of the above

A) sole propietorships

Which of the following would be best considered to be an agency conflict problem in the behavior of of the following financial managers? A) Bill chooses to pursue a risky investment for the company's funds because his compensation will substantially rise if it succeeds. B) Sue instructs her staff to skip safety inspections in one of the company's factories, knowing that it will likely fail the inspection and incur significant costs to fix. C) James ignores an opportunity for his company to invest in a new drug to fight Alzheimer's disease, judging the drug's chances of succeeding as low. D) Michael chooses to enhance his firm's reputation at some cost to its shareholders by sponsoring a team of athletes for the Olympics.

A) Bill chooses to pursue risky investment for the company's funds because his compensation will substantially rise if it succeeds.

Company A has current assets of $42 billion and current liabilities of $41 billion. Company B has current assets of $2.7 billion and current liabilities of $1.8 billion. Which of the following statements is correct, based on this information? A) Company A is less likely than Company B to have sufficient working capital to meet its short-term needs. B) Company A has greater leverage than Company B. C) Company A has less leverage than Company B. D) Company A and Company B have roughly equivalent enterprise values.

A) Company A is less likely than Company B to have sufficient working capital to meet its short-term needs.

Which of the stock markets listed below is the smallest, as judged by trading volume? A) Deutsche Borse B) London Stock Exchange C) NASDAQ D) NYSE Euronext (US)

A) Deutsche Borse

The balance sheet and income statement of a particular firm are shown above. What does the account receivable days ratio tell you about this company? A) It takes on average about 4 weeks to collect payment from its customers. B) It takes on average about 6 weeks to collect payment from its customers. C) It takes on average about 7 weeks to collect payment from its customers. D) It takes on average about 11 weeks to collect payment from its customers.

A) It takes on average about 4 weeks to collect payment from its customers.

A manufacturer of plastic bottles for the medical trade purchases a new compression blow molder for its bottle production plant. How will the cost to the company of this piece of equipment be recorded? A) It will de be depreciated over time on the income statement and subtracted as capital expenditure on the statement of cash flows. B) It will be depreciated over time on the income statement and subtracted as Inventory on the statement of cash flows. C) It will be depreciated over time on the income statement and therefore not be recorded separately on the statement of cash flows. D) It will be subtracted from Gross Profit on the income statement and therefore, not be recorded separately on the statement of cash flows.

A) It will be depreciated over time on the income statement and subtracted as a capital expenditure on the statement of cash flows.

On August 19, 2004 Goole IPO offered 19,605,052 shares at a price of U.S. price $85 per share, which were sold in an online auction in a bid to make the shares more widely available. Which of the following statements best describes why these are considered a primary market transaction? A) The transaction was between the corporation and investors. B) Shares of Google from this time onward could be traded between investors on a stock exchange. C) The shares were the first to be used privately issued by Google. D) Google was at the time recently founded company seeking capital with which to expand.

A) The transaction was between the corporation and investors.

A firm that provides tax services to the public intends to offer a premium tax-return service at a higher price than their current services. The managers of the company ask experts in marketing to determine how much an effective ad campaign for such a service would cost, and by how much sales would increase. They consult experts in economics to calculate the increases in revenue from the success of the campaign, experts in operations to determine the cost of offering the service, and experts in strategy to anticipate possible counter-moves by competitors. Which of the following points about the role of financial managers does this example illustrate? A) Real-world decisions are complex and require information from many sources if the decisions are to be valid. B) Determining the costs associated with making a decision is easier than determining the potential benefits of the decision. C) All of the costs and benefits associated with a decision can never be fully identified. D) Ultimately the decision whether to take a certain course of action rests with the financial managers of a company.

A) Real-world decisions are complex and require information from many sources if the decisions are to be valid.

A small company has current assets of $112,000 and current liabilities of $117,000. Which of the following statements about that company is most likely to be true? A) Since net working capital is negative, the company will not have enough funds to meet its obligations. B) Since net working capital is high, the company will likely have little difficulty meeting its obligations. C) Since net working capital is very high, the company will have ample money to invest after it meets it obligations. D) Since net working capital is nearly zero, the company is well run and will have little difficult attracting investors.

A) Since net working capital is negative, the company will not have enough funds to meet its obligations.

If the above balance sheet is for a retail company, what indications about this company would best be drawn from the changes in the balance sheet between 2007 and 2008? A) The company is having difficulties selling its products. B) The company has reduced its debt. C) The company has added a major new asset in terms of plant and equipment. D) The company has experienced a significant rise in its market value.

A) The company is having difficulties selling its product.

Which of the following is the LEAST likely explanation for a firm's high ROE? A) The firm is growing. B) The firm is able to find investment opportunities that are very profitable. C) The firm has very efficient use of its assets. D) The firm enjoys high sales margins.

A) The firm is growing.

Which of the following statements regarding the income statement is INCORRECT? A) The income statement shows the cash flows and expenses at a given point in time. B) The income statement shows the flow of revenues and expenses generated by a firm between two dates. C) The last or "bottom" line of the income statement shows a firm's net income. D) The first line of an income statement lists the revenues from the sales of products or services.

A) The income statement shows the cash flows and expenses at a given point in time.

What is the main problem in using a balance sheet to provide an accurate assessment of the value of a company's equity? A) Valuable assets such as the company's reputation, the quality of its work force, and the strength of its management are not captured on the balance sheet. B) The balance sheet does not accurately represent the book value of assets held by the company. C) The equity shown on the balance sheet does not reflect the market capitalization of the company. D) Knowing at a single point in time what assets a firm possesses and the liabilities a firm owes does not give any indication of what those assets can produce in the future.

A) Valuable assets such as the company's reputation, the quality of its work force, and the strength of its management are not captured on the balance sheet.

Which of the following firms would be expected to have a high ROE based on that firm's high profitability? A) a medical supply company that provides very precise instruments at a high price to large medical establishments such as hospitals B) a low-end retailer that has a low mark-up on all items it sells C) a brokerage firm that has high levels of leverage D) a grocery store chain that has very high turnover, selling many multiples of its assets per year

A) a medical supply company that provides very precise instruments at a high price to large medical establishments such as hospitals

What is the most common way that agency conflict problems are addressed in most corporations? A) by minimizing the number of decisions that a manager makes where there is a conflict between the managers interests and those of the shareholders B) by terminating the employment of employees who are found to have put their own interests above those of the company C) by using disinterested outside bodies to adjudicate between managers and shareholders when such conflicts arise D) by prosecuting managers who have been found to have illegally used company moneys for their own benefit

A) by minimizing the number of decisions that a manager makes where there is a conflict between the managers interests and those of the shareholders

A factor owners wants his workers to produce as many widgets as they can so he pays his workers based on how many widgets they produce. However, in order to make sure that the workers do not rush and produce a large number of poorly made widgets, he checks the widgets at random at various stages of their manufactures. If a defect is found in a widget, the pay of the entire section of the factory responsible for that defect is docked. How is this factory owner seeking to solve the agency conflict problem in this case? A) by supplying incentives so the agents act in the way principal desires B) by ensuring that all workers co-operate to maximize the gains of their section C) by making the agents into principals themselves D) by maximizing the information that the principal obtains about the behavior of the agents

A) by supplying incentives so the agents act in the way principal desires

Which ratio would you use to measure the financial health of a firm by assessing that firm's leverage? A) debt-equity or equity multiplier ratio B) market-to-book ratio C) market debt-equity ratio D) current or quick ratio

A) debt-equity or equity multiplier ratio

Which of the following is NOT an operating expense? A) interest expense B) depreciation and amortization C) selling, general, and administrative expenses D) research and development

A) interest expense

What is the bid-ask spread? A) the difference in price available for an immediate sale of a stock and the immediate purchase of the stock B) all of the costs and fees that a stock exchange charges in order to process a transaciton C) the rise or fall in the value of a stock between the time it is acquired by an investor and sold by that investor D) the difference in the selling price of a stock between different exchanges

A) the difference in price available for an immediate sale of a stock and the immediate purchase of the stock

Whose interest should a financial manager consider paramount when making a decision? A) the stockholders who have risked their money to become owners of the company B) the employees and associated stakeholders who are employed by the company C) the public who consume the company's goods and services D) the senior management and associated colleagues at the executive level within the company

A) the stockholders who have risked their money to become owners of the company

As an oil refiner, you are able to produce $77 worth of unleaded gasoline from one barrel of Alaska North Slope (ANS) crude oil. Because of its lower sulfur content, you can produce $78 worth of unleaded gasoline from one barrel of West Texas Intermediate (WTI) crude. Another oil refiner is offering to trade you 10,150 bbl of Alaska North Slope (ANS) crude oil for 10,000 bbl of West Texas Intermediate (WTI) crude oil. Assuming you currently have 10,000 bbl of WTI crude, the added benefit (cost) toyou if you take the trade is closest to __________. A) ($1550) B) $1550 C) ($3475) D) $3475

B) $1550

U.S. public companies are required to file their annual financial statements with the U.S. Securities and Exchange Commission on which form? A) 10-A B) 10-K C) 10-Q D) 10-SEC

B) !0-K

Refer to the income statement above. For the year ending December 31, 2006 Luther's earnings per share is closest to _________. A) $0.51 B) $1.03 C) $0.82 D) $1.23

B) $1.03

Helen owns 10.2% of the stock of Media Corporation. If Median makes a dividend payment of $25,000,000 paid proportionally to its shareholders, how much of this amount would Helen receive, disregarding tax? A) $3,060,000 B) $2,550,000 C) $3,570,000 D) $2,040,000

B) $2,550,000

Refer to the balance sheet above. Luther's current ratio for 2006 is closest to _____________. A) 1.67 B) 2.22 C) 0.56 D) 1.11

D) 1.11

As an oil refiner, you are able to produce $76 worth of unleaded gasoline from one barrel of Alaska North Slope (ANS) crude oil. Because of its lower sulfur content, you can produce $77 worth of unleaded gasoline from one barrel of West Texas Intermediate (WTI) crude. Assuming you just purchased 9950 bbl of WTI crude at the current market price, the total revenue (cost) to you if you were to refine this crude oil and sell the unleaded gasoline is closest to _________. A) ($766,150) B) $766, 150 C) ($770,032) D) $770,032

B) $766,150

Refer to the balance sheet above. If in 2006 Luther has 10.2 million shares outstanding and these shares trading at $16 per share, then using the market value of equity, the debt-equity ratio for Luther in 2006 is closes to _________. A) 3.45 B) 1.72 C) 0.86 D) 2.41

B) 1.72

Refer to the balance sheet above. When using the book value of equity, the debt-equity ratio for Luther in 2006 is closest to ______________. A) 4.51 B) 2.25 C) 1.13 D) 3.16

B) 2.25

Use the figure for the question(s) below. What is the bid-ask spread on the stock shown above? A) 1 cent B) 3 cents C) 6 cents D) 12 cents

B) 3 cents

Use the figure for the question(s) below. Based on the infomratin show above, how much would you receive from selling 2,000 shares of the above stock? A) 40,840 B) 40,740 C) 41,000 D) 42,560

B) 40,740

The above date is for four regional trucking firms. Based on price-earnings ratios, which firm's stock is the best value? A) Firm A B) Firm B C) Firm C D) Firm D

B) Firm B

Above are portions of the balance sheet and income statement for two companies in 2008. Based upon this information, which of the following statements is most likely to be true? A) Asset turnover ratios indicate that firm A is generating greater revenue per dollar of assets than firm B. B) Fixed asset turnover ratios indicate that firm A generating fewer sales for the assets it employs than firm B. C) Both asset turnover ratios and fixed asset turnover ratios indicate that firm A is generating greater revenue per dollar of assets than firm B. D) Fixed asset turnover ratios indicate the firm A generating more sales for the assets it employees than firm B.

B) Fixed asset turnover ratios indicate the firm A generating fewer sales for the assets its employs than firm B.

Put the following steps of the financial cycle in the correct order. I. Money flows to companies who use it to fund growth through new products. II. People invest and save their money. III. Money flows back to savers and investors. A) I, II, and III B) II, I, III C) III, II, and I D) II, III, and I

B) II, I, and III

Why is the stock price of a company an indication of the performance of the company's senior managers? A) Well-run companies are invariably highly profitable, which leads to a higher share price. B) In general, people want to invest in a well-managed corporation, which will drive up the price of shares. C) Investors who can see that a company is well-run will hold on to their shares, even if the company faces setbacks, since they know that the stock price will likely rise again. D) Larger companies tend to be better run and so have higher stock prices.

B) In general, people want to invest in a well-managed corporation, which will drive up the price of shares.

Which of the following statements regarding the cost-benefit analysis is NOT correct? A) The first step in evaluating a project is to identify its costs and benefits. B) In the absence of competitive markets, we can use one-sided prices to determine exact cash values. C) Competitive market prices allow us to calculate the value of a decision without worrying about the tastes or opinions of the decision maker. D) Because competitive markets exist for most commodities and financial assets, we can use them to determine cash values and evaluate decisions in most situations.

B) In the absence of competitive markets, we can use one-sided prices to determine exact cash values.

A public company has a book value of $128 million. They have 20 million shares outstanding, with a market price of $4 per share. Which of the following statements is true regarding this company. A) Investors may consider this firm to be a growth company. B) Investors believe the company's assets are not likely to be profitable since its market value is worth less than its book value. C) The firm's market value is more than its book value. D) The value of the firm's assets is greater than their liquidation value.

B) Investors believe the company's assets are not likely to be profitable since its market value is worth less than its book value.

Which of the following is a way that the operating activity section of the statement of cash flows adjusted Net Income from the balance sheet? A) It subtracts all expenses and costs related to a firm's operating activities. B) It adds all non-cash entries related to a firm's operating activities. C) It adds the cash that flows from investors to a firm. D) It removes the cash used for investment purposes.

B) It adds all non-cash entries related to a firm's operating activities.

Allen Company bought a new copy machine to be depreciated straight line for three years for use by sales personnel. Where would this purchase be reflected on the Statement of Cash Flows? A) It would be an expense on the income statement so it would be reflected in operating cash flows. B) It would be an addition to property, plant and equipment so it would be an investing activity. C) It would an addition to cash so it would be reflected in the change in cash. D) None of the above answers is correct.

B) It would be an addition to property, plant and equipment so it would be an investing activity.

Consider the above statement of cash flows. In 2008, AOS Industries had contemplated buying a new warehouse for $3 million, the cost of which would be depreciated over 10 years. If AOS Industries has a tax rate of 25%, what would be the impact for the amount of cash held by AOS at the end of the 2008? A) It would have $3,000,000 less cash at the end of 2008. B) It would have $2,925,000 less cash at the end of 2008. C) It would have $1,500,000 less cash at the end of 2008. D) It would have an additional $7,500,000 in cash at the end of 2008.

B) It would have $2,925,000 less cash at the end of 2008.

The above diagram shows a balance sheet for a certain company. All quantities shown are in millions of dollars. How would the balance sheet change if the company's long-term assets were judged to depreciate at an extra $5 million per year? A) Net property, plant, and equipment would rise to $126 million, and total assets and stockholders' equity would be adjusted accordingly. B) Net property, plant, and equipment would fall to $116 million, and total assets and stockholders' equity would be adjusted accordingly. C) Long-term liabilities would rise to $131 million, and total liabilities and stockholders' equity would be adjusted accordingly. D) Long-term liabilities would fall to $111 million, and total liabilities and stockholders' equity would be adjusted accordingly.

B) Net property, plant, and equipment would fall to $116 million, and total assets and stockholders' equity would be adjusted accordingly.

A company that produces racing motorbikes has several models that sell within the motorcycle racing community and which are very profitable for the company. Despite having a profitable product, why must this company take care to ensure that it has sufficient cash on hand to meet its obligations? A) Profits from the sales of popular models will be lost when returns to the shareholders in the form of dividends. B) New models will require a lot of money to develop and bring to market before they generate revenue. C) The company will have built up debts which must be repaid in order to bring the current models to market. D) Equity must be raised to finance the development of new models to replace the existing models.

B) New models will require a lot of money to develop and bring to market before they generate any revenue.

You are a shareholder in a corporation which has elected subchapter S tax treatment. The corporation announces a profit of $6 per share, of which it retains $1 for reinvestment and distributes the rest as dividend payments. Given that the personal tax rate is 35%, how much tax must you pay per share? A) $0 B) $2.10 C) $1.75 D) $2.52

C) $1.75

Accounts payable is a ______________. A) long-term liability B) current asset C) long-term asset D) current liability

D) current liability

Which of the following is a measure of the aggregate price level of collections of pre-selected stocks? A) NASDAQ B) S&P 500 C) NYSE D) Euronext

B) S&P 500

Why is a stock exchange like NASDAW considered a secondary market? A) It trades the second largest volume of shares in the world. B) Shares sold on it are exchanged between investors without any involvement of the issuing corporation. C) The exchange has rules that attempt to ensure that bid and ask prices do not get too far apart. D) NASDAQ is called a secondary market because NYSE is considered a primary market.

B) Shares sold on it are exchanged between investors without any involvement of the issuing corporation.

A company's board of directors chooses to provide a comprehensive health care plan for the families of all employees, despite the large cost. They are that this will not only increase the number of employees who stay with the firm, and thus reduce some costs involved in employee turnover, but also increase the employees' diligence and industry. What general principle is being argues by the board of directors? A) In a conflict between stakeholders in a company, the most important stakeholder is not always the stockholders. B) Some activities that decrease shareholders' wealth may have intangible benefits which increase the strength of the company overall. C) When a conflict of interest arises between shareholders and other stakeholders, in general, the correct solution is the one that creates the greatest good for the greatest number of stakeholders. D) Ethical decisions should be assessed on their moral value, not on their value in dollars and cents.

B) Some activities that decrease shareholders' wealth may have intangible benefits which increase the strength of the company overall.

What is the process of double taxation for the stockholders in a C corporation? A) Their shares are taxed when they are both bought and sold. B) The corporation is taxed on the profits it makes, and the owners are taxed when this profit is distributed to them. C) The owners of a corporation are taxed when they receive dividend payments and when they make a profit from the sale of shares. D) The corporation must pay taxes on any profits it makes, and the capital raised by the sale of shares is also subject to taxation.

B) The corporation is taxed on the profits it makes, and the owners are taxed when this profit is distributed to them.

A printing company prints a brochure for a client and then bills them for this service. At the time the printing company's financial disclosure statements are prepared, the client has not yet paid the bill for this service. How will this transaction be recorded? A) The sale will be added to Net Income on the income statement and retained in Net Income on the statement of cash flows. B) The sale will be added to Net Income on the income statement but deducted from Net Income on the statement of cash flows. C) The sale will not added to Net Income on the income statement but added to Net Income on the statement of cash flows. D) The sale will neither be added to Net Income on the income statement nor used to adjust Net Income on the statement of cash flows.

B) The sale will added to Net Income on the income statement but deducted from Net Income on the statement of cashflows. (added, then deducted)

A limited liability company is essentially ________________. A) a limited partnership without limited partners B) a limited partnership without a general partner C) just another name for a limited partnership D) just another name for a corporation

B) a limited partnership without a general partner

What is a competitive market? A) a market in which goods have different ask price and bid price B) a market in which a good can be bought and sold at the same price C) a market in which a good is sold at a lower price than that for which it can be bought D) a market in which a good is bought for a lower price than that for which it can be sold

B) a market in which a good can be bought and sold at the same price

Refer to the balance sheet above. The change in Luther's quick ratio from 2005 to 2006 is closest to __________. A) a decrease of 0.01 B) an increase of 0.01 C) a decrease of 0.02 D) an increase of 0.02

B) an increase of 0.01

A software company acquires a smaller company in order to acquire the patents that it holds. Where will the cost of this acquisition be recorded on the statement of cash flows? A) as an outflow under operating activities B) as an outflow under investment activities C) as an outflow under financial activities D) not recorded on the statement of cash flows

B) as an outflow under financial activities

How do the shareholders of most corporations exercise their control of that corporation? A) by voting on issues that concern them B) by electing members of a board of directors C) by vetting the decisions of the board of directors D) by providing oversight of the day-to-day running of the corporation

B) by electing members of a board of directors

The financial manager of a well-regarded book publishing firm wishes to buy a small Internet publishing company to provide an avenue for sale of its materials online. In order to raise the funds to make this purchase, the financial manager decides to sell more stock in the company. How is the financial manager raising funds in this case? A) by increasing the debt burden carried by the company B) by raising the company's equity by encouraging new owners to take a stake in the company C) by decreasing the ratio of equity to debt held by the company D) by increasing the value of shares held by the existing owners of the company

B) by raising the company's equity by encouraging new owners to take a stake in the company

A C corporation earns $4.30 per share before taxes. The corporate tax rate is 35%, the personal tax rate on dividends is 20%, and the personal tax rate on non-dividend income is 39%. What is the total amount of taxes paid if the company pays a $3.00 dividend? A) $1.68 B) $2.53 C) $2.22 D) $2.95

C) $2.11

GenCorp. has a total debt of $140 million and stockholders' equity of $50 million. It also has 26 million shares outstanding, with a market price of $4.00 per share. What is GenCorp's market debt-equity ratio? A) 0.67 B) 1.08 C) 2.80 D) 1.35

D) 1.35

A corporate raider gains a controlling fraction of the shares of a poorly managed company and replaces the board of directors. How does the corporate raider hope to make a profit in this case? A) by the sale of the assets held by the company that hold most of its value B) by the rise in the value of the stock held by the raider when the new board of directors is judged to be superior to the ousted board of directors C) by motivating the board of directors and other stakeholders in the company to make difficult short-term decisions that will increase the long-term viability of the company D) by removing the employees expectations of the continued poor performance of the company

B) by the rise in the value of the stock held by the raider when the new board of directors is judged to be superior to the ousted board of directors

Which of the following is NOT considered to be an operating expense on the income statement? A) administrative expenses and overhead B) corporate taxes C) salaries D) depreciation and amortization

B) corporate taxes

Cash is a _______________. A) long-term asset B) current asset C) current liability D) long-term liability

B) current asset

A delivery company is creating a balance sheet. Which of the following would most likely be considered a short-term liability on this balance sheet? A) the depreciation over the last year in the value of the value of the vehicles owned by the company B) revenue received for the delivery of items that have not yet been delivered C) a loan which must be paid back in two years D) prepaid rents on the offices occupied by the company

B) revenue received for the delivery of items that have not yet been delivered

Which of the following is NOT financial statement that every public company is required to produce? A) income statement B) statement of sources and uses of cash C) balance sheet D) statement of stockholders' equity

B) statement of sources and uses of cash

What is a firm's gross profit? A) the difference between the sales and other income generated by the firm, and all costs, taxes, and expenses incurred by a firm in a given period B) the difference between sales revenues and the costs C) the difference between sales revenues and cash expenditures associated with those sales D) all of the above

B) the difference between sales revenues and the costs

The notes to the financial statements would LEAST likely be used for which of the following purposes? A) to provide information regarding the context in which these financial numbers were generated B) to disclose the financial implication of any off-balance sheet transactions C) to show how the value of assets listed in the financial statements were arrived at D) to explain the method of accounting that was used in the preparation of the financial statements

B) to disclose the financial implications of any off-balance sheet transactions

Consider the above Income Statement for CharmCorp. All values are in millions of dollars. If CharmCorp. has 4 million shares outstanding, and its managers and employees have stock options for 2 million shares, what is its diluted EPS in 2008? A) $0.83 B) $1.33 C) $1.67 D) $2.00

C) $1.67

An elderly relative offers to sell you their used 1958 Cadillac Eldorado for $52,000. You note that very similar cars are selling on the open market for $87,000. You don't care for classic cars and would rather buy a new Ford Explorer for $35,000. What is the net value of buying the Cadillac? A) $87,000, since the Cadillac could be sold for this price. B) $52,000, since the Cadillac could be sold for this price. C) $35,000, since this is the difference between purchase and resale price of the Cadillac. D) $35,000, since this is the value of the car that you really want to buy.

C) $35,000, since this is the difference between purchase and resale price of the Cadillac.

Refer to the balance sheet above. If in 2006 Luther has 10.2 million shares outstanding and these shares are trading at $16 per share, then what is Luther's enterprise value? A) -$540.0 million B) $771.4 million C) $385.7 million D) $521.4 million

C) $385.7 million

A C corporation earns $8.30 per share before taxes. The corporate tax rate is 39%, the personal tax rate on dividends is 15%, and the personal tax rate on non-dividend income is 36%. What is the total amount of taxes paid if the company pays a $6.00 dividend? A) $3.31 B) $4.96 C) $4.14 D) $5.79

C) $4.14

Refer to the balance sheet above. If in 2006, Luther has 10.2 million shares outstanding and these shares are trading at $16 per share, then Luther's market-to-book ratio would be closest to ___________. A) 2.58 B) 0.64 C) 1.29 D) 1.80

C) 1.29

Refer to the income statement above. Luther's return on equity (ROE) for the year ending December 31, 2005 is closest to ____________. A) 247.12% B) 98.85% C) 123.56% D) 148.27%

C) 123.56%

Refer to the income statement above. Luther's operating margin for the year ending December 31, 2005 is closest to ________. A) 10.18% B) 16.29% C) 20.36% D) 24.43%

C) 20.36%

Which of the following balance sheet equations is INCORRECT? A) Assets - Liabilities = Shareholders' equity B) Assets = Liabilities + Shareholders' equity C) Assets - Current liabilities = Long-term liabilities D) Assets - Current liabilities = Long-term liabilities + Shareholders' equity

C) Assets - Current liabilities = Long-term liablities

Which of the following organization forms has the most revenue? A) S corporation B) limited partnership C) C corporation D) limited liability company

C) C corporation

The above diagram shows a balance sheet for a certain company. All quantities shown are in millions of dollars. If the company has 5 million shares outstanding, and these shares trading at a price of $6.39 per share, what does this tell you about how investors view this firm's book value? A) Investors consider that the firm's market value is worth very much less than its book value. B) Investors consider that the firm's market value is worth less than its book value. C) Investors consider that the firm's market value and its book value are roughly equivalent. D) Investors consider that the firm's market value is worth more than its book value.

C) Investors consider that the firm's market value and its book value are roughly equivalent.

In which of the following ways is a limited liability company like a corporation? A) It was created and developed first in the United States. B) It can choose to be considered a partnership for tax purposes. C) It owners' liability is restricted to their investment. D) It is directly managed by the owners.

C) Its owners' liability is restricted to their investment.

Joe is a general partner in a limited partnership firm, while Jane is a limited partner in the same firm. Which of the following statements regarding their respective relationships to the firm is correct? A) Joe has no management authority within the partnership. B) Jane is legally invovled in the managerial decision making of the firm. C) Jane's liability for the firm's debts consists solely of her investment in the firm. D) Withdrawal of Jane from the partnership will dissolve the partnership.

C) Jane's liability for the firm's debt consists solely of her investment in the firm.

Consider the above Income Statement for Xenon Manufacturing. All values are in millions of dollars. Calculate the gross margin for 2008 and 2009. What does the change in the gross margin between these two years imply about the company? A) The efficiency of Xenon Manufacturing has significantly risen between 2008 and 2009. B) The ability of Xenon Manufacturing to sell its goods and services for more than the costs of producing them rose between 2008 and 2009. C) The ability of Xenon manufacturing to sell its good and services for more than the costs of producing them fell between 2008 and 2009. D) The leverage of Xenon Manufacturing fell slightly between 2008 and 2009.

C) The ability of Xenon Manufacturing to sell its goods and services for more than the costs of producing them fell between 2008 and 2009.

Which of the following is typically the major factor in limiting the growth of sole proprietorships? A) The organizational structure of such firms tends to become extremely complicated over time. B) It is extremely difficult to transfer control of such firms to a new owner if the present owner dies or wishes to sell the firm. C) The amount of money that can be raised by such firms is limited by the fact that the single owner must make good on all debts. D) Investors have a great deal of control over the day-to-day running of such firms, leading to confusion when conflicts in direction arise.

C) The amount of money that can be raised by such firms is limited by the fact that the single owner must make good on all debts.

Which of the following best describes why the left and right sides of a balance sheet are equal? A) In a properly run business, the value of liabilities will not exceed the assets held by the company. B) By definition, the assets plus the liabilities will be the same as the stockholders' equity. C) The assets must equal liabilities plus stockholders' equity because stockholders' equity is the difference between the assets and liabilities. D) By accounting convention, the assets of a company must be equal to the liabilities of that company.

C) The assets must equal liabilities plus stockholders' equity because stockholders' equity is the difference between the assets and the liabilities.

If the above balance sheet is for a retail company, what indications about this company would best be drawn from the changes in stockholders' equity between 2007 and 2009? A) The company is very profitable because it is obviously collecting receivables faster. B) The company is selling its property, plant and equipment, which may result in a long-term deficiency in production capacity. C) The company's net income in 2008 was negative. D) No conclusions can be drawn regarding stockholders' equity without additional information.

C) The company's net income in 2008 was negative

Consider the above Income Statement for Xenon Manufacturing. All values are in millions of dollars. Calculate the operating margin for 2008 and 2009. What does the change in the operation margin between these two years imply about the company? A) The efficiency of Xenon Manufacturing has significantly risen between 2008 and 2009. B) The ability of Xenon Manufacturing to sell its goods and services for more than the costs of producing them rose between 2008 and 2009. C) The efficiency of Xenon Manufacturing has significantly fallen between 2008 and 2009. D) The leverage of Xenon Manufacturing fell slightly between 2008 and 2009.

C) The efficiency of Xenon Manufacturing has significantly fallen between 2008 and 2009.

Which of the following is NOT a reason why a firm's financial managers must take great care when making investment decisions? A) These investment decisions determine whether the firm will add value for its owners. B) These investments determine the long-term directions in which the company may move. C) These investment decisions determine the corporation's mix of debt and equity. D) These investment decisions typically involve substantial costs which must be carefully weighed against their potential benefits.

C) These investment decisions determine the corporation's mix of debt and equity.

The exchanges in which of the following countries or regions do NOT accept the International Financial Reporting Standards set out by the International Accounting Standards Board? A) Germany B) France C) United States D) United Kingdom

C) United States

A company that produces drugs is preparing a balance sheet. Which of the following would be most likely to be considered a long-term asset on this balance sheet? A) commercial paper held by the company B) the inventory of chemicals used to produce the drugs made by the company C) a patent for a drug held by the company D) the cash reserves of the company

C) a patent for a drug held by the company

WorldCom classified $3.85 billion in operating expenses as long-term investments. How would this make WorldCom's financial statements more attractive to investors? A) by decreasing depreciation B) by reducing capital expenditures C) by raising its reported earnings D) by boosting its cash flows

C) by raising its reported earnings

The major components of stockholders' equity are ____________. A) cash, common stock, and paid-in surplus B) common stock, paid-in surplus, and net income C) common stock, paid-in surplus, and retained earnings D) common stock, liabilities, and retained earnings

C) common stock, paid-in surplus, and retained earnings

Which of the following people may not manage the operations of a firm in which they are part or full owners? A) stockholders in S corporations B) stockholders in C corporations C) limited partners in a limited partnership D) general partners in a limited partnership

C) limited partners in a limited partnership

Which of the following is NOT a role of financial institutions? A) moving funds from savers to borrowers B) spreading out risk-bearing C) printing money for borrowers D) moving funds through time

C) printing money for borrowers

A firm whose primary business is in a line of regional grocery stores would be most likely to have to include which of the following facts, if true, in the firm's management discussion and analysis (MD&A)? A) that a large number of funds were allocated to advertising to increase awareness of the firm's brand in new areas it had expanded into this year B) that some senior members of the management team have retired in this financial year C) that the company has lost a class action suit brought against the firm by its employees and is expected to have to pay a large amount of damages D) that the firm has plans to expand into the organic food business in the next financial year by purchasing several small organic food retailers

C) that the company has lost a class action suit brought against the firm by its employees and is expected to have to pay a large amount of damages

Which of the following amounts would be included on the right side of a balance sheet? A) the value of government bonds held by the company B) the cash held by the company C) the amount of deferred tax lability held by the company D) the amount of money owed to the company by customers who have not yet paid for goods and services they have received

C) the amount of deferred tax liability held by the company

In most corporations, to whom does the chief financial officer report? A) shareholders B) the board of directors C) the chief executive officer D) the controller

C) the chief executive officer

Which of the following best describes why a firm produces financial statements? A) to use as a tool when planning future investments within a firm B) to increase the intrinsic value of a firm C) to provide a means for interested outside parties such as creditors to obtain information about a firm, with an overview of the short- and long-term financial condition of a business D) to show the daily activities of a firm has undertaken in the previous financial year, and what activities are planned for the near future

C) to provide a means for interested outside parties such as creditors to obtain information about a firm, with an overview of the short- and long-term financial condition of a business.

Gross profit is calculated as ___________. A) total sales - cost of sales - selling, general, and administrative expenses - depreciation and amortization B) total sales - cost of sales - selling, general, and administrative expenses C) total sales - cost of sales D) none of the above

C) total sales - cost of sales

Which of the following is NOT an advantage of a sole proprietorship? A) single taxation B) ease of setup C) unlimited liability D) no separation of ownership and control

C) unlimited liability

Refer to the income statement above. Luther's earnings before interest, taxes, depreciation, and amortization (EBITDA) for the year ending December 31, 2005 is closest to __________. A) $271.8 million B) $108.7 million C) $163.1 million D) $135.9 million

D) $135.9 million

Stella places a market order with her broker to buy 1,000 shares of OneWorld Corp. The broker buys 1,000 shares at $15.80 each, and sells them to Stell at $15.95 each. He also charges a commission of $12.00. What is bid-ask spread in this case? A) $162 B) $120 C) $210 D) $150

D) $150

A C corporation earns $8.30 per share before taxes and the company pays a dividend of $4.00 per share. The corporate tax rate is 39%, the personal tax rate on dividends is 15%, and the personal tax rate on non-dividend income is 36%. What is the after-tax amount an individual would receive from the dividend? A) $2.72 B) $4.08 C) $4.76 D) $3.40

D) $3.40

A company has a share price of $22.15 and 118 million shares outstanding. Its market-to-book ratio is 4.2, its book debt-equity ratio is 3.2, and it has cash of $800 million. How much would it cost to take over this business assuming you pay its enterprise value? A) $1.9 billion B) $3.044 billion C) $4.566 billion D) $3.8 billion

D) $3.8 billion

As an oil refiner, you are able to produce $76 worth of unleaded gasoline from one barrel of Alaska North Slope (ANS) crude oil. Because of its lower sulfur content, you can produce $77 worth of unleaded gasoline from one barrel of West Texas Intermediate (WTI) crude. Assuming you currently have 10,000 bbl of WTI crude, the added benefit (cost) to you if you were to sell the 10,000 bbl of WTI crude and use the proceeds to purchase and refine ANS crude is closest to ___________. A) ($1400) B) $1400 C) ($3908) D) $3908

D) $3908

The above diagram shows a balance sheet for a certain company. All quantities shown are in millions of dollars. What is the company's net working capital? A) $133 million B) $2 million C) $89 million D) $45 million

D) $45 million

The above diagram shows a balance sheet for a certain company. All quantities shown are in millions of dollars. What is the company's net working capital? A) $133 million B) $2 million C) $89 million D) $45 million

D) $45 million

The above diagram shows a balance sheet for a certain company. If the company pays back all of its accountable payable today using cash, what will its net working capital be? A) $131 million B) $6 million C) $88 million D) $45 million

D) $45 million

Use the figure below for the question(s) below. Based on the information shown above, what would it cost to buy 1,000 shares of the above stock? A) $91,110 B) $91,300 C) $91,320 D) $91,650

D) $91,650

What is the major advantage corporations have over other business entities? A) It is easier for a corporation to raise capital than other forms of businesses. B) A corporation is treated as a separate legal entity for tax and legal purposes. C) A corporation's shares can be freely traded among its shareholders. D) All of the above are advantages that a corporation has over other business forms.

D) All of the above are advantages that a corporation has over other business forms.

Why is the personal decision a financial manager makes as to whether to buy or to rent an apartment as a personal residence most like the professional decision that manager makes as to whether her firm should try acquire a stake in a fast growing new Internet-based company? A) Both decisions involve the purchase of assets that are essential for the existence of the investor. B) Both decisions involve the rental of a useful asset. C) Both decisions have the potential to affect the firm. D) Both decisions should be made based upon the tradeoff benefits and costs across time.

D) Both decisions should be made based upon the tradeoff benefits and costs across time.

Which of the following is the overarching principle that a financial manager should follow when making decisions? A) Decisions should generate the greatest benefits for the firm. B) Decisions should provide benefit to the firm without incurring costs. C) Decisions should be on behalf of the firm's owners that give the greatest benefit to those owners, the firm's employees and the firm's other stakeholders. D) Decisions should increase the value of the firm to its investors.

D) Decisions should increase the value of the firm to its investors.

Which of the following features of a corporation is LEAST accurate? A) The owners' identity is separate from a corporation. B) The owners of a corporation are not liable for any obligations the corporation enters into. C) Changes in ownership do not result in the dissolution of the corporation. D) Earnings from a corporation are taxed only once.

D) Earnings from a corporation are taxed only once.

A typical company has many types of shareholders, from individuals holding a few shares, to large institutions that hold very large numbers of shares. How does a financial manager ensure that the priorities and concerns of such disparate stockholders are met. A) The financial manager should seek to make investments that do not harm the interests of the stockholders. B) The decisions taken by the financial manager should be solely influenced by the benefit to the company since, by maximizing its fitness, he or she will also maximize the benefits of that company to the shareholders. C) The financial manager should consider the interests and concerns of large shareholders a priority so the needs of those who hold a controlling interest in the company are met. D) In general, all shareholders will agree that they are better off if the financial manager works to maximize the value of their investment.

D) In general, all shareholders will agree that they are better off if the financial manager works to maximize the value of their investment.

Consider the above statement of cash flows. What were AOS Industries' major means of raising money in 2008? A) from investment activities B) by sale of stock C) from its operations D) by issuing debt

D) by issuing debt

Which of the following should be true for an asset to be considered liquid? A) It pays regular dividends. B) It can be bought and sold at an organized stock market or bourse. C) It is offered for sale on both primary and secondary markets. D) It can be easily bought and sold and the selling price is very close to the buying price at a given point in time.

D) It can be easily bought and sold and the selling price is very close to the buying price at a given point in time.

Which of the following is NOT a reason that the income statement does not accurately indicate how much cash a firm has earned? A) It includes entries for the depreciation of assets. B) It does not include entries for expenditures on inventory. C) It does not include entries for collection of money from account receivables. D) It includes cash inflows from services rendered.

D) It includes cash inflows from services rendered.

Why is it possible for a corporation to enter into contracts, acquire assets, incur obligations, and enjoy protection against the seizure of its property? A) The number of owners, and hence the spread of risk among these owners is not limited. B) Its owners are liable for any obligations it enters into. C) The state in which a corporation is incorporated provides safeguards against any wrongdoing by the corporation. D) It is a legally defined, artificial entity that is separate from its owners.

D) It is a legally defined, artificial entity that is separate from its owners.

What is the main reason that it is necessary for public companies to follow the rules and format set out in the Generally Accepted Accounting Principles (GAAP) when creating financial statements? A) It ensures that the market value of assets and debt are reported accurately. B) It ensures that information on the performance of public companies is reported on cash-basis accounting. C) It ensures that important budgetary information is not omitted. D) It makes it easier to compare the financial results of different firms.

D) It makes it easier to compare the financial results of different firms.

What are the requirements of section 404 of SOX? A) It requires that senior management return any profits or bonuses resulting from stock sales during any period covered by financial statements that must later be restated. B) It requires that auditors do not perform any non-auditing tasks for the companies they audit. C) It requires that audit partners rotate every five years. D) It requires that senior management and the boards of public companies attest to the effectiveness and validity of their financial control process.

D) It requires that senior management and the boards of public companies attest to the effectiveness and validity of their financial control process.

Which of the following is unique for an S corporation? A) The profits and losses of an S corporation are not taxed at the corporate level, but shareholders must include these profits and losses on their individual tax returns. B) The shareholders of an S corporation must include the firm's profit and losses in their individual income taxes even if no money is distributed to them. C) There is a maximum limit on the number of shareholders for an S corporation. D) None of the above statements in unique.

D) None of the above statements is unique.

Which of the following is the main lesson that analysts and investors should take from the cases of Enron and WorldCom? A) The usefulness of financial statements to investors is entirely dependent on the ethics of those constructing them. B) It is not possible to effectively evaluate a company unless all the financial statements are fully and correctly prepared. C) The information in financial statements should be viewed extremely critically. D) Readers of even fraudulent financial statements can spot signs of a firm's financial health, if those statements are read fully and with care.

D) Readers of even fraudulent financial statements can spot signs of a firm's financial health, if those statements are ready fully and with care.

Why must care be taken when comparing a firm's share price to its operating income? A) Both share price and operating income are related to the whole firm. B) Share price is a quantity related to the entire firm, while operating income is an amount that is related solely to equity holders. C) Both share price and operating income are related solely to equity holders. D) Share price is a quantity related to equity holders, while operating income is an amount that is related to the whole firm.

D) Share price is a quantity related to equity holders, while operating income is an amount that is related to the whole firm.

Which of the following statements regarding the balance sheet is INCORRECT? A) The balance sheet provides a snapshot of a firm's financial position at a given point in time. B) The balance sheet lists a firm's assets and liabilities. C) The balance sheet reports stockholders' equity on the right-hand side. D) The balance sheet reports liabilities on the left-hand side.

D) The balance sheet reports liabilities on the left-hand side.

If the above balance sheet is for a retail company, how has the company's leverage changed between 2007 and 2008? A) The company has experienced a very significant decrease in its leverage. B) The company has experienced a significant decrease in its leverage. C) The company has experienced no significant change in its leverage. D) The company has experienced a significant increase in its leverage.

D) The company has experienced a significant increase in its leverage.

If the above balance sheet is for a retail company, what indications about this company would best be drawn from the changes in quick ratio between 2007 and 2008? A) The company has eliminated the risk that it will experience a cash shortfall in the near future. B) The company has reduced the risk that it will experience a cash shortfall in the near future. C) The risk that the company will experience a cash shortfall in the near future is unchanged. D) The company has increased the risk that it will experience a cash shortfall in the near future.

D) The company has increased the risk that it will experience a cash shortfall in the near future.

One way Enron manipulated its financial statements was to sell assets at inflated prices to other firms, while giving a promise to buy back those assets at a later date. The incoming cash was recorded as revenue, but the promise to buy back the assets was not disclosed. Which of the following is one of the ways that such a transaction is deceptive? A) The assets should have been listed on the balance sheet as long-term assets. B) Cash raised by selling assets should not be recorded as revenue. C) The cash raised should have been recorded as short-term loans. D) The off-balance sheet promises to repurchase assets should have been disclosed in management discussion and analysis (MD&A) or notes to the financial statement.

D) The off-balance sheet promises to repurchase assets should have been disclosed in management discussion and analysis (MD&A) or notes to the financial statement.

What is the major way in which the roles and obligations of the owners of a limited liability company differ from the roles and obligations of limited partners in a limited partnership? A) The owners of a limited liability company have personal obligation for debts incurred by the company. B) There is no separation between the company and its owners in a limited liability company. C) The owners of a limited liability company can withdraw from the company without the company being dissolved. D) The owners of a limited liability company can take an active role in running the company.

D) The owners of a limited liability company can take an active role in running the company.

Why in general do financial managers make financial decisions in a corporation, rather than the owners making these decisions themselves? A) It is best for the control of the finances of a corporation to be in the hands of a disinterested third party. B) The interests of the various owners may conflict with each other. C) The owners may not be U.S. citizens or residents. D) There are often many owners, and they can often change as they buy and sell stock.

D) There are often many owners, and they can often change as they buy and sell stock.

Why is it difficult to determine the market price of a private corporation's shares at any point time? A) It is difficult to obtain enough information to accurately value such a company. B) The price of its shares is fixed by the owners. C) It has a limited number of owners. D) There is no organized market for its shares.

D) There is no organized market for its shares.

Which of the following firms would be excepted to have a high ROE? A) a medical supply company that provides very precise instruments at a high price to large medical establishments such as hospitals B) a high-end fashion retailer that has a very high mark-up on all items it sells C) a brokerage firm that has high levels of leverage D) a grocery store chain that has very high turnover, selling many multiples of its assets per year

D) a grocery store chain that has very high turnover, selling many multiples of its assets per year (think Trader Joe's! :D)

What is a firm's net income? A) the difference between the sales and other income generate by a firm, and all costs, taxes, and expenses incurred by the firm in a given period B) the last or "bottom" line of the income statement C) a measure of the firm's profitability over a given period D) all of the above

D) all of the above

The third party who checks annual financial statements to ensure that they are prepared according to Generally Accepted Accounting Principles (GAAP) and verifies that the information reported is reliable is the _____________. A) NYSE Enforcement Board B) Accounting Standards Board C) Securities and Exchange Commission (SEC) D) auditor

D) auditor

Which of the following is NOT one of the ways that the Sarbanes-Oxley Act sought to improve the accuracy of the information given to both boards and shareholders? A) by increasing the penalties to firms for providing false information B) by increasing the independence of auditors and clients C) by decreasing the non-audit fees that an auditor can receive from a client D) by forcing companies to audit financial statements they release

D) by forcing companies to audit financial statements they release

Which of the following is NOT a function of the board of directors? A) determining how top executives should be compensated B) monitoring the performance of the company C) answering to shareholders of the company D) day-to-day running of the company

D) day-to-day running of the company

A __________ is when a rich individual or organization purchases a large fraction of the stock of a poorly performing firm and in doing so gets enough votes to replace the board of directors and the CEO. A) shareholder proposal B) leveraged buyout C) shareholder action D) hostile takeover

D) hostile takeover

Investments by wealthy individuals and endowments is a major source of money for each of the following EXCEPT __________. A) private equity funds B) hedge funds C) venture capital funds D) mutual funds

D) mutual funds

A U.S.-based manufacturer of sunscreen is contemplating using funds to purchase court-side advertising at major tennis matches such as the French Open and the Australian Open. Advertising at such well viewed international events will then raise the domestic sales of the manufacturers products. Which of the following factors is the most relevant when analyzing this decision? A) the cost of the machine used to produce the sunscreen B) the manufacturing process of the sunscreen C) the cost of the existing advertising campaign D) the cost of the court-side advertising at the tennis matches

D) the cost of the court-side advertising at the tennis matches

In which of the following relationships is an agency conflict problem LEAST likely to arise? A) the relationship between a hire-car company and the persons who hire that company's cars regarding the treatments of those cars B) the relationship between high-level military officers and the soldiers who serve under them regarding the willingness of the soldiery to take risks C) the relationship between a restauranteur and the suppliers of produce to that restaurant regarding the freshness of the produce supplied D) the relationship between a driver and the passengers in a car regarding the safe driving of that car

D) the relationship between a driver and the passengers in a car regarding the safe driving of that car

Which of the following is NOT one of the financial statements that must be produced by a public company? A) the balance sheet B) the income statement C) the statement of cash flows D) the statement of activities

D) the statement of activities

What is the most important duty of a firm's financial officer? A) to ensure that the firm has enough cash on hand to meet its commitments at any given time B) to decide how to pay for its investments C) to manage working capital D) to make investment decisions

D) to make investment decisions

Which of the following best describes why the Valuation Principle is a key concept in making final decisions? A) It shows how to assign monetary value to intangibles such as good health and well-being. B) It allows fixed assets and liquid assets to be valued correctly. C) It gives a good indication of the net worth of a person, item, or company and can be used to estimate any changes in that net worth. D) It shows how to make the costs and benefits of a decision comparable so that we can weight them properly.

D. The Valuation Principle shows how to make the costs and benefits of a decision comparable so that we can weigh them properly.

Financial decisions require that you weigh alternatives in strictly monetary terms. True/False?

False.

Financial statements are optional accounting reports issued periodically by a firm which present information on the past performance of the firm, a summary of the firm's assets and the financing of those assets, and a prediction of the firm's future performance. True/False?

False.

If broker will buy a share of stock from you at $3.85 and sell it to you at $3.87, the ask price would be $3.85. True/False?

False.

In most corporations, the owners exercise direct control of a corporation. True/False?

False.

In the United States, publicly traded companies can choose whether or not they wish to release periodic financial statements. True/False?

False.

International Financing Reporting Standards are taking root throughout the world. However, it is unlikely that the U.S. will report according to IFRS before the second half of the twenty-first century. True/False?

False.

It is generally not the duty of financial managers to ensure that a firm has the cash it needs for day-to-day transactions. True/False?

False.

Partnerships are the most common type of business firms in the world. True/False?

False.

Raising new capital by issuing bonds is an example of a commercial banking activity. True/False?

False.

The balance sheet shows the assets, liabilities, and stockholders' equity of a firm over a given length of time. True/False?

False.

The fact that corporations' shares easily traded within the market has a net effect of acting as a disincentive for managers to favor the interests of shareholders over their own interests. True/False?

False.

The management of public companies is not legally required to disclose any off-balance sheet transactions. True/False?

False.

The shares of private corporations are traded on a stock market. True/False?

False.

To enable costs and benefits to be compared, they are typically converted into cash value at the time the benefit is received. True/False?

False.

Use of Generally Accepted Accounting Principles (GAAP) and auditors have eliminated the danger of inadvertent or deliberate fraud in financial statements. True/False?

False.