TEST 1 FIN 351

According to the Statement of Cash Flows, a decrease in accounts receivable will _____ the cash flow from _____ activities. a. decrease; operating b. decrease; financing c. increase; operating d. increase; financing e. increase; investment

C: increase; operating

The percentage of the next dollar you earn that must be paid in taxes is referred to as the _____ tax rate. a. mean b. residual c. total d. average e. marginal

E: marginal

When constructing a pro forma statement, net working capital generally: a. remains fixed. b. varies only if the firm is currently producing at full capacity. c. varies only if the firm maintains a fixed debt-equity ratio. d. varies only if the firm is producing at less than full capacity. e. varies proportionally with sales.

E: varies proportionally with sales

A firm has sales of $68,400, costs of $42,900, interest paid of $2,100, and depreciation of $6,500. The tax rate is 34 percent. What is the value of the cash coverage ratio? a. 12.14. b. 15.24. c. 17.27. d. 23.41. e. 24.56.

A: 12.14 Cash coverage ratio = ($68,400 - $42,900)/$2,100 = 12.14.

The Cookie Shoppe expects sales of $437,500 next year. The profit margin is 5.3 percent and the firm has a 30 percent dividend payout ratio. What is the projected increase in retained earnings? a. $16,231 b. $17,500 c. $18,300 d. $20,600 e. $21,000

A: 16,231 Change in retained earnings = $437,500 × .053 × (1 - 0.30) = $16,231

The Daily News had net income of $121,600 of which 40 percent was distributed to the shareholders as dividends. During the year, the company sold $75,000 worth of common stock. What is the cash flow to stockholders? a. ($75,000) b. ($26,360) c. ($2,040) d. $123,640 e. $147,960

B:(26,360)... Cash flow to stockholders = .40($121,600) - $75,000 = -$26,360.

Jensen Enterprises paid $1,300 in dividends and $920 in interest this past year. Common stock increased by $1,200 and retained earnings decreased by $310. What is the net income for the year? a. ($210) b. $990 c. $1,610 d. $1,910 e. $2,190

B:990... .Net income = $1,300 + (-$310) = $990.

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 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 cash flow to creditors? a. ($18,348) b. ($1,001) c. $11,129 d. $13,861 e. $19,172

C: 11,1129... Cash flow to creditors = $6,430 - ($68,219 - $72,918) = $11,129

Al's Sport Store has sales of $897,400, costs of goods sold of $628,300, inventory of $208,400, and accounts receivable of $74,100. 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. 84.76 days c. 121.07 days d. 138.46 days e. 151.21 days

C: 121.07 Inventory turnover = $628,300/$208,400 = 3.014875 Days in inventory = 365/3.014875 = 121.07 days

Russell's Deli has cash of $136, accounts receivable of $95, accounts payable of $210, and inventory of $409. What is the value of the quick ratio? a. 0.31. b. 0.53. c. 0.71. d. 1.1. e. 1.07.

D: 1.1 Quick ratio = ($136 + $95)/$210 = 1.10.

The Home Supply Co. has a current accounts receivable balance of $280,000. Credit sales for the year just ended were $1,830,000. How many days on average did it take for credit customers to pay off their accounts during this past year? a. 54.29 days b. 55.01 days c. 55.50 days d. 55.85 days e. 61.00 days

D: 55.85 Receivables turnover = $1,830,000/$280,000 = 6.536 times Days' sales in receivables = 365/6.536 = 55.85 days

Monika's Dinor is operating at 94 percent of its fixed asset capacity and has current sales of $611,000. How much can the firm grow before any new fixed assets are needed? a. 4.99 percent b. 5.78 percent c. 6.02 percent d. 6.38 percent e. 6.79 percent

D: 6.38 Full-capacity sales = $611,000/0.94 = $650,000 Maximum growth without additional assets = ($650,000/$611,000) - 1 = 6.38 percent

The Two Sisters has a 9 percent return on assets and a 75 percent retention ratio. What is the internal growth rate? a. 6.50 percent b. 6.75 percent c. 6.97 percent d. 7.24 percent e. 7.38 percent

D: 7.24... Internal growth rate = (0.09 × 0.75)/[1 - (0.09 × 0.75)] = 7.24 percent

The formula which breaks down the return on equity into three component parts is referred to as which one of the following? a. equity equation b. profitability determinant c. SIC formula d. Du Pont identity e. equity performance formula

D: Du pont identity

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 cash flow of a firm which is available for distribution to the firm'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

Which one of the following is an agency cost? a. accepting an investment opportunity that will add value to the firm b. increasing the quarterly dividend c. investing in a new project that creates firm value d. hiring outside accountants to audit the company's financial statements e. closing a division of the firm that is operating at a loss

D: hiring outside accountants to audit the company's financial statements

Stop and Go has a 4.5 percent profit margin and an 18 percent dividend payout ratio. The total asset turnover is 1.6 and the debt-equity ratio is 0.45. What is the sustainable rate of growth? a. 8.13 percent b. 8.54 percent c. 8.89 percent d. 9.26 percent e. 9.36 percent

E: 9.36 Return on equity = 0.045 × 1.60 × (1 + 0.45) = 0.1044 Sustainable growth = [0.1044 × (1 - 0.18)]/{1 - [.1044 × (1 - 0.18)]} = 9.36 percent

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

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 liabilites

The Dog House has net income of $3,450 and total equity of $8,600. The debt-equity ratio is 0.60 and the payout ratio is 30 percent. What is the internal growth rate? a. 14.47 percent b. 17.78 percent c. 21.29 percent d. 29.40 percent e. 33.33 percent

c: 21.29... Total assets = $8,600 × (1 + 0.60) = $13,760 Return on assets = $3,450/$13,760 = .250727 Internal growth = [.250727 × (1 - 0.30]/[1 - (.250727 × (1 - 0.30)] = 21.29 percent

Which one of the following business types 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

A general partner: a. is personally responsible for all the partnership debts. b. has no say over a firm's daily operations. c. faces double taxation whereas a limited partner does not. d. has a maximum loss equal to his or her equity investment. e. receives a salary in lieu of a portion of the profits.

A: is personally responsible for all the partnerships debts

Which one of the following is defined as a firm's short-term assets and its short-term liabilities? a. working capital b. debt c. investment capital d. net capital e. capital structure

A: working capital

A firm has $520 in inventory, $1,860 in fixed assets, $190 in accounts receivables, $210 in accounts payable, and $70 in cash. What is the amount of the current assets? a. $710 b. $780 c. $990 d. $2,430 e. $2,640

B: 780.... Current assets = $520 + $190 + $70 = $780.

Which one of the following functions should be the responsibility of the controller rather than the treasurer? a. daily cash deposit b. income tax returns c. equipment purchase analysis d. customer credit approval e. payment to a vendor

B: income tax returns

Gladsden Refinishers currently has $21,900 in sales and is operating at 45 percent of the firm's capacity. What is the full capacity level of sales? a. $31,755 b. $36,250 c. $48,667 d. $51,333 e. $54,500

C: 48,667 Full-capacity sales = $21,900/0.45 = $48,667

A firm has a retention ratio of 45 percent and a sustainable growth rate of 6.2 percent. The capital intensity ratio is 1.2 and the debt-equity ratio is 0.64. What is the profit margin? a. 6.28 percent b. 7.67 percent c. 9.49 percent d. 12.38 percent e. 14.63 percent

C: 9.49 0.062 = [ROE × 0.45]/[1 - (ROE × 0.45)]; ROE = .129734 0.129734 = PM × (1/1.2) × (1 + .64); PM = 9.49 percent

Which one of the following terms is defined as dividends paid expressed as a percentage of net income? a. dividend retention ratio b. dividend yield c. dividend payout ratio d. dividend portion e. dividend section

C: dividend payout ratio

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

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

Crandall Oil has total sales of $1,349,800 and costs of $903,500. Depreciation is $42,700 and the tax rate is 34 percent. The firm does not have any interest expense. What is the operating cash flow? a. $129,152 b. $171,852 c. $179,924 d. $281,417 e. $309,076

E:309,076.. .Earnings before interest and taxes = $1,349,800 - $903,500 - $42,700 = $403,600 Tax = $403,600 × .34 = $137,224 Operating cash flow = $403,600 + $42,700 - $137,224 = $309,076

The Purple Martin has annual sales of $687,400, total debt of $210,000, total equity of $365,000, and a profit margin of 4.80 percent. What is the return on assets? a. 5.74 percent b. 6.48 percent c. 7.02 percent d. 7.78 percent e. 9.79 percent

A: 5.74 Return on assets = (.048 × $687,400)/($210,000 + $365,000) = 5.74 percent

Relationships determined from a firm's financial information and used for comparison purposes are known as: a. financial ratios. b. identities. c. dimensional analysis. d. scenario analysis. e. solvency analysis.

A: financial ratios

Which one of the following best states the primary goal of financial management? a. maximize current dividends per share b. maximize the current value per share c. increase cash flow and avoid financial distress d. minimize operational costs while maximizing firm efficiency e. maintain steady growth while increasing current profits

B: maximize the current value per share