Exam 1

A limited liability company

Prefers its profits be taxed as personal income to its owners

The T-shirt hut successfully managed to reduce its general and administrative costs this year. This cost improvement will increase which of the following ratios?

Profit margin Return on assets Total asset turnover Return on equity

Limited liability companies are primarily designed to

Provide limited liability while avoiding double taxation

Your firm has cash of $3,800, accounts receivable of $9,600, inventory of $33,100, and net working capital of $1,100. What is the cash ratio?

0.08

Wilson's Realty has total assets of $46,800, net fixed assets of $37,400, current liabilities of $6,100, and long term liabilities of $24,600. What is the total debt ratio?

0.66

Tasty Dee-Lite has current liabilities of $6,630, net working capital of $2,180, inventory of $2,750, and sales of $36,800. What is the quick ratio?

0.91

Russell's Hardware has inventory of $218,000, equity of $421,800, total assets of $647,700, and sales of $587,200. What is the common-size percentage for the inventory account?

33.66 percent

A firm has inventory of $11,400, accounts payable of $9,800, cash of $850, net fixed assets of $12,150, long term debt of $9,500, accounts receivable of $6,600 and total equity of $11,700. What is the common-size percentage of the net fixed assets?

39.19 percent

Textile Mills has sales of $923,000, cost of goods sold of $748,000, and accounts receivables of $106,700. How long on average does it take the firm's customers to pay for their purchases?

42.19 days

Which one of the following statements is true concerning the price-earnings (PE) ratio?

A high PE ratio may indicate that a firm is expected to grow significantly

The potential conflict of interest between a firm's owners and its managers is referred to as which type of conflict

Agency

Which one of the following is most apt to align management's priorities with shareholders interests?

Compensating managers with shares of stock that must be held for 3 years before the shares can be sold

Which one of the following transactions will increase the liquidity of a firm?

Credit sale of inventory at cost

The goal of financial management is to increase the

Current market value per share

Explain what capital structure management is and give three examples of capital structure decision

Debt-equity mix Source of debt financing

Which of the following will increase the sustainable growth ratio of the firm?

Decreasing the capital intensity ratio Increasing the target debt-equity ratio

The DuPont Identity can be used to help a financial manager determine the

Degree of financial leverage used by a firm Operating efficiency of a firm Utilization of a firm's assets Rate of return on a firm's assets

If a firm has a 100 percent dividend payout ratio, then the internal growth rate of the firm is

0 percent

Which of the following are determinant's of a firm's sustainable growth ratio?

Amount of sales generated from each dollar invested in assets Amount of debt per dollar of equity Percent of net income distributed as dividends

Which one of the following applies to a general partnership?

Any one of the partners can be held solely liable for all of the partnership's debt

Working capital management includes which one of the following?

Determining which customers will be granted credit

Which of the following are effective means of aligning management goals with shareholder interests?

Employee stock option Threat of a takeover Management bonuses tied to performance goals Threat of a proxy fight

The DuPont identity can be totally defined by which one of the following

Equity multiplier and return on assets

Will and Bill both enjoy sunshine, water, and surfboards. Thus, the two friends decided to create a business together renting surfboards, paddle boats, and inflatable devices in California. Will and Bill will equally share in the decision making and in the profits or losses. Which type of business did they create if they both have full personal liability for the firm's debt?

General partnership

Which one of the following best matches the primary goal of financial management?

Increasing the market value of the firm

Which one of the following is the maximum growth rate that a firm can achieve without any additional external financing?

Internal growth rate

A corporation

Is a legal entity separate from its owners

Which one of the following forms of business organization offers liability protection to some of its owners but not all of its owners?

Limited partnership

The Sarbanes-Oxley Act of 2002 has

Made officers of publicly traded firms personally responsible for the firm's financial management

The Sarbanes-Oxley Act

Makes the officers of a public corporation personally responsible for the firm's financial statements

The primary goal of financial management is to maximize which one of the following for a corporation?

Market value of existing stock

What is the goal of financial management for a sole proprietorship?

Maximize the market value of the equity

The sustainable growth rate is defined as the maximum rate at which a firm can grow given which of the following conditions?

No new equity and a constant debt-equity ratio

The equity multiplier is equal to

One plus the debt-equity ratio

Which one of the following situations is most apt to create an agency conflict?

Rejecting a profitable project to protect employee jobs

Valerie bought 200 shares of Able stock today. Able has been trading for some time on the NYSE. Valerie's purchase occurred in which market?

Secondary markets

Blooming Gardens has an inventory turnover of 16. This means the firm:

Sells its inventory an average of 16 times per year

Which one of the following is most apt to create a situation where an agency conflict could arise?

Separating management from ownership

Capital structure

Setting the terms of sale for credit sales Determining when suppliers should be paid

Which of the following transactions occurred in the primary market?

South Wind Products sold 1,000 shares of newly issued stock to Mike

Explain the primary goal of the Sarbanes-Oxley Act in 2002 and discuss whether or not this act appears to be effectively meeting that goal

Strengthen protection vs. corporate accounting fraud and financial corruption

In a general partnership, each partner is personally liable for

The total debts of the partnership, even if he or she was unaware of those debts

Which one of the following statements about a limited partnership is correct?

There must be at least one general partner

List three decisions that a financial manager makes that would fall under the category of working capital management

Which customers will receive credit How much inventory to purchase and how much to keep on hand Deciding when to pay the supplier