Finance 701 Test 1

22) The Harrisburg Store has net working capital of $2,715, net fixed assets of $22,407, sales of $3 1,350, and current liabilities of $3,908. How many dollars' worth of sales are generated from every $1 in total assets? A) $1.08 B) $1.14 C) $1.19 D) $84 E) $93

A) $1.08

quarterly, for this type of investment. How much is this investment worth to you today? 35) An investment will pay $1,200 per quarter for 15 years. You require a return of 12 percent, compounded A) $33,210.68 B) $28,409.08 C) $31,152.59 D) $28,395.10 E) $30,806.30

A) $33,210.68

23) Nielsen Auto Parts had beginning net fixed assets of $218,470 and ending net fixed assets of $209,411. During the year, assets with a book value of $6,943 were sold. Depreciation for the year was $42,822. What is the amount of net capital spending? A) $33,763 B) $40,706 C) $58,218 D) $65,161 E) $67,408

A) $33,763

21) This morning, DJ's invested $225,000 to help fund future projects. How much additional money will the firm have three years from now if it can earn an annual interest rate of 4 percent rather than 3.5 percent? A) $3,391.90 B) $3,632.88 C) $3,008.17 D) $4,219.68 E) $3,711.08

B) $3,632.88

37) Outreach Funds established of 4.03 percent. How much money was contributed a trust that provides $150,000 in scholarships each year forever. The trust fund to the fund 20 years ago, assuming that earns a rate of return only the interest income is distributed? A) $2,291,613.13 B) $3,722,084.37 C) $3,225,000.00 D) $3,000,000.00 E) $3,100,348.24

B) $3,722,084.37

19) Your firm has total assets of $4,900, fixed assets of $3,200, long-term debt of $2,900, and short-term debt of $1,400. What is the amount of net working capital? A)-S100 B) $300 C) $600 D) $1,700 E) S1,800

B) $300

27) Sixty years ago, your mother invested $4,500. Today, that investment is worth $430,065.11. What is the average annual rate of return she earned on this investment? A) 6.67 percent B) 11.71 percent C) 7.90 percent D) 10.40 percent E) 12.02 percent

C) 7.90 percent

12) Which one of the following statements concerning a sole proprietorship is correct? A) A sole proprietorship is designed to protect the personal assets of the owner. B) The profits of a sole proprietorship are subject to double taxation. C) The owner of a sole proprietorship is personally responsible for all of the company's debts. D) There are very few sole proprietorships remaining in the U.S. today E) A sole proprietorship is structured the same as a limited liability company.

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

12) An increase in which of the following must increase the return on equity, all else constant? A) Total assets and sales B) Net income and total equity C) Total asset turnover and debt-equity ratio D) Equity multiplier and total equity E) Debt-equity ratio and total debt

C) Total asset turnover and debt-equity ratio

8) The process of determining the present value of future cash flows in order to know their value today is referred to as: A) compound interest valuation. B) interest on interest valuation. C) discounted cash flow valuation. D) future value interest factoring E) complex factoring

C) discounted cash flow valuation

16) An ordinary annuity is best defined as: A) increasing payments paid for a definitive period of time B) increasing payments paid forever. C) equal payments paid at the end of regular intervals over a stated time period D) equal payments paid at the beginning of regular intervals for a limited time neriod E) equal payments that occur at set intervals for an unlimited period of time.

C) equal payments paid at the end of regular intervals over a stated time period

23) What are the three types of financial management decisions? For each type of decision, give an example of a business transaction that would be relevant

Capital budgeting (deciding whether to expand a manufacturing plant), capital structure (deciding whether to issue new equity and use the proceeds to retire outstanding debt), and working capital management (modifying the firm's credit collection policy with its customers).

20) You own a classic car currently valued at $64,000. If the value increases by 2.5 percent annually, how much will the car be worth 15 years from now? A) $94,035.00 B) $86,008.17 C) $80,013.38 D) $92,691.08 E) $91,480.18

D) $92,691.08

9) Which one of these identifies the relationship between the return on assets and the return on equity? A) Profit margin B) Profitability determinant C) Balance sheet multiplier D) DuPont identity E) Debt-equity ratio

D) DuPont identity

13) Galaxy Interiors income statement shows depreciation of $1,611, sales of $21,415, interest paid of $1,282, net income of $1,374, and costs of goods sold of $16,408. What is the amount of the noncash expenses? A) $2,893 B) S1,282 C) $740 D) S1,611 E) $2,351

D) S1,611

19) Marti's coin collection contains fifty 1948 silver dollars. Her grandparents purchased them at their face value in 1948. These coins have appreciated by 7.6 percent annually. How much will the collection be worth in 2025? A) S13,611.18 B) $18,987.56 C)S14,122.01 D) $11,218.27 E) $14,077.16

E) $14,077.16

15) Which one of the following statements correctly defines a time value of money relationship? A) Time and future values are inversely related, all else held constant B) Interest rates and time are positively related, all else held constant C) An increase in a positive discount rate increases the present value. D) An increase in time increases the future value given a zero rate of interest E) Time and present value are inversely related, all else held constant

E) Time and present value are inversely related, all else held constant

3) The decision to issue additional shares of stock is an example of A) working capital management. B) a net working capital decision. C) capital budgeting D) a controller's duties. E) a capital structure decision.

E) a capital structure decision.

16) The cash flow related to interest payments less any net new borrowing is called the: A) operating cash flow. B) capital spending cash flow C) net working capital. D) cash flow from assets. E) cash flow to creditors

E) cash flow to creditors

29) Describe the different ways in which capital can be transferred from suppliers of capital to those who are demanding capital.

In a well-functioning economy, capital will flow efficiently from those who supply capital to those who demand it. This transfer of capital can take place in three different ways: I. Direct transfers of money and securities occur when a business sells its stocks or bonds directly to savers, without going through any type of financial institution. The business delivers its securities to savers, who, in turn, give the firm the money it needs. 2. Transfers may also go through an investment bank that underwrites the issue. An underwriter serves as a middleman and facilitates the issuance of securities. The company sells its stocks or bonds to the investment bank, which then sells these same securities to savers. The businesses' securities and the savers' money merely "pass through" the investment bank 3. Transfers can also be made through a financial intermediary. Here the intermediary obtains funds from securities, while the savers hold the intermediary's securities. Intermediaries savers in exchange for its own securities. The intermediary uses this money to buy and hold businesses literally create new forms of capital. The existence of intermediaries greatly increases the efficiency of money and capital markets.

30) What does liquidity measure? Explain the trade-off a firm faces between high liquidity and low liquidity levels

Liquidity measures how quickly and It's desirable for firms to have high liquidity so that they have a large factor of safety in meeting short-term easily an asset can be converted to cash without significant loss in value. returns can generally be found by investing the cash into productive creditor demands. However, since liquidity also has an opportunity cost associated with it-namely that higher assets-low liquidity levels are also desirable to the firm. It's up to the firm's financial management staff to find a reasonable compromise between these opposing needs

What is the primary disadvantage of the corporate form of organization? Name at least two advantages of corporate organization.

The primary disadvantage of the corporate form is the double taxation to shareholders of distributed earnings and dividends. Some advantages include: limited liability, ease of transferability, ability to raise capital, and unlimited life.

22. What are some actions that stockholders can take to ensure that management's and stockholders' interests are aligned?

Useful motivational tools that will aid in aligning stockholders' and intervention by shareholders, including firing managers who don't management's interests include: (1) reasonable compensation packages, (2) direct perform well, and (3) the threat of takeover. The compensation package should be sufficient to attract and retain able managers but not go beyond what is option exercise date. This means that options market price-but the price used should be an average over time rather than ona specific date. the stock price high over time. Since intrinsic value is not (or direct stock awards) should be phased in over a number of years so stock's performance over the long run, not the stock's price on an needed. Also, compensation packages should be structured so that managers are rewarded on the basis of the managers will have an incentive to keep observable, compensation must be based on the stock's operations. First, they can talk with managers and make for the body of stockholders. Second, any shareholder who has suggestions about how the business should be run. In investors and these institutional money managers have the clout to exercise considerable influence over firms Stockholders can intervene directly with managers. Today, the majority of stock is owned by institutional effect, these institutional investors act as lobbyists owned $2,000 of a company's stock for one year can sponsor a opposes the proposal. Although shareholder-sponsored proposals are proposal that must be voted on at the annual stockholders' meeting, even if management non-binding, the results of such votes are clearly heard by top management. firm in a hostile takeover. If the raid is successful, the target's executives will almost certainly be fired. This If a firm's stock is undervalued, then corporate raiders will see it to be a bargain and will attempt to capture the situation gives managers a strong incentive to take actions to maximize their stock's price.

21) The What-Not Shop owns the building in which it is located. This building initially cost $647,000 and is currently appraised at $819,000. The fixtures originally cost $148,000 and are currently valued at $65,000. The inventory has a book value of $319,000 and a market value equal to 1.1 times the book value. The shop expects to collect 96 percent of the $21,700 in accounts receivable. The shop has $26,800 in cash and total debt of $414,700. What is the market value of the shop's equity? A) $867,832 B) $900,166 C) $695,832 D) $775,632 E) S1,190,332

A) $867,832

22) Beach Front Industries has sales of $546,000, costs of $295,000, depreciation expense of $37,000, interest expense of $15,000, and a tax rate of 21 percent. The firm paid $59,000 in cash dividends. What is the addition to retained eamings? A) $98,210 B) $81,700 C) $95,200 D) S103,460 E) $121,680

A) $98,210

16) Oil Creek Auto has sales of $3,340, net income of $274, net fixed assets of $2,600, and current assets of $920. The firm has $430 in inventory. What is the common-size statement value of inventory? A) 12.22 percent B) 44.16 percent C) 16.54 percent D) 13.36 percent E) 46.74 percent

A) 12.22 percent

outstanding. The market price per share is $16.50. What is the price-earnings ratio? 25) Bernice's has $823,000 in sales. The profit margin is 4.2 percent and the firm has 7,500 shares of stock A) 3.58 B) 3.98 C) 4.32 D) 3.51 E) 4.27

A) 3.58

23) TJ's has annual sales of $813,200, total debt of $171,000, total equity of $396,000, and a profit margin of 5.78 percent. What is the return on assets? A) 8.29 percent B) 6.48 percent C) 9.94 rcent D) 7.78 percent E) 8.02 percent

A) 8.29 percent

10) Which one of the following accurately describes the three parts of the DuPont identity? A) Equity multiplier, profit margin, and total asset turnover B) Debt-equity ratio, capital intensity ratio, and profit margin C) Operating efficiency, equity multiplier, and profitability ratio D) Return on assets, profit margin, and equity multiplier E) Financial leverage, operating efficiency, and profitability ratio

A) Equity multiplier, profit margin, and total asset turnover

You are investing $100 today in a savings account. Which one of the following terms refers to the total value of this investment one year from now? A) Future value B) Present value C) Principal amount D) Discounted value E) Invested principal

A) Future value

26) Williamsburg Markets has an operating S1,356 while current liabilities decreased by $2,662, cash flow of $4,267 and depreciation of $1,611. Current assets decreased by and net fixed assets decreased by $382 during the year. What is free cash flow for the year? A) S1,732 B) $2,247 C) $2,961 D) $3,915 E) $4,267

A) S1,732

11) A business created as a distinct legal entity and treated as a legal "person" is called a(n): A) corporation. B) sole proprietorship. C) general partnership. D) limited partnership. E) unlimited liability company

A) corporation.

8) As the degree of financial leverage increases, the: A) probability a firm will encounter financial distress increases. B) amount of a firm's total debt decreases. C) less debt a firm has per dollar of total assets. D) number of outstanding shares of stock increases E) accounts payable balance decreases.

A) probability a firm will encounter financial distress increases.

7)A firm's short-term assets and its short-term liabilities are referred to as the firm's: A) working capital. B) debt C) investment capital. D) net capital. E) capital structure

A) working capital.

20) Comer Books has a debt-equity ratio of 57. What is the total debt ratio? A).36 B) .30 C).44 D) 2.27 E) 2.75

A).36

23) Twenty years from now, you want to spend $175,000 for a fancy car. How much must you deposit as a lump sum today to achieve this goal at an annual interest rate of 6.6 percent? A)$54,208.16 B) $48,740.95 C) $57,911.08 D) $40,019.82 E) $51,446.60

B) $48,740.95

32) Rita plans to save $1,500, $1,500, and $2,500 a year over the next 3 years, respectively. How much would you need to deposit in one lump sum today to have the same amount as Rita 3 years from now if you both earn 3.5 percent, compounded annually? A) $4,857.92 B) $5,104.40 C) $5,491.42 D) $6,097.95 E) $4,434.87

B) $5,104.40

18) A firm has $680 in inventory, $2,140 in fixed assets, $210 in accounts receivables, $250 in accounts payable, and $80 in cash. What is the amount of the net working capital? A) $970 B) $720 C) $640 D) $3,110 E) $2,860

B) $720

18) If a firm has a debt-equity ratio of 1.0, then its total debt ratio must A)0 B) .5 C) 1.0 D) 1.5 E) 2.0

B) .5

34) Erickson's is considering a project with an initial cost of $623,000. The project will produce cash inflows of $33,500 monthly for 21 months. What is the annual rate of return on this project? A) 11.57% B) 13.59% C) 16.59% D) 17.47% E) 18.44%

B) 13.59%

26) Oscar's Dog House has a 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?A) 17.14 percent B) 18.63 percent C) 19.67 percent D) 21.69 percent E) 22.30 percent

B) 18.63 percent

38) Tracie invested $60,000 in exchange for payments of $2,500 a year forever. What rate of return is she earning? A) 4.25% B) 4.17% C)4.43% D) 4.50% E)4.67%

B) 4.17%

2) Which one of the following is included in a firm's market value but yet is excluded from the firm's accounting value? A) Real estate investment B) Good reputation of the company C) Equipment owned by the firm D) Money due from a customer E) An item held by the firm for future sale

B) Good reputation of the company

14) Phillippe invested $1,000 ten years ago and expected to have $1,800 today He has neither added nor withdrawn any money since his initial investment. All interest was reinvested and compounded annually. As it turns out, he only has $1,680 in his account today. Which one of the following must be true? A) He earned simple interest rather than compound interest. B) He earned a lower interest rate than he expected C) He did not earn any interest on interest as he expected. D) He ignored the Rule of 72 which caused his account to decrease in value. E) The future value interest factor turned out to be higher than he expected

B) He earned a lower interest rate than he expected

28) Four years ago, Saul invested $500. Three years ago, Trek invested $600. Today, these two investments are worth $800. Assume each account continues to earn its respective rate of return. Which one of the following statements is correct concerning these investments? A) Three years from today, Trek's investment will be worth more than Saul's B) One year ago, Saul's investment was worth less than Trek's investment C) Trek earns a higher rate of return than Saul D) Trek has earned an average annual interest rate of 9.86 percent. E) Saul has earned an average annual interest rate of 12.64 percent

B) One year ago, Saul's investment was worth less than Trek's investment

28) HiWay Furniture has sales of $316,000, depreciation of $47,200, interest expense of $41,400, costs of $148,200, and taxes of $16,632. The firm has net capital spending of $36,400 and a decrease in net working capital of $14,300. What is the cash flow from assets for the year? A) $145,985 B) S129,068 C) SI19,655 D) S120,810 E) S134,585

B) S129,068

7) RJ's has a fixed asset turnover rate of 1.26 and a total asset turnover rate of .97. Sam's has a fixed asset turnover rate of 1.31 and a total asset turnover rate of .94. Both companies have similar operations. Based on this information, RJ's must be doing which one of the following? A) Utilizing its fixed assets more efficiently than Sam's B) Utilizing its total assets more efficiently than Sam's C) Generating $1 in sales for every $1.26 in net fixed assets D) Generating $1.26 in net income for every $I in net fixed assets E) Maintaining the same level of current assets as Sam's

B) Utilizing its total assets more efficiently than Sam's

9) The book value of a firm is: A) equivalent to the firm's market value provided that the firm has some fixed assets B) based on historical cost. C) generally greater than the market value when fixed assets are included. D) more of a financial than an accounting valuation. E) adjusted to the market value whenever the market value exceeds the stated book value.

B) based on historical cost.

2) Christina invested $3,000 five years ago and earns 2 percent annual interest. By leaving her interest earnings in her account, she increases the amount of interest she earns each year. The way she is handling her interest income is referred to as: A) simplifying. B) compounding C) aggregating D) accumulating E) discounting

B) compounding

6) Terry is calculating the present value of a bonus he will receive next year. The process he is using is called: A) growth analysis B) discounting C) accumulating D) compounding. E) reducing

B) discounting

13) One disadvantage of the corporate form of business ownership is the A) limited liability of its shareholders for the firm's debts. B) double taxation of distributed profits. C) firm's greater ability to raise capital than other forms of ownership. D) firm's potential for an unlimited life E) firm's ability to issue additional shares of stock.

B) double taxation of distributed profits.

9) Your grandmother has promised to give you $10,000 when you graduate from college. If you speed up your graduation by one year and graduate two years from now rather than the expected three years, the present value of this gift will: A) remain constant. B) increase. C) decrease. D) equal $10,000. E) be less than $10,000.

B) increase

15) The price-sales ratio is especially useful when analyzing firms that have: A) volatile market prices. B) negative earnings C) positive PEG ratios D) a high Tobin's Q. E) increasing sales.

B) negative earnings

8) A business owned by a solitary individual who has unlimited liability for the firm's debt is called a: A) corporation. B) sole proprietorship. C) general partnership. D) limited partnership. E) limited liability company.

B) sole proprietorship.

1) An example of a capital budgeting decision is deciding: A) how many shares of stock to issue. B) whether or not to purchase a new machine for the production line. C) how to refinance a debt issue that is maturing. D) how much inventory to keep on hand. E) how much money should be kept in the checking account.

B) whether or not to purchase a new machine for the production line.

30) A project is expected to produce cash flows of $12,800, $15,900, and $18,000 over the next 3 years, respectively. After 3 years, the project will be discontinued. What is this project worth today at a discount rate of i2.5 percent? A) $35,201.76 B) $34,435.74 C) $36,582.72 D) $36,808.17 E) $35,758.00

C) $36,582.72

18) Al invested $3,630 in an account that pays 6 percent simple interest. How much money will he have at the end of five years? A) $4,910 B) $5,056 C) $4,719 D) $4,678 E) $5,299

C) $4,719

33) Angela expects to save $500 a year and earn an average annual return of 5.2 percent. How much will her savings be worth 35 years from now? A) $51,317.82 B) $57,702.57 C) $47,076.06 D) $44,868.92 E) $56,063.66

C) $47,076.06

27) A firm has a debt-equity ratio of .62, a total asset turnover of 1.24, and a profit margin of 5.1 percent. The total equity is $489,600. What is the amount of the net income? A) $28,079 B) $19,197 C) $50,159 D) $40,451 E) $52,418

C) $50,159

29) You're trying to save to buy a new $68,000 sports car. Currently, you have saved $36,840 which is invested at 4.9 percent annual interest. How many years will it be before you purchase the car, assuming the price of the car remains constant? A) 9.67 years B) 17.18 years C) 12.81 years D) 16.91 years E) 10.84 years

C) 12.81 years

25) Assume the total cost of a college education will be $245,000 when your child enters college in 15 years. You presently have $108,000 to invest for this purpose. What rate of interest must you earn to cover the cost of your child's college education? A) 5.79 percent B) 5.50 percent C) 5.61 percent D) 6.25 percent E) 6.81 percent

C) 5.61 percent

21) The Up-Towner has sales of $913,400, costs of goods sold of $579,300, inventory of $123,900, and accounts receivable of $78,900. How many days, on average, does it take the firm to sell its inventory assuming that all sales are on credit? A) 74.19 days B) 84.69 days C) 78.07 days D) 96.46 days E) 71.01 days

C) 78.07 days

5) Which one of the following accounts is the most liquid? A) Inventory B) Building C) Accounts Receivable D) Equipment E) Land

C) Accounts Receivable

1) Which one of the following is a current asset? A) Accounts payable B) Trademark C) Accounts receivable D) Notes payable E) Equipment

C) Accounts receivable

26) According to the Rule of 72, you can do which one of the following? A) Approximately double your money in five years at 7.24 percent interest B) Double your money in 7.2 years at 8 percent interest C) Approximately double your money in 11 years at 6.55 percent interest D) Triple your money in 7.2 years at 7.2 percent interest E) Approximately triple your money in 7.2 years at 10 percent interest

C) Approximately double your money in 11 years at 6.55 percent interest

11) Which one of the following is the financial statement that shows the accounting value of a firm's equity as of a particular date? A) Income statement B) Creditor's statement C) Balance sheet D) Statement of cash flows E) Dividend statement

C) Balance sheet

15) Which business form is best suited to raising large amounts of capital? A) Sole proprietorship B) Limited liability company C) Corporation D) General partnership E) Limited partnership

C) Corporation

14) Which one of the following statements is correct? A) The majority of firms in the U.S. are structured as corporations. B) Corporate profits are taxable income to the shareholders when earned. C) Corporations can have an unlimited life. D) Shareholders are protected from all potential losses. E) Shareholders directly elect the corporate president.

C) Corporations can have an unlimited life.

17) Which one of the following will increase the cash flow from assets, all else equal? A) Decrease in cash flow to stockholders B) Decrease in operating cash flow C) Decrease in the change in net working capital D) Decrease in cash flow to creditors E) Increase in net capital spending

C) Decrease in the change in net working capital

4) Which one of the following questions is a working capital management decision? A) Should the company issue new shares of stock or borrow money? B) Should the company update or replace its older equipment? C) How much inventory should be on hand for immediate sale? D) Should the company close one of its current stores? E) How much should the company borrow to buy a new building?

C) How much inventory should be on hand for immediate sale?

13) 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 generating per dollar of sales? IV. Does the company have the ability to meet its debt obligations in a timely manner? A) I and II only B) II and IV only C) L, II, and III only D) II, III and IV only E) I, II, III, and IV

C) I, II, and III only

10) Chang Lee is going to receive $20,000 six years from now. Soo Lee is going to receive $20,000 nine years from now. Which one of the following statements is correct if both individuals apply a discount rate of 7 percent? A) The present values of Chang Lee's and Soo Lee's money are equal. B) In future dollars, Soo Lee's money is worth more than Chang Lee's money C) In today's dollars, Chang Lee's money is worth more than Soo Lee's D) Twenty years from now, the value of Chang Lee's money will equal the value of Soo Lee's money. E) Soo Lee's money is worth more than Chang Lee's money given the 7 percent discount rate.

C) In today's dollars, Chang Lee's money is worth more than Soo Lee's

27) Nu Furniture has sales of $241,000, depreciation of $32,200, interest expense of $35,700, costs of $103,400, and taxes of $14,637. What is the operating cash flow for the year? A) $108,229 B) $121,367 C) S122,963 D) $117,766 E) S128,037

C) S122,963

9) A business formed by two or more individuals who each have unlimited liability for all of the firm's business debts is called a: A) corporation. B) sole proprietorship. C) general partnership. D) limited partnership. E) limited liability company.

C) general partnership.

16) The growth of both sole proprietorships and partnerships is frequently limited by the firm's A) double taxation. B) bylaws. C) inability to raise cash. D) limited liability E) agency problems.

C) inability to raise cash.

11) Your goal is to have $1 million in your retirement savings on the day you retire. To fund this goal, you will make one lump sum deposit today. If you plan to retire _____ rather than ______ and earn a _______ rate of interest, then you can deposit a smaller lump sum today. A) sooner; later; low B) sooner, later; high C) later, sooner, high D) later; sooner; low E) today; later; high

C) later; sooner; higher

10) A business partner whose potential financial loss in the partnership will not exceed his or her investment in that partnership is called a: A) general partner. B) sole proprietor C) limited partner. D) corporate shareholder. E) zero partner.

C) limited partner.

5) Kurt won a lottery and will receive $1,000 a year for the next 50 years. The current value of these winnings is called the: A) single amount. B) future value. C) present value D) simple amount. E) compounded value.

C) present value

6) Ratios that measure a firm's liquidity are known as ________ ratios. A) asset management B) long-term solvency C) short-term solvency D) profitability E) book value

C) short-term solvency

year, long-term debt was $68,219 and total debt was $145,838. The interest paid was $6,430. What is the amount of the 25) At the beginning of the year, the long-term debt of a firm was $72,918 and total debt was $138,407. At the end of the cash flow to creditors? A) $1,731 B)-$1,001 C)SII,129 D) S13,861 E)S19,172

C)SII,129

6) Which one of the following represents the most liquid asset? A) $100 account receivable that is discounted and collected for $96 today B) $100 of inventory that is sold today on credit for $103 C)$100 of inventory that is discounted and sold for $97 cash today D) $100 of inventory that is sold today for $100 cash E) $100 of accounts receivable that will be collected in full next week

D) $100 of inventory that is sold today for $100 cash

17) Duke's Garage has cash of $68, accounts receivable of $142, accounts payable of $235, and inventory of $318. What is the value of the quick ratio? A) 2.25 B) .53 C).71 D) .89 E) 1.35

D) .89

5) An increase in which one of the following will increase a firm's quick ratio without affecting its cash ratio? A) Accounts payable B) Cash C) Inventory D) Accounts receivable E) Fixed assets

D) Accounts receivable

5) Which one of the following terms is defined as the management of a firm's long-term investments? A) Working capital management B) Financial allocation C) Agency cost analysis D) Capital budgeting E) Capital structure

D) Capital budgeting

10) You recently purchased a grocery store. At the time of the purchase, the store's market value and its book value were equal. The purchase included the building, fixtures, and inventory. Which one of the following is most apt to cause the market value of this store to be less than its book value? A) A sudden and unexpected increase in inflation B) The replacement of old inventory items with more desirable products C) Improvements to the surrounding area by other store owners D) Construction of a new restricted access highway located between the store and the surrounding residential areas E) Addition of a stop light at the main entrance to the store's parking lot

D) Construction of a new restricted access highway located between the store and the surrounding residential areas

13) Which one of these will increase the present value ofa set amount to be received sometime in the future? A) Increase in the time until the amount is received B) Increase in the discount rate C) Decrease in the future value D) Decrease in the interest rate E) Decrease in both the future value and the number of time periods

D) Decrease in the interest rate

4) Which one of the following statements concerning net working capital is correct? A) Net working capital increases when inventory is purchased with cash. B) Net working capital excludes inventory. C) Total assets must increase if net working capital increases. D) Net working capital may be a negative value. E) Net working capital is the amount of cash a firm currently has available for spending

D) Net working capital may be a negative value.

15) The cash flow that is available for distribution to a corporation's creditors and stockholders is called the: A) operating cash flow. B) net capital spending C) net working capital. D) cash flow from assets. E) cash flow to stockholders.

D) cash flow from assets.

12) Noncash items refer to: A) fixed expenses B) inventory items purchased using credit. C) the ownership of intangible assets such as patents D) expenses that do not directly affect cash flows. E) sales that are made using store credit.

D) expenses that do not directly affect cash flows.

14) Cash flow from assets is also known as the firm's: A) capital structure B) equity structure. C) hidden cash flow. D) free cash flow E) historical cash flow.

D) free cash flow.

2) Capital structure decisions include determining A) which one of two projects to accept. B) how to allocate investment funds to multiple projects. C) the amount of funds needed to finance customer purchases of a new product. D) how much debt should be assumed to funda project E) how much inventory will be needed to support a project.

D) how much debt should be assumed to fund a project.

3) Art invested $100 two years ago at 8 percent interest. The first year, he earned $8 interest on his $100 investment. He reinvested the $8. The second year, he earned $8.64 interest on his $108 investment. The extra $.64 he earned in interest the second year is referred to as: A) free interest. B) bonus income. C) simple interest. D) interest on interest. E) present value interest

D) interest on interest.

8) Ratios that measure how efficiently a firm manages its assets and operations to generate net income are referred to as ______ ratios A) asset management B) long-term solvency C) short-term solvency D) profitability E) turnover

D) profitability

18) Financial managers should primarily focus on the interests of: A) stakeholders B) the vice president of finance C) their immediate supervisor. D) shareholders. E) the board of directors.

D) shareholders.

1) The sources and uses of cash over a stated period of time are reflected on the A) income statement. B) balance sheet C) tax reconciliation statement. D) statement of cash flows. E) statement of operating position.

D) statement of cash flows.

3) On a common-size balance sheet all accounts for the current year are expressed as a percentage of A) sales for the period. B) the base year sales. C) total equity for the base year. D) total assets for the current year. E) total assets for the base year.

D) total assets for the current year.

17) A perpetuity is defined as: A) a limited number of equal payments paid in even time increments B) payments of equal amounts that are paid irregularly but indefinitely C) varying amounts that are paid at even intervals forever. D) unending equal payments paid at equal time intervals E) unending equal payments paid at either equal or unequal time intervale

D) unending equal payments paid at equal time intervals

28) Canine Supply 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? A) $210 B) $130 C) $240 D) $350 E) $190

E) $190

the year, the current assets were $122,418 and the current liabilities were $103,718. What is the change in net working 24) At the beginning of the year, a firm had current assets of $121,306 and current liabilities of $124,509. At the end of capital? A)-S19,679 B)-S11,503 C) S19,387 D) $15,497 E) $21,903

E) $21,903

24) Duane and Thad plan on retiring 27 years from today and plan to have the same amount saved at that time In preparation for this, Duane is depositing $15,000 today at an annual interest rate of 5.2 percent. How will Thad's deposit amount vary from Duane's if Thad also makes a deposit today but earns an annual interest rate of 6.2 percent? A) $4,118.42 more B) $4,333.33 less C) $3,417.09 more D) $4,274.12 less E) $3,381.39 less

E) $3,381.39 less

22) You havea savings account valued at S1,500 today that earns an annual interest rate of 8,7 percent. How much more would this account be worth if you wait to spend the entire balance in 25 years rather than in 20 years? A) $6,306.16 B) $4,658.77 C) $3,311.18 D) $6,907.17 E) $4,117.64

E) $4,117.64

4.6 percent, compounded monthly. How much can he afford to borrow to buy a car? 36) Walt can afford monthly car payments of $140 for 3 years, starting I month from now. The interest rate is A) $4,961.36 B) $4,717.32 C) $4,533.80 D) $5,333.88 E) $4,699.31

E) $4,699.31

20) A firm 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? A) $2,050 B) $2,920 C) $4,130 D) $7,950 E) $6,890

E) $6,890

31) TL Enterprises (TLE) is considering purchasing DMM. DMM has expected cash flows of $42,800, $56,700, and $37,100 for the next 3 years, respectively. After that, the products DMM produces will be obsolete and thus DMM will be worthless. If TLE requires a return of 18 percent, what amount should they offer as a purchase price? A) $87,141.41 B) $102,247.79 C) $85,868.09 D) $91,216.57 E) $99,572.45

E) $99,572.45

24) Frank's Used Cars has sales of $807,200, total assets of $768,100, and a profit margin of 6.68 percent. The firm has a total debt ratio of 54 percent. What is the return on equity? A) 13.09 percent B) 12.04 percent C) 11.03 percent D) 8.56 percent E) 15.26 percent

E) 15.26 percent

12) Which one of the following will produce the lowest present value interest factor? A) 6 percent interest for 5 years B) 6 percent interest for 8 years C)6 percent interest for 10 years D) 8 percent interest for 5 years E) 8 percent interest for 10 years

E) 8 percent interest for 10 years

6) Which one of the following terms is defined as the mixture of a firm's debt and equity financing? A) Working capital management B) Cash management C) Cost analysis D) Capital budgeting E) Capital structure

E) Capital structure

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

E) Increasing current profits when doing so lowers the value of the company's equity

14) Which one of the following will decrease if a firm can decrease its operating costs, all else constant? A) Return on equity B) Return on assets C) Profit margin D) Total asset turnover E) Price-earnings ratio

E) Price-earnings ratio

A) $16,128.05 19) SS Stores has total debt of $4,910 and a debt-equity ratio of 0.52. What is the value of the total assets? B) $7,253.40 C) $9,571.95 D) $11,034.00 E) S14,352.31

E) S14,352.31

4) The interest earned on both the initial principal and the interest reinvested from prior periods is called: A) free interest. B) dual interest C) simple interest D) interest on interest E) compound interest.

E) compound interest.

3) Net working capital is defined as: A) total liabilities minus shareholders' equity. B) current liabilities minus shareholders' equity C) fixed assets minus long-term liabilities. D) total assets minus total liabilities. E) current assets minus current liabilities.

E) current assets minus current liabilities.

7) Steve just computed the present value of a $10,000 bonus he will receive next year. The interest rate he used in his computation is referred to as the: A) current yield. B) effective rate. C) compound rate. D) simple rate. E) discount rate.

E) discount rate

11) If a company produces a return on assets of 14 percent and also a return on equity of 14 percent, then the firm: A) may have short-term, but not long-term debt. B) is using its assets as efficiently as possible. C) has no net working capital. D) has a debt-equity ratio of 1.0. E) has an equity multiplier of 1.0.

E) has an equity multiplier of 1.0.

4) All of the following issues represent problems encountered when comparing the financial statements of two separate entities except the issue of the companies: A) being conglomerates with unrelated lines of business B) having geographically varying operations. C) using differing accounting methods D) differing seasonal peaks. E) having the same fiscal year.

E) having the same fiscal year.

19) The Sarbanes-Oxley Act of 2002 is a governmental response to: A) decreasing corporate profits. B) the terrorist attacks on 9/11/2001. C) a weakening economy D) deregulation of the stock exchanges E) management greed and abuses

E) management greed and abuses

7) Shareholders' equity: A) is referred to as a firm's financial leverage. B) is equal to total assets plus total liabilities C) decreases whenever new shares of stock are issued. D) includes patents, preferred stock, and common stock E) represents the residual value of firm.

E) represents the residual value of a firm.

2) A common-size income statement is an accounting statement that expresses all of a firm's expenses as a percentage of A) total assets B) total equity. C) net income. D) taxable income. E) sales.

E) sales.

17) Corporate dividends are: A) tax-free because the income is taxed at the personal level when earned the firm. B) tax-free because they are distributions of aftertax income. C) tax-free since the corporation pays tax on that income when it is earned. D) taxed at both the corporate and the personal level when the dividends are paid to shareholders. E) taxable income of the recipient even though that income was previously taxed.

E) taxable income of the recipient even though that income was previously taxed.

21) When is a stock said to be in equilibrium? Why might a stock at any point in time not be in equilibrium?

Equilibrium is the situation where the actual values and thus are at or close to equilibrium. pressure for a change in the stock's price. At any given time, most between buying and selling a stock. If a stock is in equilibrium then there is no fundamental imbalance, hence no market price equals the intrinsic value, so investors are indifferent stocks are reasonably close to their intrinsic imperfect knowledge about the true intrinsic value, leads to deviations between the actual prices and intrinsic different, so stocks can be temporarily undervalued or overvalued. Investor optimism and pessimism, along with However times stock prices and equilibrium values are values.