Corp Finance-Test 1-HW Questions

A business created as a distinct legal entity and treated as a legal "person" is called a: 1. Sole proprietorship. 2. Unlimited liability company. 3. Limited partnership. 4. Corporation. 5. General partnership.

Corporation

The 2008 balance sheet of Saddle Creek, Inc., showed current assets of $1,350 and current liabilities of $840. The 2009 balance sheet showed current assets of $1,720 and current liabilities of $1,100. What was the company's 2009 change in net working capital, or NWC?

$110

Y3K, Inc., has sales of $4,100, total assets of $2,845, and a debt−equity ratio of 1.30. If its return on equity is 19 percent, what its net income?

$235.02

Papa Roach Exterminators, Inc., has sales of $724,000, costs of $235,000, depreciation expense of $48,000, interest expense of $26,000, and a tax rate of 35 percent. What is the net income for firm?

$269,750

Crystal Lake, Inc. has a total debt ratio of 0.28 what is debt-equity ratio? what is equity multiplier?

.39 1.39

If Roten Rooters, Inc., has an equity multiplier of 1.42, total asset turnover of 1.33, and a profit margin of 7.50 percent. What is its ROE?

14.16%

Wakers, Inc., has sales of $40 million, total assets of $25 million, and total debt of $7 million If the PM is 6%, what is net income? What is the ROA? What is the ROE?

2,400,000 9.6% 13.33%

Penguin Pucks, Inc., has current assets of $3,900, net fixed assets of $32,500, current liabilities of $3,400, and long-term debt of $7,000. What is the value of shareholders' equity? How much is net working capital?

26,000 500

Earnhardt Driving School's 2008 balance sheet showed net fixed assets of $4 million, and the 2009 balance sheet showed net fixed assets of $6.5 million. The company's 2009 income statement showed a depreciation expense of $855,000. What was net capital spending for 2009?

3,355,000

Jetson Spacecraft Corp. shows the following information on its 2009 income statement: sales = $208,000; costs = $85,000; other expenses = $6,400; depreciation expense = $8,900; interest expense = $13,500; taxes = $28,260; dividends = $9,400. In addition, you're told that the firm issued $7,100 in new equity during 2009 and redeemed $8,700 in outstanding long-term debt. What is 2009 operating cash flow? What is 2009 cash flow to creditors? What is the 2009 cash flow to stockholders?

88,340 22,200 2,300

Which one of the following accounts is the most liquid? Accounts Receivable. Land. Building. Equipment. Inventory.

Accounts receivable

Which one of the following is a capital budgeting decision? 1. Deciding whether or not to purchase a new machine for the production line. 2. Determining how much inventory to keep on hand. 3. Determining how much money should be kept in the checking account. 4. Determining how many shares of stock to issue. 5. Deciding how to refinance a debt issue that is maturing.

Deciding whether or not to purchase a new machine for the production line

Which one of the following is a use of cash? 1. Decrease in inventory. 2. Increase in long-term debt. 3. Decrease in fixed assets. 4. Decrease in accounts payable. 5. Decrease in accounts receivables.

Decrease in accounts payable

According to the statement of cash flows, an increase in interest expense will _____ the cash flow from _____ activities.

Decrease; operating

Relationships determined from a firm's financial information and used for comparison purposes are known as: 1. Identities. 2. Dimensional analysis. 3. Solvency analysis. 4. Financial ratios. 5. Scenario analysis.

Financial ratios

Cash flow from assets is also known as the firm's: 1. Historical cash flow. 2. Free cash flow. 3. Capital structure. 4. Hidden cash flow. 5. Equity structure.

Free cash flow

If a firm produces a 13 percent return on assets and also a 13 percent return on equity, then the firm: 1. Is using its assets as efficiently as possible. 2. May have short-term, but not long-term debt. 3. Has no net working capital. 4. Has an equity multiplier of 1.0. 5. Has a debt-equity ratio of 1.0.

Has an equity multiplier of 1.0

How do each of the following affect cash? 1. Decrease in inventory 2. Decrease in accounts payable 3. Increase in notes payable 4. Increase in accounts receivable

Increase Decrease Increase Decrease

Depreciation for a tax-paying firm: 1. Increases expenses and lowers taxes. 2. Decreases net fixed assets, net income, and operating cash flows. 3. Increases the net fixed assets as shown on the balance sheet. 4. Reduces both the net fixed assets and the costs of a firm. 5. Is a noncash expense that increases the net income.

Increases expenses and lowers taxes

Net capital spending: 1. Reflects the net changes in total assets over a stated period of time. 2. Is equal to ending net fixed assets minus beginning net fixed assets. 3. Is equal to the net change in the current accounts. 4. Is equivalent to the cash flow from assets minus the operating cash flow minus the change in net working capital. 5. Is equal to zero if the decrease in the net fixed assets is equal to the depreciation expense.

Is equal to zero if the decrease in the net fixed assets is equal to the depreciation expense

Lenders probably have the most interest in which one of the following sets of ratios? 1. Price-earnings and debt-equity. 2. Long-term debt and times interest earned. 3. Return on equity and price-earnings. 4. Market-to-book and times interest earned. 5. Return on assets and profit margin.

Long-term debt and times interest earned

Which one of the following best states the primary goal of financial management? 1. Minimize operational costs while maximizing firm efficiency. 2. Maximize the current value per share. 3. Maximize current dividends per share. 4. Increase cash flow and avoid financial distress. 5. Maintain steady growth while increasing current profits.

Maximize the current value per share

Which one of the following is a primary market transaction? 1. Stock ownership transfer from one shareholder to another shareholder. 2. Sale of currently outstanding stock by a dealer to an individual investor. 3. Sale of a new share of stock to an individual investor. 4. Gift of stock from one shareholder to another shareholder. 5. Gift of stock by a shareholder to a family member.

Sale of a new share of stock to an individual investor

Which one of the following will decrease the value of a firm's net working capital? 1. Purchasing inventory on credit. 2. Selling inventory at a loss. 3. Using cash to pay a supplier. 4. Depreciating an asset. 5. Collecting an accounts receivable.

Selling inventory at a loss

Which one of the following statements related to an income statement is correct? Assume accrual accounting is used. 1. Credit sales are recorded on the income statement when the cash from the sale is collected. 2. The addition to retained earnings is equal to net income plus dividends paid. 3. Depreciation increases the marginal tax rate. 4. Interest is a non-cash expense. 5. The labor costs for producing a product are expensed when the product is sold.

The labor costs for producing a product are expensed when the product is sold

RJ's has a fixed asset turnover rate of 1.26 and a total asset turnover rate of .97. Sam's has a fixed asset turnover rate of 1.31 and a total asset turnover rate of .94. Both companies have similar operations. Based on this information, RJ's must be doing which one of the following? 1. Generating $1 in sales for every $1.26 in net fixed assets. 2. Generating $1.26 in net income for every $1 in net fixed assets. 3. Maintaining the same level of current assets as Sam's. 4. Utilizing its total assets more efficiently than Sam's. 5. Utilizing its fixed assets more efficiently than Sam's.

Utilizing its total assets more efficiently than Sam's