business finance test 1

1. 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

1. 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. 1,269.46 Net income = $75 + 418 = $493 Taxable income = $493 / (1 - .35) = $758.46 Earnings before interest and taxes = $758.46 + 511 = $1,269.46

1. A firm has common stock of $6,200, paid-in surplus of $9,100, total liabilities of $8,400, current assets of $5,900, and fixed assets of $21,200. What is the amount of the shareholders' equity? A. $6,900 B. $15,300 C. $18,700 D. $23,700 E. $35,500

C. 18,700 Shareholders' equity = $5,900 + 21,200 - 8,400 = $18,700

1. 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

1. 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

1. A business partner whose potential financial loss in the partnership will not exceed his or her investment in that partnership is called a: A. General partner. B. Sole proprietor. C. Limited partner. D. Corporate shareholder. E. Zero partner.

C. Limited Partner

1. Which one of the following is the financial statement that shows the accounting value of a firm's equity as of a particular date? A. Income statement. B. Creditor's statement. C. Balance sheet. D. Statement of cash flows. E. Dividend statement.

C. balance sheet

1. Why should financial managers strive to maximize the current value per share of the existing stock? A. Doing so guarantees the company will grow in size at the maximum possible rate. B. Doing so increases employee salaries. C. Because they have been hired to represent the interests of the current shareholders. D. Because this will increase the current dividends per share. E. Because managers often receive shares of stock as part of their compensation

C. because they have been hired to represent the interests of the current shareholders

1. Winston Industries had sales of $843,800 and costs of $609,900. The firm paid $38,200 in interest and $18,000 in dividends. It also increased retained earnings by $62,138 for the year. The depreciation was $76,400. What is the average tax rate? A. 32.83 percent B. 33.33 percent C. 38.17 percent D. 43.39 percent E. 48.87 percent

A. 32.83 percent Earnings before taxes = $843,800 - 609,900 - 76,400 - 38,200 = $119,300 Net income = $18,000 + 62,138 = $80,138 Taxes = $119,300 - 80,138 = $39,162 Tax rate = $39,162 / $119,300 = .3283, or 32.83 percent

1. A business owned by a solitary individual who has unlimited liability for its debt is called a: A. Corporation. B. Sole proprietorship. C. General partnership. D. Limited partnership. E. Limited liability Company.

B. Sole proprietorship

1. Which one of the following terms is defined as a conflict of interest between the corporate shareholders and the corporate managers? A. Articles of incorporation. B. Corporate breakdown. C. Agency problem. D. Bylaws. E. Legal liability.

C. Agency problem

1. Which one of the following statements is correct? A. The majority of firms in the U.S. are structured as corporations. B. Corporate profits are taxable income to the shareholders when earned. C. Corporations can raise large amounts of capital generally easier than partnerships can. D. Stockholders face no potential losses related to their corporate investment. E. Corporate shareholders elect the corporate president.

C. Corporations can raise large amounts of capital generally easier than partnerships can

1. The cash flow of a firm that 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

1. Which one of the following is a capital structure decision? A. Determining which one of two projects to accept. B. Determining how to allocate investment funds to multiple projects. C. Determining the amount of funds needed to finance customer purchases of a new product. D. Determining how much debt should be assumed to fund a project. E. Determining how much inventory will be needed to support a project.

D. determining how much debt should be assumed to fund a project.

1. The Lakeside Inn had operating cash flow of $48,450. Depreciation was $6,700 and interest paid was $2,480. A net total of $2,620 was paid on long-term debt. The firm spent $24,000 on fixed assets and decreased net working capital by $1,330. What is the amount of the cash flow to stockholders? A. $5,100 B. $7,830 C. $18,020 D. $19,998 E. $20,680

E. 20,680 Cash flow from assets = $48,450 - (-$1,330) - 24,000 = $25,780 Cash flow to creditors = $2,480 - (-$2,620) = $5,100 Cash flow to stockholders = $25,780 - 5,100 = $20,680

1. A firm has net working capital of $560. Long-term debt is $3,970, total assets are $7,390, and fixed assets are $3,910. What is the amount of the total liabilities? A. $2,050 B. $2,920 C. $4,130 D. $7,950 E. $6,890

E. 6,890 Current assets = $7,390 - 3,910 = $3,480 Current liabilities = $3,480 - 560 = $2,920 Total liabilities = $2,920 + 3,970 = $6,890

1. Which one of the following best describes the primary advantage of being a limited partner instead of a general partner? A. Tax-free income. B. Active participation in the firm's activities. C. No potential financial loss. D. Greater control over the business affairs of the partnership. E. Maximum loss limited to the capital invested.

E. maximum loss limited to the capital invested

1. A firm has $680 in inventory, $2,140 in fixed assets, $210 in accounts receivables, $250 in accounts payable, and $80 in cash. What is the amount of the net working capital? A. $970 B. $720 C. $640 D. $3,110 E. $2,860

b. 720 Net working capital = $680 + 210 + 80 - 250 = $720

1. Which one of the following statements concerning net working capital is correct? A. Net working capital increases when inventory is purchased with cash. B. Net working capital excludes inventory. C. Total assets must increase if net working capital increases. D. Net working capital may be a negative value. E. Net working capital is the amount of cash a firm currently has available for spending.

d. NET WORKING CAPITAL MAY BE A NEGATIVE VALUE

1. Which one of the following statements related to an income statement is correct? A. Interest expense increases the amount of tax due. B. Depreciation does not affect taxes since it is a non-cash expense. C. Net income is distributed to dividends and paid-in surplus. D. Taxes reduce both net income and operating cash flow. E. Interest expense is included in operating cash flow.

d. TAXES REDUCE BOTH NET INCOME AND OPERATING CASH FLOW