Financial Exam 1
Cross Corporation has Net Income of $4,095. Their retention ratio is 65%. How much will they payout in dividends this year?
$1,433
_________________ can be considered as the most liquid asset.
$100 of inventory that is sold today for $100 cash
____________________ could be the decision to issue additional shares of stock.
A capital structure decision
Pick the correct statement related to the cash flow to creditors from below.
A positive cash flow to creditors represents a net cash outflow from the firm.
__________ is a current asset.
Accounts receivable
The correct statement is :
Corporations can have an unlimited life.
____________________ is considered as use of cash by a firm.
Decrease in accounts payable
______________ are considered stakeholders of a firm.
Employees and the government
Common size income statements show balance sheet items as a percentage of current assets.
False
Pick the correct statement related to financial planning from below.
Financial planning considers multiple options and scenarios.
Pick the correct statement related to financial plans from below.
Financial plans often contain alternative options based on economic developments.
Queen, Inc., has a total debt ratio of .46. a.What is its debt-equity ratio? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.)b.What is its equity multiplier? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.)
a. Debt-equity ratio+/-0.010.85timesb.Equity multiplier+/-1%1.85times
The articles of incorporation ____________________________.
describe the purpose of the firm and set forth the number of shares of stock that can be issued
Corporate bylaws _________________________.
determine how a corporation regulates itself
By definition, cash flow to stockholders is ______________________.
dividend payments less net new equity raised
In the compilation of the pro forma financial statements for a firm, the firm's _______________ will directly affect the projection of the retained earnings account balance.
dividend policy
Noncash items are _________________________.
expenses that do not directly affect cash flows
A _______________ is a business formed by two or more individuals who each have unlimited liability for all of the firm's business debts.
general partnership
Although _______________________is included in a firm's market value, it is excluded from the firm's accounting value.
good reputation of the firm
Being a limited partner, Bob has the advantage of ___________.
having maximum loss limited to his capital investment
Which of the following issues does not represent problems encountered when comparing the financial statements of two separate entities?
having the same fiscal year
For a sole proprietorship and a partnership, their growth is often limited by their ________________.
inability to raise cash
That ______________________ is true according to generally accepted accounting principles.
income is recorded based on the realization principle
An increase in the interest expense for a firm with a taxable income of $123,000 will lead to a/an ___________________.
increase in its cash flow from assets
For a tax-paying firm, depreciation _________________________.
increases expenses and lowers taxes
A firm can achieve its maximum rate of growth by __________________.
increasing its retention ratio
Mortgage lenders to a firm probably have the most interest in the firm's ______ ratios.
long-term debt and times interest earned
By the Sarbanes-Oxley Act of 2002, the _______ of a public company are responsible for the accuracy of the company's financial statements.
managers
The _______________tax rate is defined as the percentage of the next dollar you earn that must be paid in taxes.
marginal
Financial planning tends to emphasize the least on a firm's ___________________.
market value
NetWare, which is a partnership with five partners, ______________.
must distribute 20 percent of the profits to each partner
When we analyze firms that have ____________________________, we especially want to use their price-sales ratio.
negative earnings
The ________________ method is the financial planning method that uses the projected sales level to determine changes in balance sheet and income statement account values.
percentage of sales
All else constant, a firm's ______________________ will decrease if the firm can decrease its operating costs.
price-earnings ratio
The responsibility of a controller include _________________.
processing cost reports
You should estimate a firm's ___________ first before you begin preparing pro forma statements for the firm.
projected sales
A drawback of financial planning is that it generally tends to ignore _________________________.
risks associated with cash flows
The value of a firm's net working capital can be reduced by the firm's ___________________ .
sale of inventory at a loss
We express all of a firm's expenses as a percentage of ______________________ in the firm's common-size income statement.
sales
Jonathan sold 1,000 shares of Facebook stock which is listed on NASDAQ. The transaction must occur in the ____________ .
secondary, dealer market
All else constant, an increase in a firm's _________________ must increase its return on equity.
total asset turnover and debt-equity ratio
On a common-size balance sheet, we express all accounts for the current year as a percentage of ___________________________.
total assets for the current year
A firm has a return on equity of 15 percent. The total asset turnover is 1.4 and the profit margin is 8 percent. The total equity is $7,000. What is the net income?
$1,050
The ABC Corporation has the following information. How much is the Operating Cash Flow? ABC Corporation Earnings before interest & taxes$1,588 Depreciation 130 Beginning net fixed assets 1,650 Net new equity raised 450 Taxes 424
$1,294
At the beginning of the year, Vendors, Inc., had owners' equity of $48,485. During the year, net income was $4,925 and the company paid dividends of $3,585. The company also repurchased $7,335 in equity. What was the cash flow to stockholders for the year?
$10,920
Ferry Boat Corporation has the following financial information: Net fixed assets: Book value: $2,500, Market value: $3,000 Net working capital: $700 Current accounts liquidated: $1,500 ABC Corporation has $900 in long-term debt. What is the market value of equity?
$3,600
Your firm has net income of $247 on total sales of $1,140. Costs are $640 and depreciation is $120. The tax rate is 35 percent. The firm does not have interest expenses. What is the operating cash flow?
$367
Recently, the owner of Martha's Wares encountered severe legal problems and is trying to sell her business. The company built a building at a cost of $1,160,000 that is currently appraised at $1,360,000. The equipment originally cost $640,000 and is currently valued at $387,000. The inventory is valued on the balance sheet at $330,000 but has a market value of only one-half of that amount. The owner expects to collect 97 percent of the $185,200 in accounts receivable. The firm has $11,500 in cash and owes a total of $1,360,000. The legal problems are personal and unrelated to the actual business. What is the market value of this firm?
$743,144
The capital intensity ratio of __________ from below indicates the smallest need for fixed assets per dollar of sales.
.07
Retention ratio =
1 − (Cash dividends/Net income).
Garner Corporation has total liabilities of $1,750 and equity of $4,450. Sales are $3,300. What is the Capital Intensity Ratio for Garner Corporation?
1.88
For the most recent fiscal year, the Hammock Company's total equity was $450 and net income was equal to $97. Of the $97 net income, $44 was retained. What is the sustainable growth rate for the Ladder Company?
10.83%
Lee Sun's has sales of $4,100, total assets of $3,800, and a profit margin of 6 percent. The firm has a total debt ratio of 42 percent. What is the return on equity?
11.16 percent
For the most recent fiscal year, the Hammock Company's total assets were $850 and net income was equal to $97. Of the $97 net income, $44 was retained. What is the internal growth rate for the Hammock Company?
5.46%
* 5. What was PNG Company's profit margin for the year 20X1?
5.76%
____________________is a current liability.
Accounts payable to a supplier that is due next week
_____________________is the most liquid account.
Accounts receivable
An income statement prepared using GAAP will show revenue when it is:
Accrued
Griffin's Goat Farm, Inc., has sales of $680,000, costs of $342,000, depreciation expense of $86,000, interest expense of $53,000, a tax rate of 23 percent, and paid out $40,000 in cash dividends. What is the addition to retained earnings? (Do not round intermediate calculations.)
Addition to retained earnings+/-0.1%$113,230
Pick the correct statement about a corporation with taxable income of $250,000 from below.
An increase in depreciation will increase the operating cash flow.
Pick the correct statement from below.
An increase in the depreciation expense will not affect the cash coverage ratio.
_______ can best illustrate that the management of a firm is adhering to the goal of financial management.
An increase in the market value per share
The Balance Sheet Identity is:
Assets = Liabilities + Owners Equity
Pick the generally correct statement from below.
Auction markets match buy and sell orders.
____________________________ shows the accounting value of a firm's assets, liabilities and shareholders' equity as of a particular date.
Balance sheet
_________________ have unlimited liability for a firm's debts.
Both general partners and sole proprietors
_________ focuses on the management of a firm's long-term investments.
Capital budgeting
______________ is the mixture of a firm's debt and equity financing.
Capital structure
Pop Evil, Inc.'s net income for the most recent year was $16,802. The tax rate was 21 percent. The firm paid $3,706 in total interest expense and deducted $4,491 in depreciation expense. What was the cash coverage ratio for the year? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Cash coverage ratio+/-1%7.95times
_________________ is the cash flow related to interest payments less any net new borrowing.
Cash flow to creditors
The 2017 balance sheet of Dream, Inc., showed current assets of $3,150 and current liabilities of $1,630. The 2018 balance sheet showed current assets of $3,000 and current liabilities of $1,605. What was the company's 2018 change in net working capital, or NWC? (Do not round intermediate calculations. A negative answer should be indicated by a minus sign.)
Change in NWC+/-1%$-125
Mary recently purchased a boutique. When she bought the boutique, its market value and book value were equal. Included in the purchase were the building, fixtures, and inventory. Which of the following might have caused the market value of this boutique to be less than its book value?
Construction of a new restricted access highway located between the boutique and the surrounding residential areas
_____________________ is taken as a source of cash for a firm.
Decrease in accounts receivable
________________ is a source of cash to a firm.
Decrease in inventory
A firm's _________________________identifies the relationship between the firm's return on assets and return on equity.
DuPont identity
Griffins Goat Farm, Inc., has sales of $670,000, costs of $332,000, depreciation expense of $76,000, interest expense of $48,000, a tax rate of 23 percent, and paid out $45,000 in cash dividends. The firm has 27,800 shares of common stock outstanding. a. What are the earnings per share figure? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b.What are the dividends per share figure? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Earnings per share+/-1%$5.93b. Dividends per share+/-1%$1.62
SME Company has a debt-equity ratio of .80. Return on assets is 8.3 percent, and total equity is $535,000. a.What is the equity multiplier? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)b.What is the return on equity? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)c.What is the net income? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)
Equity multiplier+/-1%1.80timesb. Return on equity+/-1%14.94% c.Net income+/-0.1%$79,929
______________, the ______________ growth rate achievable by a firm is its internal growth rate.
Excluding external financing of any kind; maximum
The most recent financial statements for Assouad, Inc., are shown here: Income Statement Balance Sheet Sales$10,900 Current assets$5,250 Current liabilities$3,225 Costs 7,750 Fixed assets 10,100 Long-term debt 4,750 Taxable income$3,150 Equity 7,375 Taxes (22%) 693 Total$15,350 Total$15,350 Net income$2,457 Assets, costs, and current liabilities are proportional to sales. Long-term debt and equity are not. The company maintains a constant 35 percent dividend payout ratio. As with every other firm in its industry, next year's sales are projected to increase by exactly 17 percent. What is the external financing needed? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
External financing needed +/-1%$192.70
For the Sales Forecast, almost all financial plans require an internally supplied sales forecast.
False
Net working capital represents current assets plus current liabilities.
False
The internal growth rate is where the external funds needed (EFN) is equal to 1, also where the required increase in assets is exactly equal to the addition to retained earnings.
False
_________________ illustrate the relationships determined from a firm's financial information and used for comparison purposes.
Financial ratios
Consider the following income statement for the Heir Jordan Corporation: HEIR JORDAN CORPORATIONIncome Statement Sales $46,200 Costs 34,200 Taxable income $12,000 Taxes (25%) 3,000 Net income $9,000 Dividends$3,800 Addition to retained earnings 5,200 The balance sheet for the Heir Jordan Corporation follows. Based on this information and the income statement, supply the missing information using the percentage of sales approach. Assume that accounts payable vary with sales, whereas notes payable do not. (Leave no cells blank - be certain to enter "0" whenever the item is not a constant percentage of sales. Enter each answer as a percent rounded 2 decimal places, e.g., 32.16.)
HEIR JORDAN CORPORATIONBalance SheetPercentage of SalesPercentage of SalesAssetsLiabilities and Owners' EquityCurrent assetsCurrent liabilitiesCash$2,450+/-1%5.30Accounts payable$4,000+/-1%8.66Accounts receivable4,000+/-1%8.66Notes payable8,4000Inventory9,000+/-1%19.48Total$15,450+/-1%33.44Total$12,4000Long-term debt$21,0000Fixed assetsOwners' equityNet plant and equipment$37,600+/-1%81.39Common stock and paid-in surplus$14,0000Retained earnings5,6500Total$19,6500Total assets$53,050+/-1%114.83Total liabilities and owners' equity$53,0500
Consider the following income statement for the Heir Jordan Corporation: HEIR JORDAN CORPORATIONIncome Statement Sales $48,800 Costs 34,800 Taxable income $14,000 Taxes (22%) 3,080 Net income $10,920 Dividends$3,200 Addition to retained earnings 7,720 The projected sales growth rate is 17 percent. Prepare a pro forma income statement assuming costs vary with sales and the dividend payout ratio is constant. (Input all answers as positive values. Do not round intermediate calculations.)
HEIR JORDAN CORPORATIONPro Forma Income StatementSales+/-0.1%$57,096Costs+/-0.1%40,716Taxable income+/-0.1%$16,380Taxes+/-0.1%3,604Net income+/-0.1%$12,776 Addition to retained earnings+/-0.1%$9,032
Which of the following is a concern of working capital management?
How much inventory should be on hand for immediate sale?
During the financial planning process, we will address questions including : I. Should the firm merge with a competitor? II. Should additional shares of stock be sold? III. Should a particular division be sold? IV. Should a new product be introduced?
I, II, III, and IV
Which of the following are covered in financial planning? I. Determination of asset requirements. II. Development of contingency plans. III. Establishment of priorities. IV. Analysis of funding options.
I, II, III, and IV
Which of the following must be considered by John Smith who is developing a financial plan for Facebook? I. How much net working capital will be needed? II. Will additional fixed assets be required? III. Will dividends be paid to shareholders? IV. How much new debt must be obtained?
I, II, III, and IV
Managers of a firm can use the DuPont identify to answer which of the following questions as raised from the firm's operation? 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?
I, II, and III only
______________________ summarizes a firm's revenue and expenses over a period of time.
Income statement
_____________________ is taken as a source of cash for a firm.
Increase in common stock
Pick the correct statement related to assets' liquidity from below.
Liquid assets are valuable to a firm.
The most recent financial statements for Alexander Co. are shown here: Income Statement Balance Sheet Sales$42,950 Current assets$17,580 Long-term debt$37,070 Costs 35,550 Fixed assets 68,350 Equity 48,860 Taxable income$7,400 Total$85,930 Total$85,930 Taxes (21%) 1,554 Net income$5,846 Assets and costs are proportional to sales. The company maintains a constant 35 percent dividend payout ratio and a constant debt-equity ratio. What is the maximum dollar increase in sales that can be sustained assuming no new equity is issued? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Maximum dollar increase+/-0.1%$3,621.96
Logano Driving School's 2017 balance sheet showed net fixed assets of $3.6 million, and the 2018 balance sheet showed net fixed assets of $4 million. The company's 2018 income statement showed a depreciation expense of $400,000. What was net capital spending for 2018? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, e.g., 1,234,567.)
Net capital spending+/-0.1%$800,000
DTO, Inc., has sales of $20 million, total assets of $17.6 million, and total debt of $6.7 million. Assume the profit margin is 8 percent. a.What is the company's net income? (Do not round intermediate calculations. Enter your answer in dollars not in millions, e.g., 1,234,567.)b.What is the company's ROA? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)c.What is the company's ROE? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Net income+/-0.01%$1,600,000 b.ROA+/-1%9.09% c.ROE+/-1%14.68
Griffin's Goat Farm, Inc., has sales of $674,000, costs of $336,000, depreciation expense of $80,000, interest expense of $50,000, and a tax rate of 22 percent. What is the net income for this firm? (Do not round intermediate calculations.)
Net income+/-0.1%$162,240
Pick the correct statement related to net working capital from below.
Net working capital increases when inventory is sold for cash at a profit.
Pick the correct statement about net working capital from below.
Net working capital may be a negative value.
In the comparison of the financial situations among electricity companies that have the same SIC codes, which of the following is the least important factor?
Number of part-time employees
__________________are most apt to be a fixed cost.
Office salaries
___________________ is defined as the cash flow that results from a company's ongoing, normal business activities.
Operating cash flow
Pompeii, Inc., has sales of $52,500, costs of $24,000, depreciation expense of $2,500, and interest expense of $2,250. If the tax rate is 23 percent, what is the operating cash flow, or OCF? (Do not round intermediate calculations.)
Operating cash flow+/-0.1%$23,038
________________ represents a cash outflow from a corporation.
Payment of dividends
Pick the correct statement related to pro forma statements from below.
Pro forma statements are projections, not guarantees.
Ramble On Co. wishes to maintain a growth rate of 10.2 percent per year, a debt-equity ratio of .9, and a dividend payout ratio of 20 percent. The ratio of total assets to sales is constant at .81. What profit margin must the firm achieve? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Profit margin+/-1%4.93%
The three parts of the Dupont equation are:
Profit margin, Total asset turnover, & Equity Multiplier.
______________________ measures a firm's liquidity.
Quick ratio
Return on equity =
ROA × Equity multiplier
If Roten Rooters, Inc., has an equity multiplier of 1.48, total asset turnover of 1.80, and a profit margin of 5.8 percent, what is its ROE? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
ROE+/-1%15.45%
_________________ is the portion of net income that a firm reinvests in itself.
Retention ratio
The first thing reported on an income statement would usually be:
Revenues.
____________________ has ultimate control of a corporation.
Shareholders
SMOLIRA GOLF CORP.2018 Income Statement Sales $367,234 Cost of goods sold 235,500 Depreciation 38,600 Earnings before interest and taxes $93,134 Interest paid 14,900 Taxable income $78,234 Taxes (21%) 16,429 Net income $61,805 Dividends$35,000 Retained earnings 26,805
Short-term solvency ratios:20172018 a.Current ratio+/-1%1.22times+/-1%1.24times b.Quick ratio+/-0.010.72times+/-0.010.74times c.Cash ratio+/-0.010.46times+/-0.010.45times Asset utilization ratios: d.Total asset turnover+/-0.010.85times e.Inventory turnover+/-1%8.50times f.Receivables turnover+/-1%23.24times Long-term solvency ratios:20172018 g.Total debt ratio+/-0.010.32times+/-0.010.32times h.Debt-equity ratio+/-0.010.48times+/-0.010.47times i.Equity multiplier+/-1%1.48times+/-1%1.47times j.Times interest earned+/-1%6.25times k.Cash coverage ratio+/-1%8.84times Profitability ratios: l.Profit margin+/-1%16.83% m.Return on assets+/-1%14.31% n.Return on equity+/-1%21.02%
Working capital management decisions include:
Should the firm pay cash for a purchase or use the credit offered by the supplier?
The ____________________ is the U.S. government coding system that classifies a company by the nature of its business operations.
Standard Industrial Classification codes
You are given the following information on Kaleb's Heavy Equipment: Profit margin 7% Capital intensity ratio .79 Debt-equity ratio .9 Net income $88,000 Dividends $17,000 Calculate the sustainable growth rate. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Sustainable growth rate+/-1%15.72%
Pick the correct statement related to an income statement from below.
Taxes reduce both net income and operating cash flow.
Pick the correct statement related to pro forma statements from below.
The addition to retained earnings is equal to net income less cash dividends.
SMOLIRA GOLF CORP.2018 Income Statement Sales $349,760 Cost of goods sold 241,500 Depreciation 27,200 Earnings before interest and taxes $81,060 Interest paid 15,300 Taxable income $65,760 Taxes (25%) 16,440 Net income $49,320 Dividends$20,000 Retained earnings 29,320
The company's profit margin is+/-1%14.10percent.(Use year-end figures rather than average values where appropriate. Enter your answer as apercent rounded to 2 decimal places, e.g., 32.16.)The total asset turnover is+/-0.010.81times.(Round your answer to 2 decimal places, e.g., 32.16.)The equity multiplier is+/-1%1.49times.(Round your answer to 2 decimal places, e.g., 32.16.)Using the DuPont Identity, the company's ROE is+/-1%16.91percent.(Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
From reading Facegen's financial statements, we can easily tell the firm's net working capital and all of its expenses vary directly with sales. At the same time, the firm is currently operating at 86 percent of capacity. And, it does not want to apply external financing by issuing either stock or bonds. Facegen is paying income taxes at 21%. It has adopted a constant dividend payout ratio of 25%. Which statement given below related to the firm's pro forma financial statement of next year must be correct?
The firm cannot exceed its internal rate of growth.
Pick the correct statement about the income statement items from below.
The labor costs for producing a product are expensed when the product is sold.
The correct statement is :
The life of a sole proprietorship is limited.
Pick the correct statement from below.
The listing requirements for the NYSE are more stringent than those of NASDAQ.
Pick the correct statement about corporate tax rates from below.
The marginal tax rate for a company can be either higher than or equal to the average tax rate.
The correct statement is :
The owner of a sole proprietorship is personally responsible for all of the company's debts.
Pick the correct statement related to plowback ratio from below.
The plowback ratio is the percentage of net income available to the firm to fund future growth.
When evaluating financial planning steps, we must consider all of the following, except:
The project horizon for the next 30 to 90 days.
For a firm's sustainable growth rate to exceed its internal growth rate, which of the following must be true?
Total debt > $0
To generate a coherent plan, goals and objectives will have to be modified, and priorities will have to be established.
True
__________________ are activities of a firm that require the spending of cash.
Uses of cash
When we do financial planning for the long run, how long will usually be the planning horizon?
a period of 2 to 5 years
Gilmore, Inc., had equity of $155,000 at the beginning of the year. At the end of the year, the company had total assets of $310,000. During the year, the company sold no new equity. Net income for the year was $33,000 and dividends were $4,200. a. Calculate the internal growth rate for the company. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b.Calculate the internal growth rate using ROA × b for beginning of period total assets. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)c.Calculate the internal growth rate using ROA × b for end of period total assets. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
a.Internal growth rate+/-1%10.24%b.ROA × b (using beginning of period assets)+/-1%10.24%c.ROA × b (using end of period assets)+/-1%9.29%
Wims, Inc., has current assets of $7,000, net fixed assets of $25,800, current liabilities of $6,600, and long-term debt of $15,600. a.What is the value of the shareholders' equity account for this firm? (Do not round intermediate calculations.)b.How much is net working capital? (Do not round intermediate calculations.)
a.Shareholders' equity+/-0.1%$10,600b.NWC+/-0.1%$400
An increase in a firm's ________________ will lead to an increase in the firm's quick ratio without affecting its cash ratio.
accounts receivable
The process that Dell Computer combines the investment proposals from each operational unit into one single project for planning purposes is called _____________________.
aggregation
We calculate _______________ tax rate by dividing total taxes by total taxable income.
average
A useful way of standardizing financial statements is to choose a _______ year and then express each item relative to that amount.
base
The book value of a firm is ____________________________________.
based on the firm's historical costs of assets and liabilities
As a financial manager, John should strive to maximize the current value per share of his company's existing stock. To do so, he will be able to ________.
best represent the interests of the current shareholders
To avoid the substantial reporting required by the Sarbanes-Oxley Act, a firm can opt to "go back" so it________ .
can provide less information to its shareholders than it did prior to "going dark".
The _____________ ratio illustrates the amount of total assets a firm needs in order to generate $1 in sales.
capital intensity
We call the cash flow that is available for distribution to a corporation's creditors and stockholders __________________.
cash flow from assets
Cash flow from assets equals:
cash flow to creditors + cash flow to stockholders
When managers use the percentage of sales approach, they ________________.
consider the current production capacity level
The financial planning process is least apt to ___________________.
consider the development of future technologies
A __________ is a distinct legal entity and treated as a legal "person".
corporation
A firm has an interval measure of 48 indicates that the firm has sufficient liquid assets to _________________.
cover its operating costs for the next 48 days
Net working capital is estimated as ______________________.
current assets minus current liabilities
A firm's external financing need is met its _______________________.
debt or equity
On the statement of cash flows, ____________________ is related to an operating activity.
decrease in accounts payable
All else equal, ____________________________ will increase the cash flow from assets.
decrease in the change in net working capital
Dell Computer has succeeded in increasing the amount of goods it sells while holding the amount of inventory on hand at a constant level. If both its cost per unit and its selling price per unit remained constant, this accomplishment will result in a/an ________________ for the firm.
decrease in the day's sales in inventory
All else constant, the internal rate of growth of a firm can be increased by a(an) ________________________.
decrease in the firm's total assets
Assuming all ratios have positive values, an increase in current liabilities will result in a/an ___________________.
decrease in the quick ratio
An increase in a firm's inventory will _____ the cash flow from its _____ activities.
decrease; operating
A tax-paying firm's cash flow from assets will be increased by an increase in its _______________________.
depreciation
The market value of a firm includes ____________________ but the book value of the firm does not include that.
employee's experience
If a firm uses some of its cash to decrease its debt while maintaining its current equity and net income, the firm's __________________ will decrease as a result of this action.
equity multiplier
The DuPont identity can be expressed in terms of ______________________.
equity multiplier, profit margin, and total asset turnover
Growth can summarize various aspects of a firm's __________ and ___________ policies.
financial, investment
A firm's current level of operation (for example, at 90% of its operating capacity) can be used to project the firm's account value of __________________ when preparing pro forma financial statements.
fixed assets
As Plastic Products is operating at just 87 percent capacity, although it is earning a substantial profit, its increase in sales will least lead to the firm's __________ to increase.
fixed assets
Hoosier Industries is currently operating at full (100%) capacity, so, its sales are also currently being limited by its ______________.
fixed assets
Another name for cash flow from assets is ____________________________.
free cash flow
A limited partnership ________________.
has at least one partner who has unlimited liability for all of the partnership's debts
The determination of __________________ represents a capital structure decision.
how much debt should be assumed to fund a project
Assuming that there are no golden parachutes, ________________ is least apt to help convince managers to work in the best interest of the stockholders.
increasing managers' base salaries
A firm's cash coverage ratio directly measures the firm's ability to meet its obligation to pay ______________________.
interest to a lender
HoosierMart earns a profit and it adopts a dividend payout ratio of 30%. It has no plan on issuing additional stocks (equity shares) or bonds (long-term debt) at this time. Thus, ______________ is the maximum rate at which it can currently grow.
internal growth rate
The most recent financial statements for Bello Co. are shown here: Income Statement Balance Sheet Sales$20,400 Current assets$12,000 Debt$16,600 Costs 14,000 Fixed assets 32,850 Equity 28,250 Taxable income$6,400 Total$44,850 Total$44,850 Taxes (22%) 1,408 Net income$4,992 Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 35 percent dividend payout ratio. What is the internal growth rate? (Do not round intermediate calculations and enter your answer as a percent rounded 2 decimal places, e.g., 32.16.)
internal growth rate+/-1%7.80%
If a firm's pro forma financial statements indicate that both sales and fixed assets are projected to increase by 7 percent over their current levels, the firm _______________________.
is currently operating at full capacity
Net capital spending ___________________________.
is equal to zero if the decrease in the net fixed assets is equal to the depreciation expense
A firm's sustainable growth rate is its ___________ growth rate achievable ___________________.
maximum; excluding any external equity financing while maintaining a constant debt-equity ratio
A firm's _____________________ ratios measure how efficiently a firm manages its assets and operations to generate net income.
profitability
Among the options provided below, ______________________ has the least impact on a firm's sustainable growth rate.
quick ratio
Compare a company's current financial _____________________ is considered as the most acceptable method of evaluating the firm's financial statements.
ratios to the company's historical ratios
Shareholders' equity of a firm _____________________________.
represents the residual value of the firm
The market value of an asset depends on:
riskiness and cash flows.
Whose interests should financial managers primarily focus on?
shareholders
We can see from a firm's _________________________, its sources and uses of cash over a stated period of time.
statement of cash flows
The most recent financial statements for Bello Co. are shown here: Income Statement Balance Sheet Sales$20,100 Current assets$11,940 Debt$16,420 Costs 13,800 Fixed assets 31,500 Equity 27,020 Taxable income$6,300 Total$43,440 Total$43,440 Taxes (21%) 1,323 Net income$4,977 Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 45 percent dividend payout ratio. What is the sustainable growth rate? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
sustainable growth rate+/-1%11.27%
A positive cash flow to stockholders indicates with certainty that ___________________________.
the dividends paid exceeded the net new equity raised
When a firm's degree of financial leverage increases, _____________________.
the probability that the firm will encounter financial distress increases
In the construction of a pro forma financial statement, net working capital generally __________________________.
varies proportionally with sales
To make sure a correct capital budgeting analysis for a project, as a financial manager, Timothy will analyze __________ when evaluating the timing of the project's cash flows.
when each cash flow is expected to occur
The decision that makes on _____________________ is considered as a capital budgeting decision.
whether or not to purchase a new machine for the production line
A firm's external financing need ____________________.
will limit the firm's growth if unfunded
you are analyzing the Statement of Cash flows for Coffey Corporation. You have the following information: Beginning Cash: $220 Operating Activity: $497 Investment Activity $598 Financing Activity: −$212 Calculate the Net cash increase/decrease:
Increase: $883
Audited financial statements were prepared according to the common set of standards and procedures specified in the __________________.
Generally Accepted Accounting Principles
______________ is considered as an agency cost.
Hiring outside accountants to audit the company's financial statements
Pick the correct statement from below.
Historical information is useful when projecting a company's future performance.
________________ should be excluded from the calculation of the cash flow from assets, starting with operating cash flow.
Interest expense
___________________ is an expense for accounting purposes but is not an operating cash flow for financial purposes.
Interest expense
Pick the correct statement from below.
Some large companies are listed on NASDAQ.
From the income statement, the corporation had a net income of $724 million for the year. Total dividends were $106 million. There were 400 million shares outstanding. How much is the dividends per share?
$0.265
From the income statement, the corporation had a net income of $724 million for the year. Total dividends were $106 million. There were 400 million shares outstanding. How much is the earnings per share?
$1.81
_________ tax rate is the amount of tax payable on the next dollar earned.
Marginal
In a typical corporation, the treasurer in general reports directly to the _____________________.
vice president of finance.
The transaction that John sold 100 shares of Dell stock on the New York Stock Exchange _____________.
was facilitated in the secondary market
A firm's ________ includes its short-term assets and short-term liabilities.
working capital
The balance sheet of XYZ Company is shown below. What is the Net Working Capital for the company? ASSETS LIABILITIES & OWNERS' EQUITYCurrent assets$300 Current liabilities$240 Net fixed assets 1,500 Long-term debt 700 Owners' equity 860 Total assets$1,800 Total liabilities and equity$1,800
$60
* 2. What was PNG Company's debt to equity ratio for the year 20X1?
0.68
Franklin Corporation just paid taxes of $152,000 on taxable income of $512,000. The marginal tax rate is 35% for the company. What is the average tax rate for the Franklin Corporation?
30%
Davis Company has provided the following financial data: Total Asset Turnover = .245 Net Income = $400,000 Equity Multiplier = 1.20 Net Sales = $1,300,000 What is the Return on Equity?
9.1%
American Corporation has the following financial information. Year 1Year 2Cash$202.95 $245.90 A/R 398.02 485.34 Inventory 785.12 648.54 If Year 1 is the base year, what is the percentage increase/decrease of each current asset amount?
Cash = 21% increase, A/R = 22% increase, Inventory = 17% decrease
The correct statement is :
Income from both sole proprietorships and partnerships that is taxable is treated as individual income.
_______________________ by a financial manager is most apt to create an agency problem.
Increasing current profits when doing so lowers the value of the company's equity
Mary and Susan are equal general partners in a gift-shop business. Although they are happy with the current management and tax situation of the business, they are uncomfortable with the unlimited liability that they have to bear. They are considering to change their current arrangement. If they want to remain as the only two owners of the business, which new form of business entity they have to adopt?
Limited liability company
Three friends want to start a small café business in Richmond, Indiana. They are Adam, Bill and Carson. Adam wants to provide the funds and limit his liability to his initial investment. He does not have any interest in the daily operation of the café. Bill has the funds to contribute. He also plan on actively participate in the café's daily operation. Carson will serve as an active consultant and manager for the café in addition to providing the funds. On the other hand, only Bill and Carson are willing to accept liability for the café's debts. They feel they have nothing to lose even if they do so. All the three friends have agreed to share the profits. At the same time, they want to keep the initial organizational cost of the business to a minimum. What is the most appropriate form of business entity for them to establish their business?
Limited partnership
__________________ can best state the primary goal of financial management.
Maximizing the current value per share
_______________ constitutes a cash flow from a corporation into the financial markets.
Payment of loan interest
_______________ is a tangible fixed asset.
Production equipment
______________________ represents a primary market transaction.
Sale of a new share of stock to an individual investor
The Statement of Cash Flows has all of the following categories, except:
Standard
Which of the following is a disadvantage of a corporation?
double taxation of distributed profits
A limited liability company ___________________.
is taxed similar to a partnership
A ________________ will not lose more than his/her investment in the partnership.
limited partner
Financial managers should always make the decisions which focus on increasing the ______________________.
market value per share of outstanding stock
* 3. What was PNG Company's inventory turnover for the year 20X1?
27.62 times
____________________ can be adopted by shareholders to replace company management.
Proxy fight
Which of the following is a correct statement regarding the upward chain of command in a typical corporation?
The controller reports to the chief financial officer.
Among the following, ___________ can raise largest amount of capital.
corporation
You are analyzing the Statement of Cash flows for Coffey Corporation. You have the following information: Beginning Cash: Ending Cash: $285 Net cash increase: $102 Calculate the Beginning Cash.
$183
The balance sheet for the Capella Corporation is as follows: AssetsLiabilities and Shareholders' EquityCurrent assets$300 Current liabilities$110 Net fixed assets 1,200 Long-term debt 500 Shareholders' equity 890 Total assets$1,500 Total liabilities and shareholders' equity$1,500 What is the Net Working Capital for Capella Corporation?
$190
Ferry Boat Corporation has the following financial information: Net fixed assets: Book value: $2,500, Market value: $3,000 Net working capital: $700 Current accounts liquidated: $1,500 ABC Corporation has $900 in long-term debt. What is the book value of equity?
$2,300
The ABC Corporation has the following information. How much is the Cash Flow to Creditors? ABC Corporation Earnings before interest & taxes$1,588 Depreciation 130 Beginning net fixed assets 1,650 Interest paid 150 Net new equity raised 450 Net new borrowing 110 Taxes 424
$40
* 1. What was PNG Company's current ratio for the year 20X1?
3.32
* 4. What was PNG Company's return on equity for the year 20X1?
42.44%
The size of a company's tax bill is determined by the tax _______.
Code
Which of the following decisions is not made by a financial manager?
How should a product be marketed?
When considering Net Working Capital, a project will generally need all of the following, except:
Only long-term assets to get the project started.
___________________ can be used to grant an individual the right to vote on behalf of a shareholder.
Proxy
Return on equity can be calculated as ROA × Equity multiplier. What is another way to express this equation?
ROE = ROA × (1 + Debt − Equity Ratio)
For debt and equity, their public offerings must be registered with the ______ .
Securities and Exchange Commission
Earnings per share can be calculated as Net Income/Total shares outstanding.
True
A general partner ____________________.
is personally responsible for all partnership debts
The form of business organizations which have all the respective rights and privileges of a legal person is __________________.
corporation
Agency problems most likely occur in _______________________.
corporations
An unintended result of the Sarbanes-Oxlay Act is that _________________.
corporations delisting from major exchanges
A _________ __________ is one that has a life of less than one year, meaning they must be paid within the year.
current liability
The Sarbanes-Oxley Act of 2002 is a governmental response to:
management greed and abuses.
A _____________ is a business owned by a solitary individual who has unlimited liability for the firm's debt.
sole proprietorship
Dividends paid out by a corporation are __________________.
taxable income of the recipient even though that income was previously taxed
Working capital management deals with the decisions such as ________________.
the minimum level of cash to be kept in a checking account