Business Finance Test 1 (Chapters 1,2,&5)

Which of the following is NOT a typical reason for differences between profits and cash flow? A. Goodwill B. Depreciation expense C. Changes in accounts receivable D. Accrual accounting practices

Goodwill

Which of the following formulas describes the calculation of cash flow from operating activities? A. Net income + Noncash items +/− Changes in current assets and liabilities B. Net income + Capital expenditures − Dividends paid C. Net income − Capital expenditures − Dividends paid D. Net income +/− Changes in current assets and liabilities − Dividends paid E. Net income + Noncash items − Capital expenditures

Net income + Noncash items +/− Changes in current assets and liabilities

True or False: A reduction in long-term debt is a use of cash

True

True or False: After issue, the market price of a fixed-rate bond can differ substantially from its par value.

True

True or False: All else equal, a firm would prefer to have a higher gross margin.

True

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. If the company repurchases 20 percent of its shares in the stock market, what will be the book value of equity if all else remains the same? A. $750,000 B. $1,250,000 C. $1,000,000 D. $1,400,000 E. $4,000,000 F. None of the options are correct.

$750,000

Suppose an acquiring firm pays $100 million for a target firm, and the target's assets have a book value of $70 million and an estimated replacement value of $80 million. What amount would be allocated to the acquiring firm's goodwill account? A. $0 million B. $20 million C. $30 million D. $70 million E. $80 million F. None of the options are correct.

$20 million

At the end of 2017, Stacky Corp. had $500,000 in liabilities and a debt-to-assets ratio of 0.5. For 2017, Stacky had an asset turnover of 3.0. What were annual sales for Stacky in 2017? A. $333,333 B. $1,200,000 C. $1,800,000 D. $3,000,000

$3,000,000

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 options are correct.

$3.50

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 options are correct.

return on equity.

Assume you are a banker who has loaned money to a firm, but that firm is now facing increased competition and reduced cash flows. Which one of the following ratios would you most closely monitor to evaluate the firm's ability to repay its loan? A. current ratio B. debt-to-equity ratio C. times-interest-earned ratio D. times-burden-covered ratio E. None of the options are correct.

times-burden-covered ratio

On a common-size balance sheet, all accounts are expressed as a percentage of A. sales. B. profits. C. equity. D. total assets. E. None of the options are correct.

total assets.

Suppose you purchase a call option on XYZ stock when the stock price is $81. The option premium is $3, and the strike price is $85. What is your net profit on the call option if the stock price is $89 at maturity? A. −$7 B. −$3 C. $1 D. $4 E. $5

$1

A $1,000 par value bond with a fixed 10% rate of interest pays coupons semiannually. What amount will the bondholder receive on the bond's maturity date? A. $50 B. $100 C. $500 D. $1,000 E. $1,050 F. $1,100

$1,050

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 options are correct.

$10

A company sells used equipment with a book value of $100,000 for $250,000 cash. How would this transaction affect the company's balance sheet? A. Equity rises $250,000; net plant and equipment falls $250,000. B. Cash rises $250,000; net plant and equipment falls $100,000; equity rises $150,000. C. Cash rises $250,000; accounts receivable falls $100,000; goodwill rises $150,000. D. Cash rises $250,000; net plant and equipment falls $250,000.

Cash rises $250,000; net plant and equipment falls $100,000; equity rises $150,000.

Which of the following would NOT be considered a use of cash? A. Dividends paid B. A decrease in accounts payable C. Depreciation D. An increase in the cash and marketable securities account

Depreciation

True or False: A company's return on assets will always equal or exceed its profit margin.

False

True or False: A decline in the Net fixed assets account between year-end 2016 and year-end 2017 is a clear indication that fixed assets were sold during 2017.

False

True or False: Accounting rules require U.S. companies to depreciate research and development (R&D) expenditures using the straight-line method.

False

True or False: All else equal, an increase in a company's asset turnover will decrease its ROE.

False

True or False: An increase in cash and cash equivalents should appear as a source of cash on the sources and uses statement.

False

True or False: An inventory turnover ratio of 10 means that, on average, items are held in inventory for 10 days

False

True or False: If a firm increases its accounts payable period, other things equal, it increases the cash conversion cycle

False

True or False: In the steps a company takes to prepare for an IPO, the "road show" precedes the "bake-off".

False

True or False: One advantage of ROE is that it is a risk-adjusted measure of performance.

False

True or False: Principal is exchanged in interest rate swaps but not in currency swaps.

False

True or False: Private equity firms comprise a relatively insignificant portion of the American economy.

False

True or False: The accrual principle requires that revenue not be recognized until payment from a sale is received

False

True or False: The cost of equity is usually reported on the income statement right below interest expense

False

True or False: The only reason why the price would fall on a corporate bond is if market interest rates increase

False

True or False: Valuing a call option requires an accurate estimate of the future value of the underlying asset.

False

True or False: You can construct a sources and uses statement for 2017 if you have a company's year-end balance sheets for 2017 and 2018.

False

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

Mike just purchased a bond which pays $40 every six months in interest. The $40 interest payment is also called the A. coupon. B. par value. C. discount. D. call premium. E. yield. F. None of the options are correct.

coupon

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

A times-interest-earned ratio of 3.5 indicates that the firm A. pays 3.5 times its earnings in interest expense. B. has interest expense equal to 3.5% of EBIT. C. has interest expense equal to 3.5% of net income. D. has EBIT equal to 3.5 times its interest expense.

has EBIT equal to 3.5 times its interest expense.

True or False: A company's return on assets will always equal or exceed its profit margin

False

Which one of the following statements is correct? A. If the debt-to-assets ratio is greater than 0.50, then the debt-to-equity ratio must be less than 1.0. B. Long-term creditors would prefer the times-interest-earned ratio be 1.4 rather than 1.5. C. The assets-to-equity ratio can be computed as 1 plus the debt-to-equity ratio. D. To realize the best risk and reward profile, financial leverage should be maximized. E. None of the options are correct.

The assets-to-equity ratio can be computed as 1 plus the debt-to-equity ratio.

Ptarmigan Travelers had sales of $420,000 in 2016 and $480,000 in 2017. The firm's current asset accounts remained constant. Given this information, which one of the following statements must be true? A. The total asset turnover rate increased. B. The days' sales in receivables increased. C. The inventory turnover rate increased. D. The fixed asset turnover decreased. E. The collection period decreased.

The collection period decreased.

Which one of the following statements is false? A. Financial executives must design financial securities to meet the needs of the firm and its investors. B. Financial instruments are subject to full disclosure requirements. C. The design of financial instruments is greatly constrained by law and regulation. D. Financial instruments are claims against a company's cash flows and assets. E. None of the options are correct.

The design of financial instruments is greatly constrained by law and regulation.

Which of the following statements concerning the cash flow production cycle is true? A. The profits reported in a given time period equal the cash flows generated. B. A company's operations and finances are independent of each other. C. Financial statements have nothing to do with reality. D. The movement of cash to inventory, to accounts receivable, and back to cash is known as the firm's working capital cycle. E. A profitable company will always have sufficient cash to meet its obligations.

The movement of cash to inventory, to accounts receivable, and back to cash is known as the firm's working capital cycle.

Which of the following variables does NOT affect the value of a stock option? A. The predicted future price of the underlying stock B. The current price of the underlying stock C. The option's time to maturity D. The option's strike price E. The interest rate

The predicted future price of the underlying stock

Which of the following factors, when increased, will tend to cause the value of a put to decrease (all else equal)? A. The expected volatility of the underlying stock B. The price of the underlying stock C. The time to maturity D. The strike price E. None of the options are correct.

The price of the underlying stock

The price of a call option tends to be lower when which of the following is higher (all else equal)? A. The expected volatility of the underlying stock B. The price of the underlying stock C. The time to maturity D. The strike price E. None of the options are correct.

The strike price

True or False: The times-interest-earned ratio always equals or exceeds the times-burden-covered ratio.

True

True or False: When reporting financial performance for tax purposes, U.S. companies prefer to use accelerated depreciation methods over the straight-line method.

True

Which of the following is a reason why a company's market value of equity differs from its book value of equity? A. Shareholders are keenly aware of book values but have little interest in market values. B. Accountants' charges for the cost of equity are often higher than they should be. C. Fair value accounting is becoming more widely used. D. Values of assets on the balance sheet typically reflect historical cost, adjusted for appropriate depreciation.

Values of assets on the balance sheet typically reflect historical cost, adjusted for appropriate depreciation.

Which one of the following ratios identifies the amount of sales a firm generates for every $1 in assets? 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 options are correct.

asset turnover and control

A balance sheet reports the value of a firm's assets, liabilities, and equity A. over an annual period. B. over any period of time. C. at any point in time. D. at the end of the year.

at any point in time

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.

Primavera Holdings has a profit margin of 25%, an asset turnover of 0.5, and financial leverage (assets to equity) of 1.5. Primavera has $20 billion in assets, of which half, is in cash and marketable securities. Assume that Primavera earns a 3 percent after-tax return on cash and securities. What would Primavera's return on equity be if it paid out 90% of its cash and marketable securities as a dividend to shareholders? A. Negative B. Between 0% and 20% C. Between 20% and 40% D. between 40% and 60% E. Greater than 60%

between 40% and 60%

Which of the following securities has a purely fixed claim against a firm's cash flows? A. bonds B. options C. common stock D. None of the options are correct.

bonds

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

cash flow statement.

Which of the following securities has a purely residual claim against a firm's cash flows? A. preferred stock B. callable bonds C. common stock D. non-callable bonds E. None of the options are correct.

common stock

Suppose you purchase a put option on XYZ stock when the stock price is $40. The option premium is $2, and the strike price is $39. What is your net profit on the put option if the stock price is $41 at maturity? A. −$2 B. −$1 C. $0 D. $1 E. $2

−$2

You bought a yen-denominated corporate bond at the beginning of the year for ¥100,000. The bond paid 3 percent annual interest and was trading for ¥110,000 at year-end. The exchange rate was $1 = ¥100 at the beginning of the year and $1 = ¥122 at year-end. What holding period return, measured in U.S. dollars, did you earn on the bond? A. −18.03% B. −7.38% C. −5.03% D. 3.0% E. 10.0% F. None of the options are correct.

−7.38%

What is the holding period return for the year on a bond with a par value of $1,000 and a coupon rate of 8.5% if its price at the beginning of the year was $1,215 and its price at the end of the year was $1,020? Assume interest is paid annually. A. −11.00% B. −10.78% C. −9.05% D. 10.50%

−9.05%

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. If the company repurchases 20 percent of its shares in the stock market, there are no taxes or transaction costs, and all else remains the same, what should the market value of the firm be after the repurchase? A. $1,000,000 B. $1,750,000 C. $3,250,000 D. $4,000,000 E. $5,000,000 F. None of the options are correct.

$4,000,000

What would be the carried interest (at 20%) on a private equity portfolio with an initial value of $500 million that was subsequently liquidated for $750 million? A. $50 million B. $100 million C. $150 million D. $250 million

$50 million

ZZZ Corporation's income statement shows a provision for income taxes of $65 million in 2017. At the end of 2016, ZZZ's balance sheet reported income taxes payable of $12 million and deferred taxes of $18 million. At the end of 2017, their balance sheet shows income taxes payable of $15 million and deferred taxes of $17 million. What were ZZZ's taxes paid in 2017? A. $61 million B. $63 million C. $65 million D. $67 million E. $69 million

$63 million

Please refer to the income statement for VGA Associates below. Assuming that cost of goods sold are variable and operating expenses are fixed, what was VGA Associates' breakeven sales volume in 2017? A. $20,000 B. $80,000 C. $150,000 D. $180,000 E. None of the options are correct.

$80,000

Please refer to the financial data for Link, Inc. above. Link's profit margin for 2017 is A. −94%. B. −57%. C. 13%. D. 31%. E. None of the options are correct.

-94%

At the end of 2016, Crane Industries, Inc.'s stock price was $30.75. A year later, it was $34.88. Per share dividends over the year were $0.55, while earnings per share were $1.33. What was the dividend yield in fiscal year 2017? A. 1.79% B. 4.33% C. 13.43% D. 15.22% E. 17.76% F. None of the options are correct. Dividend yield = 0.55/30.75 = 1.79%

1.79%

You bought a yen-denominated corporate bond at the beginning of the year for ¥100,000. The bond paid 3 percent annual interest and was trading for ¥110,000 at year-end. What holding period return, measured in yen, did you earn on the bond? A. 3% B. 7% C. 10% D. 13% E. 30% F. None of the options are correct.

13%

At the end of 2016, Crane Industries, Inc.'s stock price was $30.75. A year later, it was $34.88. Per share dividends over the year were $0.55, while earnings per share were $1.33. What rate of return did the common stockholders earn in fiscal year 2017? A. 1.79% B. 4.33% C. 13.43% D. 15.22% E. 17.76% F. None of the options are correct.

15.22%

You bought a yen-denominated corporate bond at the beginning of the year for ¥100,000. The bond paid 3 percent annual interest and was trading for ¥110,000 at year-end. The exchange rate was $1 = ¥100 at the beginning of the year and $1 = ¥97 at year-end. What holding period return, measured in U.S. dollars, did you earn on the bond? A. 3.09% B. 6.09% C. 13% D. 16.49% E. 30% F. None of the options are correct.

16.49%

Please refer to the financial information for Foodtek, Inc. above. Assuming the company neither sold nor salvaged any assets during the year, what were Foodtek's capital expenditures (in millions of dollars) during 2017? A. 415 B. 105 C. 310 D. 40 E. 170 F. None of the options are correct.

170

Please refer to the financial data for Link, Inc. above. The current ratio for Link at the end of 2017 is A. 10.21. B. 2.31. C. 2.76. D. 10.30. E. None of the options are correct.

2.76

Please refer to the financial information for Foodtek, Inc. above. During 2017, what was the cost of merchandise (in millions of dollars) produced by Foodtek? A. 223 B. 194 C. 252 D. 228 E. 218 F. None of the options are correct.

218

Please refer to the financial data for Link, Inc. above. Assume a 365-day year for your calculations. Link's payables period in days, based on cost of goods sold, at the end of 2017 is A. 5.2. B. 24.3. C. 28.8. D. 35.7. E. None of the options are correct.

24.3

Please refer to the financial data for Link, Inc. above. Assume a 365-day year for your calculations. Link's days' sales in cash at the end of 2017 is: A. 24.3 B. 28.8 C. 219.6 D. 249.7 E. None of the options are correct.

249.7

Please refer to the financial data for Link, Inc. above. Assume a 365-day year for your calculations. Link's collection period in days, based on sales, at the end of 2017 is A. 24.3. B. 219.6. C. 35.7. D. 28.8. E. None of the options are correct.

28.8

Please refer to the financial information for Foodtek, Inc. above. During 2017, how much cash (in millions of dollars) did Foodtek collect from sales? A. 364 B. 277 C. 404 D. 324 E. 451 F. None of the options are correct.

324

Carbon8 Corporation wants to raise $120 million in a seasoned equity offering, net of all fees. Carbon8 stock currently sells for $28.00 per share. The underwriters will require a fee of $1.25 per share, and indicate that the issue must be underpriced by 7.5%. In addition to the underwriter's fee, the firm will incur $785,000 in legal, administrative, and other costs. How many shares must Carbon8 sell in order to raise the desired amount of capital? A. 4.3 million B. 4.5 million C. 4.6 million D. 4.9 million

4.9 million

Please refer to the financial data for Link, Inc. above. Assume a 365-day year for your calculations. Link's inventory turnover, based on cost of goods sold, at the end of 2017 is A. 5.2. B. 24.3. C. 28.8. D. 35.7. E. None of the options are correct.

5.2

What is the length of the cash conversion cycle for a firm with $3 million in inventory, $1.5 million in accounts payable, a collection period of 40 days, and an annual cost of goods sold of $18 million? A. 34.0 days B. 51.2 days C. 70.4 days D. 131.2 days E. None of the options are correct.

70.4 days

Please refer to the financial information for Foodtek, Inc. above. Assuming that there were no financing cash flows during 2017 and basing your answer solely on the information provided, what were Foodtek's cash flows from operations (in millions of dollars) for 2017? A. 45 B. 110 C. 70 D. 80 E. 35 F. None of the options are correct.

80

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".

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

In March, with the spot price of wheat at $5.75 per bushel, Hollywood Bakery longs 100 July wheat futures contracts (5,000 bushels each) on the CBOE at a futures price of $5.90 per bushel. In June, Hollywood Bakery closes out its futures contracts when the futures price is $5.80 per bushel. What is Hollywood Bakery's gain (or loss) on the futures contracts? A. A gain of $50,000 B. A gain of $25,000 C. A loss of $25,000 D. A loss of $50,000 E. None of the options are correct.

A loss of $50,000

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

Balance sheet

What type of financial instrument is depicted in the position diagram shown below? A. Forward sale B. Forward purchase C. Call option D. Put option

Call option

Which of the following is NOT a major category on the cash flow statement? A. Cash flows from selling activities B. Cash flows from operating activities C. Cash flows from financing activities D. Cash flows from investing activities

Cash flows from selling activities

Which one of the following accurately orders the rate of return on financial securities from highest to lowest over most of recorded market history (the 1928-2016 period)? A. Short-term government bills, long-term corporate bonds, long-term government bonds, common stocks B. Long-term corporate bonds, long-term government bonds, common stocks, short-term government bills C. Common stocks, long-term government bonds, long-term corporate bonds, short-term government bills D. Common stocks, long-term corporate bonds, long-term government bonds, short-term government bills E. Long-term corporate bonds, common stocks, short-term government bills, long-term government bonds F. None of the options are correct.

Common stocks, long-term corporate bonds, long-term government bonds, short-term government bills

Ellsbury Corporation has a goal to reduce its cash conversion cycle. Which of the following actions, holding all else equal, is likely to accomplish this goal? A. Ellsbury changes the credit terms it offers to customers, allowing them to pay in 45 days instead of 30 days. B. Ellsbury increases the efficiency of its production process, reducing by 10% the average time it takes to convert raw materials to finished products. C. Ellsbury starts paying off all outstanding invoices to suppliers twice a month instead of once a month. D. Ellsbury increases its cash/assets ratio from 12% to 15%.

Ellsbury increases the efficiency of its production process, reducing by 10% the average time it takes to convert raw materials to finished products.

Which one of the following statements is true? A. Equity securities offer fixed claims on future cash payouts. B. Unlike bondholders, for their returns, shareholders rely entirely on price appreciation. C. In theory, common shareholders exercise very little control over company decisions. D. Historically, common shareholders have earned a risk premium as compensation for risk borne in excess of government bonds. E. Preferred shareholders are the first investors to be repaid in bankruptcy liquidation. F. None of the options are correct.

Historically, common shareholders have earned a risk premium as compensation for risk borne in excess of government bonds.

Which of the following statements related to market efficiency tend to be supported by current evidence? I. Markets tend to respond quickly to new information. II. It is difficult for the typical investor to earn above-average returns without taking above-average risks. III. Short-run prices are difficult to predict accurately based on public information. IV. Markets are most likely strong-form efficient. A. I and III only B. II and IV only C. I and IV only D. I, III, and IV only E. I, II, and III only F. None of the options are correct

I, II, and III only

Which of the following statements are true? I. Underwriters help private companies access public stock markets through IPOs. II. Shelf registrations and private placements are examples of seasoned security issues. III. Issue costs for debt are typically greater than issue costs for equity. IV. Bearer bonds make it easier for investors to avoid paying taxes on interest income. A. I and II only B. I and III only C. I, II, and IV only D. I, III, and IV only E. I, II, III, and IV F. None of the options are correct.

I, II, and IV only

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 are the most likely reasons for why a stock price might not react at all on the day that new information related to the stock issuer is released? I. Insiders knew the information prior to the announcement. II. Investors need time to digest the information prior to reacting. III. The information has no bearing on the value of the firm. IV. The information was anticipated. A. I and II only B. I and III only C. II and III only D. II and IV only E. III and IV only F. None of the options are correct

III and IV only

Klamath Corporation has asset turnover of 3.5, a profit margin of 5.2%, and a current ratio of 0.5. What is Klamath Corporation's return on equity? A. 8.7% B. 9.1% C. 18.2% D. Insufficient information to find ROE

Insufficient information to find ROE

In comparison to industry averages, Okra Corp. has a low inventory turnover, a high current ratio, and an average quick ratio. Which of the following would be the most reasonable inference about Okra Corp.? A. Its current liabilities are too low. B. Its cost of goods sold is too low. C. Its cash and securities balance is too low. D. Its inventory level is too high.

Its inventory level is too high.

Which of the following statements regarding junk bonds is true? A. Junk bonds typically offer lower yields to maturity than investment-grade bonds. B. Junk bonds have higher priority in bankruptcy than preferred stock. C. Junk bonds offer no coupon payments to investors. D. Junk bonds are typically defined as bonds with default probabilities of 25% or higher.

Junk bonds have higher priority in bankruptcy than preferred stock.

Please refer to the financial data for Link, Inc. above. Which of the following statements best describes how the Link's short-term liquidity changed from 2016 to 2017? A. Link's short-term liquidity has improved modestly. B. Link's short-term liquidity has deteriorated very little, but from a low initial base. C. Link's short-term liquidity has improved considerably, but from a low initial base. D. Link's short-term liquidity has deteriorated considerably, but from a high initial base. E. None of the options are correct.

Link's short-term liquidity has deteriorated considerably, but from a high initial base.

Which one of the following statements does NOT describe a problem with using ROE as a performance measure? A. ROE measures return on accounting book value, and this problem is not solved by using market value. B. ROE is a forward-looking, one-period measure, while business decisions span the past and present. C. ROE measures only return, while financial decisions involve balancing risk against return. D. None of these describe problems with ROE. E. All of these describe problems with ROE.

ROE is a forward-looking, one-period measure, while business decisions span the past and present.

A company purchases a new $10 million building financed half with cash and half with a bank loan. How would this transaction affect the company's balance sheet? A. Net plant and equipment rises $10 million; cash falls $10 million; bank debt rises $5 million. B. Net plant and equipment rises $5 million; cash falls $10 million; bank debt rises $5 million. C. Net plant and equipment rises $5 million; cash falls $5 million; bank debt rises $5 million. D. Net plant and equipment rises $10 million; cash falls $5 million; bank debt rises $5 million.

Net plant and equipment rises $10 million; cash falls $5 million; bank debt rises $5 million.

Which of the following would allow a corporation to issue a bond at a lower coupon rate, all else equal? A. The addition of a call provision to the bond B. The removal of protective covenants from the bond C. A deterioration in the corporation's credit quality D. An increase in the expected inflation rate E. None of the options are correct

None of the options are correct

Please refer to the financial data for Link, Inc. above. Link's gross margin for 2017 is A. −94%. B. 13%. C. 26%. D. 31%. E.None of the options are correct.

None of the options are correct.

Please refer to the income statement for VGA Associates below. If VGA had a principal repayment of $8,000 due in 2017, what was its times-burden-covered ratio in 2017? A. 0.67 B. 1.33 C. 2.31 D. 6.00 E. None of the options are correct.

None of the options are correct.

Which of the following statements regarding preferred stock is true? A. Holders of preferred stock have the same voting rights as common stockholders. B. Preferred stock dividend payments are a deductible expense for corporate tax purposes. C. Almost all public corporations are at least partly financed with preferred stock. D. None of the options are correct.

None of the options are correct.

Which one of the following statements is true? A. Debt instruments offer residual claims to future cash payouts. B. Bonds with call provisions will have lower coupon rates than otherwise identical bonds. C. Bondholders enjoy a direct voice in company decisions. D. Bonds are low-risk investments that do well in inflationary periods. E. Preferred shareholders are the first investors to be repaid in bankruptcy liquidation. F. None of the options are correct.

None of the options are correct.

True or False: A cash flow statement places each source or use of cash into one of three broad categories: operating activities, investing activities, or financing activities.

True

True or False: Across companies, ROA and financial leverage tend to be inversely related

True

True or False: Bond investors should be more concerned with real returns than with nominal returns.

True

True or False: Current liabilities are defined as liabilities with a maturity of less than one year.

True

True or False: In a strong-form efficient market, insider trading is not profitable.

True

True or False: Investment-grade bonds are usually defined as bonds with ratings of BBB- or higher

True

True or False: Return on assets can be calculated as profit margin times asset turnover.

True

True or False: Shelf registration is possible for both debt and equity issues

True

Principal amounts are usually exchanged A. in currency swaps. B. in interest rate swaps. C. in both currency swaps and interest rate swaps. D. in neither currency swaps nor interest rate swaps.

in currency swaps.

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

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

increase in accounts payable

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

increase in inventory

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 days' sales in inventory E. decrease in the total asset turnover rate

increase in the inventory turnover rate

Individuals who continually monitor the financial markets seeking mispriced securities A. earn excess profits over the long term. B. make the markets increasingly more efficient. C. are never able to find a security that is temporarily mispriced. D. are overwhelmingly successful in earning abnormal profits. E. are always quite successful using only historical price information as their basis of evaluation. F. None of the options are correct.

make the markets increasingly more efficient.

Zack owns a bond that will pay him $35 each year in interest plus a $1,000 principal payment at maturity. The $1,000 principal payment is called the A. coupon. B. par value. C. discount. D. yield. E. call premium. F. None of the options are correct.

par value.

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

reduces both taxes and net income.