Finance Test 1

JM Case Inc. has a market value of $5 million with 500,000 shares outstanding. The book value of its equity is $1,750,000. What is JM Case's book value per share? A. $3.50 B. $5 C. $10 D. $25 E. $50 F. None of the above.

$3.50 Book value per share = $1,750,000/500,000 shares = $3.50 per share

The profit margin for 2012 is: A. -94% B. -57% C. 13% D. 31% E. None of the above.

-94%

Time value concepts may be used to determine 1. the annual growth rate in dividends 2. the amount in an IRA account after ten years 3. the tax owed on a capital gain a. 1 and 2 b. 1 and 3 c. 2 and 3 d. only 2

1 and 2

The future value of a dollar 1. increases with higher interest rates 2. decreases with higher interest rates 3. increases as the time period increases 4. decreases as the time period increases a. 1 and 3 b. 1 and 4 c. 2 and 3 d. 2 and 4

1 and 3

JM Case Inc. has a market value of $5 million with 500,000 shares outstanding. The book value of its equity is $1,750,000. What is JM Case's price per share? A. $3.50 B. $5 C. $10 D. $25 E. $50 F. None of the above.

10 Stock price per share = $5 million/500,000 shares = $10 per share

The present value of a dollar 1. increases as the interest rate increases 2. decreases as the interest rate increases 3. increases as the time period increases 4. decreases as the time period increases a. 1 and 3 b. 1 and 4 c. 2 and 3 d. 2 and 4

2 and 4

12. The current ratio at the end of 2012 is: A. 10.21 B. 2.31 C. 2.76 D. 10.30 E. None of the above.

2.76 see image on original document

During 2011, how much cash (in $ millions) did South collect from sales? A. 364 B. 277 C. 404 D. 324 E. 451 F. None of the above. LOOK AT CHART

324 In 2011, sales were $364 million, but account receivable rose $40 million, indicating that the company only received $324 million in cash. $324 = $364 - $40

Which of the following statements concerning a firm's cash flows and profits is false? A. Managers must be at least as concerned with cash flows as with profits. B. A company that sells merchandise at a profit will generate cash soon enough to replenish cash flows required for continued production. C. The cash flows generated in a given time period can differ from the profits reported. D. Profits are no assurance that cash flow will be sufficient to maintain solvency. E. Due to required cash investments in current assets, fast-growing and profitable companies can literally "grow broke".

B. A company that sells merchandise at a profit will generate cash soon enough to replenish cash flows required for continued production.

Which one of the following is the financial statement that shows a financial snapshot, taken at a point in time, of all the assets the company owns and all the claims against those assets? A. income statement B. creditor's statement C. balance sheet D. cash flow statement E. sources and uses statement

C. balance sheet

The sources and uses of cash over a stated period of time are reflected on the: A. income statement. B. balance sheet. C. shareholders' equity statement. D. cash flow statement. E. statement of operating position.

Cash flow statement

Which one of the following is the financial statement that summarizes changes in the company's cash balance over a period of time? A. income statement B. balance sheet C. cash flow statement D. shareholders' equity statement E. market value statement

Cash flow statement

The larger the rate of interest, the smaller is the future value of a dollar.

False

Which of these ratios, or levers of performance, are the determinants of ROE? I. profit margin II. financial leverage III. times interest earned IV. asset turnover A. I and IV only B. II and IV only C. I, II, and IV only D. I, II, and III only E. I, III, and IV only F. I, II, III, and IV

I, II, and IV only

Which of the following tends to cause differences between market values and book values? I. Accounting often creates a dichotomy between realized and unrealized income. II. Accountants allocate goodwill when a firm is acquired for more than book value. III. Many accounting values are transactions-based and hence backward-looking. IV. The use of fair-value accounting. V. Accountants refuse to assign a cost to equity capital. A. I and II only B. I and III only C. II and IV only D. I, III, and IV only E. I, III, and V only F. I, III, IV, and V only

I, III, and V only

Which of the following ratios are measures of a firm's liquidity? I. fixed asset turnover ratio II. current ratio III. debt-equity ratio IV. acid test A. I and III only B. II and IV only C. III and IV only D. I, II, and III only E. I, III, and IV only

II and IV only

Which one of the following is the financial statement that summarizes a firm's revenue and expenses over a period of time? A. income statement B. balance sheet C. cash flow statement D. sources and uses statement E. market value statement

Income statement

Time value concepts may not be used to determine a. the present value of an annuity b. the margin required on a stock purchase c. the future value of $100 deposited in a bank d. the present value of a lump sum

The margin required on a stock purchase

A series of equal payments is called an annuity.

True

Compounding refers to the earning of interest on interest earned previously.

True

If a bank pays 2 percent compounded daily, the true rate of interest is greater than 2 percent.

True

The concept of the time value of money is a means to bring together the present and the future.

True

Which one of the following ratios identifies the amount of assets a firm needs in order to generate $1 in sales? A. current ratio B. debt-to-equity C. retention D. asset turnover E. return on assets

asset turnover

Ratios that measure how efficiently a firm manages its assets and operations to generate net income are referred to as _____ ratios. A. asset turnover and control B. financial leverage C. coverage D. profitability E. None of the above.

asset turnover and control

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.

based on historical cost

Discounting a. expresses the present in the future b. brings the future back to the present c. is synonymous with compounding d. depends on the rate of interest

brings the future back to the present

Which one of the following is a source of cash? A. decrease in accounts receivable B. decrease in common stock C. decrease in long-term debt D. decrease in accounts payable E. increase in inventory

decrease in accounts receivable

An annuity is a series of a. rising annual payments b. random payments c. equal payments d. unequal payments

equal payments

Noncash items refer to: A. sales which are made on a credit basis. B. inventory items purchased using credit. C. intangible assets such as patents. D. expenses, like depreciation, which do not directly affect cash flows. E. administrative expenses.

expenses, like depreciation, which do not directly affect cash flows.

Breakers Bay Inc. has succeeded in increasing the amount of goods it sells while holding the amount of inventory on hand at a constant level. Assume that both the cost per unit and the selling price per unit also remained constant. All else held constant, how will this accomplishment be reflected in the firm's financial ratios? A. decrease in the fixed asset turnover rate B. decrease in the financial leverage ratio C. increase in the inventory turnover rate D. increase in the day's sales in inventory E. no change in the total asset turnover rate

increase in the inventory turnover rate

The gross margin for 2012 is: A. -94% B. 13% C. 26% D. 31% E. None of the above.

none of the above. see image on original document

Depreciation expense: A. reduces both taxes and net income. B. increases the net fixed assets as shown on the balance sheet. C. reduces both the net fixed assets and the costs of a firm. D. is a noncash item that increases net income. E. decreases current assets, net income, and operating cash flows

reduces both taxes and net income

The most popular yardstick of financial performance among investors and senior managers is the: A. profit margin. B. return on equity. C. return on assets. D. times burden covered ratio. E. earnings yield. F. None of the above.

return on equity

On a common-size balance sheet, all accounts 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.

total assets for the current year