Finance Management

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.

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

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.

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) −$100 B) $300 C) $600 D) $1,700 E) $1,800

B) $300

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

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) $1,190,332

A) $867,832

DL Farms currently has $600 in debt for every $1,000 in equity. Assume the company uses some of its cash to decrease its debt while maintaining its current equity and net income. Which one of the following will decrease as a result of this action? A) Equity multiplier B) Total asset turnover C) Profit margin D) Return on assets E) Return on equity

A) Equity multiplier

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.

Which one of the following is a source of cash? A) Repurchase of common stock B) Acquisition of debt C) Purchase of inventory D) Payment to a supplier E) Granting credit to a customer

B) Acquisition of debt

On the statement of cash flows, which one of the following is considered an operating activity? A) Increase in net fixed assets B) Decrease in accounts payable C) Purchase of equipment D) Dividends paid E) Repayment of long-term debt

B) Decrease in accounts payable

Which one of the following functions should be the responsibility of the controller rather than the treasurer? A) Depositing cash receipts B) Processing cost reports C) Analyzing equipment purchases D) Approving credit for a customer E) Paying a vendor

B) Processing cost reports

Keisler's has cost of goods sold of $11,518, interest expense of $315, dividends of $420, depreciation of $811, and a change in retained earnings of $296. What is the taxable income given a tax rate of 21 percent? A) $955.38 B) $967.78 C) $906.33 D) $776.41 E) $646.15

C) $906.33

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

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.

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?

Which one of the following is excluded from the cash flow from assets? A) Accounts payable B) Inventory C) Sales D) Interest expense E) Cost of goods sold

D) Interest expense

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.

The ________ tax rate is equal to total taxes divided by total taxable income. A) deductible B) residual C) total D) average E) marginal

D) average

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

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.

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.