FINA 3311 Chp 1, 2, 3, & 18 Practice

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If interest paid is $100 and net new borrowing is $150, then cash flow to creditors equals:

-$50

Assume current assets = $11,300; long-term liabilities = $45,000; and total debt = $54,800. What is the current ratio?

1.15 ($11,300/($54,800-45,000)

what is depreciation

A systematic expensing of an asset based on the asset's estimated life

the threat of ______ motivates managers to make good decisions

A takeover

Gilts are securities issued by the ______________.

British and Irish governments

Currently, $1 will buy Can$.99 while $1 will buy A$.95. How many Canadian dollars are needed to buy one Australian dollar?

Can $1.04

an increase in the net working capital ratio would cause which ratio to decrease, all else equal

Current Ratio

Successful strategies that will increase the return on asset, all else equal

Decrease the number of days' sales in inventory

If US dollars are deposited in banks outside the US banking system, they are referred to as:

Eurodollars

The ratio that capture information about property, plant, and equipment utilization is

Fixed asset turnover

A U.S. company has excess cash earned in Italy. To convert these funds to USD, they would access the:

Foreign Exchange Market (FOREX)

Users of the foreign exchange market include ____

Importers who pay for goods using foreign currencies Foreign exchange brokers who match buy and sell orders Speculators who try to profit from changes in exchange rates

which of the following are true concerning triangle arbitrage?

It helps keep the currency market equilibrium It is a profitable situation involving three separate currency exchange transactions

Which of the following are true of a sole proprietorship?

It is one of the simplest types of businesses to form A proprietorship has a limited life

Which of the following are defining features of the primary market?

It is the market where initial public offerings are made Proceeds from the sale of securities goes to the issuing firm

A cornerstone in the pricing of money market issues and other short-term debt

LIBOR

what is the acronym for the interest rate most international banks charge one another for overnight Eurodollar loans?

LIBOR

Unanticipated changes in relative economic conditions that affects the value of a foreign operation are known as ______

Long-term exposure to exchange rate risk

The goal of a "for profit" business is to _____ the value of shareholder wealth

Maximize

which of the following is the correct equation for computing return on assets (ROA)?

Net income / Total assets

How if ownership transferred in a corporation?

Ownership is transferred by gifting or selling shares of stock

The profit margin is equal to net income divided by ____

Sales

Which of the following represents the receivables turnover ratio?

Sales/Accounts receivable

The owners of a corporation are called

Shareholders

Who is entitled to the residual value of a firm's cash flows?

Shareholders

Alpha Co. imports raw materials and uses forward contracts to reduce which of the following risks?

Short-run exposure to exchange rate risk

The day-to-day fluctuations in exchange rates create

Short-term exchange rate risk exposure

____ financial statements provide for comparison of firms that differ in size

Standardized

what does it mean when a firm has a days' sales in receivables of 45?

The firm collects its credit sales in 45 days on average

When a US company calculates its accounting net income, it must report all income, including income from foreign operations, in dollar. This leads to ____ exposure to exchange rate risk

Translation

A way to establish a benchmark for ration analysis is to identify a peer group

True

The controller is responsible for which of the following tasks?

financial accounting Tax reporting and payments

Depreciation is the accountant's estimate of the cost of ____ used in the production process matched with the benefits produce from owning it.

fixed assets equipment

Costs that do not change in the short run arise because of ____

fixed commitments

Under GAAP, assets are generally carried on a firm's balance sheet at ____.

historical cost book value

the purpose of a(n) ______ is to measure performance over a set period of time.

income statement

Cash flow to creditors equals:

interest paid - net new borrowing

The management of exchange rate risk should probably be centralized so that the firm has an understanding of ______

its overall positions in foreign currency

Current assets on the common-size balance sheet over the past three years have increased from 32 to 35 percent while current liabilities have decreased from 29 to 25%. This indicates the firm as increased its ____.

liquidity

Since ___________ and ownership are separated, a corporation's life is unlimited.

management

the ______ tax rate is the tax rate paid on the next dollar income

marginal

Based on the DuPont Identity, an increase in sales, all else held equal, ____ ROE

may increase or decrease may not change

The foreign exchange market is where ____

one country's currency is traded for another country's currency

Why is it more challenging to manage long-term exchange rate risk exposure than to hedge short-term risks?

organized forward markets do not exist for long-term needs of corporations

A positive operating cash flow indicates that the firm is generating enough cash to:

pay everyday cash outflows

If a company has had negative earnings for several periods they might choose to use a ____

price-sales ratio

Cash flow refers to ______

the difference between the number of dollars that came in and the number that went out

The goal of the financial management is to increase the value of ______

the existing shares of stock

On which side of the balance sheet do liabilities appear?

the right side

what is the purpose of the income statement?

to measure performance over a set period of time

financial leverage refers to a firm's ______

use of debit in its capital structure

Which of these questions can be answered by reviewing a firm's balance sheet

what is the total amount of assets the firm owns? How much debt is used to finance thee firm?

The quick ratio provides a more reliable measure of liquidity than the current ratio especially when the company's inventory takes _____ to sell.

a long time

liquidity refers to the ease of changing ______

assets to cash

On a balance sheet, assets are listed at their ____ value

book

The use of local financing from the government of the foreign country where the operation is located ______

can reduce political risk

Which of the following are components of cash flow from assets?

capital spending Operating cash flow Change in net working capital

The current ratio computes the relationship between ____

current assets and current libailities

When a firm smooths earnings to please investors, it is called ________.

earnings management

the GAAP matching principle requires revenues to be matched with:

expenses

What does stockholders' equity represent?

A residual claim against the firm's total assets

The ____ identity can help to explain why two firms with the same return on equity may not be operating in the same way

DuPont

A general partnership has which of the following characteristics?

Each owner has unlimited liability for all firm debts All the partners share in gains or losses of the partnership

The Sarbanes-Oxley Act provides incentives for companies to go public in US markets

False

Corporations in other countries are often called:

Joint stock companies Limited liability company Public limited companies

The rate most international banks charge for overnight Eurodollar deposits

LIBOR

what is the main goal of financial management?

To maximize current share value

A common-size balance sheet expresses accounts as a percentage of ______

Total assets

Free cash flow is also known as cash flow from assets

True

Operating cash flow does not include depreciation or interest

True

The corporation borrows money in its own name

True

net earnings refers to income earned ____

after interest and taxes

The costs incurred due to a conflict of interest between stockholders and management are called ______ costs

agency

What should you keep in mind when examining an income statement?

cash versus non-cash items time and costs GAAP

The federal government taxes which of the following?

corporate earnings and shareholder dividends

long-term solvency ratios are also known as:

financial leverage ratios

If a company has inventory, the quick ratio will always be ____ the current ratio

less than

A limited liability company's owners have ______ liability

limited

In a limited partnership, a limited partner's liability for business debts is ______

limited to their cash contribution to the partnership

Which of the following are classified as liabilities on a firm's balance sheet?

long-term debt accounts payable

Rank the ease (from easiest to hardest) of turning the following assets into cash.

1. Cash equivalents 2. accounts receivable 3. inventory 4. plant and equipment

The price of a foreign currency expressed in U.S. dollars is called a(n)

Exchange rate

What is one of the most important aspects of doing business internationally?

Exchange rate risk

Bonds issues in a single country, denominated in that country's currency, but not issued by a domestic firm in that country

Foreign Bonds

British and Irish government securities

Gilts

Issues of local British Authorities

Gilts

A treasure's responsibilities typically include:

Making financial plans handling cash flows managing capital expenditure decisions

Whenever ___ information is available, it should be used instead of accounting data

Market

Which of the following is the correct equation for return on equity?

Net income / total equity

long-term liabilities are not due in the current year (from the date of the balance sheet)

True

Financial statement analysis is primarily "management by _____"

exception

depreciation is the accountant's estimate of the cost of ____ used in the production process matched with the benefits produce from owning it

fixed assets equipment

For a mature firm, operating cash flow:

is usually positive is a sign of trouble if negative over a long period of time

Yankee bonds, Samurai bonds, and bulldog bonds

Foreign bonds

For financial decision-making purposes, the most important tax rate is the ________ tax rate.

Marignal

Non-cash items are expenses that directly affect ____ but do not directly affect _____.

Net income; cash flow

what is the impact on the total asset turnover ratio if sales increases significantly while there is no change in any of the other variables?

The total asset turnover ratio will increase

the price at which willing buyers would trade is called ______ value

market

what three questions are the financial managers concerned with?

working capital management capital budgeting capital structure

______ ______ can be used to encourage managers to maximize the value of the stock

stock options

which of the following create problems with financial statement analysis?

the firm or its competitors are conglomerates The firm and its competitors operate under different regulatory environments The firm or its competitors are global companies

Common-size statements are best used for comparing:

year-to-year for your firm firms of different sizes

If dividends are $100, stock sold is $10, and stock repurchased is $25, what is the cash flow to stockholders?

$115

If ending net fixed assets are $100, beginning net fixed assets are $60, and depreciation is $10, then the change in capital spending is ______.

$140 ($100-60+10)

A customer has yet to pay the bill for products purchased from Firm A on credit. This customer's trade credit is recorded in which of Firm A's balance sheet accounts?

Accounts receivable

The relationship between stockholders and management can best be described as a(n) ______ relationship

Agency

If you hire a real estate company to sell your house, you are most apt to encounter which one of the following?

Agency problem

In the long-run, costs may be considered as _______.

All variable

A security issued in the United States representing shares of a foreign stock is called a(n):

American Depository Receipt

Which of the following refer to a firm with a large portion of its business outside of its parent country?

An international corporation A multinational

Net working capital will be negative when current assets ____ current liabilities

Are less than

Which of the following is (are) true of financial ratios?

Are used for comparison purposes Are developed from a firm's financial information

An organization must prepare ______ and bylaws when forming a corporation

Articles of incorporation

the cash flow identity states that cash flows from ____ should equal cash flows to creditors and equity investors

Assets

which of the following is the balance sheet equation?

Assets equal liabilities plus stockholders' equity

If a firm's current assets equal $200 and its current liabilities equal $150, then its net working capital equals ____

$50

which of the following is the correct representation of the cash coverage ratio?

(EBIT + depreciation) / Interest expense

What is the formula for computing a firm's sustainable growth rate?

(ROE x b) / (1-ROE x b)

what is the formula for computing a firm's sustainable growth rate?

(ROE x b) / (1-ROE x b)

The debt to equity ratio for a company with $1 million in total debt and $2 million in equity is ____

0.50

AD Corporation has a return on equity of 20% on total equity of 800,000. AD generated of 1.6 million in sales on 2.7 million in assets. A DuPont decomposition of ROE shoes the 20% return on equity is from a(n) ____ total asset turnover ratio.

0.59

Alpha Co. has interest expense of 1.2 million, total assets of 84 million, sales of 76 million, long-term debt of 16.4 million, and net income of 12.1 million. How will interest expense be recorded in the common-size income statement?

1.58% ($1.2m/$76m)

A firm with the profit margin of 10% generates _____ in net income for every dollar in sales.

10 cents

BC Corporation has 1,800 shares outstanding and earned $2,700 last year on assets of $2 million and equity of $1.5 million. What is the PE ratio if the stock is currently selling at $18 per share?

12 times $18($2,700/1,800)

Nestor's has net income of $315,000, total sales of $3.52 million, total assets of $4.4 million, and total equity of $1.98 million. What is the return on equity?

15.91% ($315,000/$1.98m)

A firm has an operating profit (EBIT) of 600 on sales of 1,000. Interest expense is 250 and taxes are 120. What is the times interest earned ratio?

2.40 ($600/$250)

Omega Co. has annual sales of $250,000, costs of goods sold of $168,000, and assets of $322,000. Accounts receivable are $86,200. What is the receivables turnover?

2.90

A corporation receives cash from financial markets by selling ________ and _________.

Bonds and stocks

______ budgeting is the process of planning and managing a firm's long-term assets

Capital

Which term applies to the mixture of debt and equity maintained by a firm?

Capital structure

which of the following are traditional financial ratio categories?

Financial leverage ratios Turnover ratios Profitability ratios

Which of the following is NOT a component of cash flow from assets

Financing expenses

An interest rate swap involves swapping a ____ payment for a ____ payment

Floating rate; fixed rate Fixed rate; floating rate

Where does cash generated by a corporation typically go?

Paid to shareholders and creditors To pay corporate taxes Reinvested in the firm

A ______ is similar to a proprietorship, except that there are two or more owners

Partnership

Which of the following is NOT one of the basic areas of finance?

Personal finance

Changes in value due to the actions of governments is referred to as ______ risk

Political

Measures investors' expectations of growth in a company?

Price-earnings ratio

which one of these is an important mechanism used by unhappy stockholders to replace current management?

Proxy fight

AC Motors has net income of $51,750, total assets of $523,400, total debt of $267,000, and total sales of $491,300. What is the return on equity?

20.18%

AD Corporation has a return on equity of 20% on total equity of 800,000. AD generated of 1.6 million in sales on 2.7 million in assets. A DuPont decomposition of ROE shoes the 20% return on equity is from an equity multiplier of ____.

3.38

Days' sales in receivables is given by the following ratio:

365/Receivables turnover

According to the originators of the current U.S. corporate tax code, the tax rates in effect for 2015 are:

40%

Better Life Corporation has sales of $500,000 on assets of $2,000,000. At year end accounts receivable were still 5% of assets. The firm's receivable turnover is ___ times.

5

Ad corporation's return on assets is 14% and the firm retains 40% of all its earnings. AD's internal growth rate is ____%.

5.93

Turner's return on equity is 12 percent and its retention ratio is 60 percent. What is its sustainable growth rate?

7.76%

Alpha manufacturing has cost of good sold of $90 million and a net income of $9.6 million on total sales of $120 million. Total assets are $150 million. A common size income statement will show cost of goods sold of 75% and a net profit of __%

8

BC Corporation had net income of $3.5 million and paid out 700,000 in cash dividends to stockholders. Their retention ratio is ___%.

80

An agreement to exchange currencies at a future point in time at an exchange rate that is agreed upon today is called?

A forward trade

which one of the following is true?

Cash flows can be derived from financial statements

in large firms, financial activity is usually associated with which top officer?

Chief Financial Officer

which of the following would help a company take action to improve its ratios?

Comparing to aspirant companies Comparing to peer companies Comparing to its own historical ratios Comparing to major copmetitors

which of the following positions generally report to the chief financial officer (CFO)?

Controller Treasurer

The ______ office responsible for corporate tax reporting

Controller's

Which of the following are reason that the corporation is the most important form of business?

Corporations are separate legal entities Corporations can sue and be sued Corporations can enter contracts

Product costs are usually shown on the income statement under the heading of ____

Cost of goods sold

How is the inventory turnover ratio computed?

Cost of goods sold/inventory

The foreign exchange market allows for the trading of

Currencies

Business finance is broadly concerned with which of the following

How to finance long-term investments How to manage day-to-day finances of the firm Which long-term investment to make

Based on the sustainable growth rate, which of the following factors affect a firm's ability to sustain growth?

Profit margin financial policy dividend policy

Which of the following pairs matches the nickname of the foreign bond with the country of issue?

Rembrandt Netherlands

If two traders agree to exchange currencies tomorrow based on the exchange rate today, which exchange rate will apply?

Spot exchange rate

And agreement to trade currencies within two business days at today's exchange rate is called a

Spot trade

Which of the following are considered non-owner stakeholders in a company?

Supplies Government Employees

An agreement to exchange a floating-rate payment for a fixed one

Swap

An agreement to exchange one currency for another

Swap

If two parties agree to exchange U.S. dollars for Japanese yen, this agreement is called a

Swap

A balance sheet reflects a firm's:

accounting value on a specific date

Which one of these is considered to be the most liquid?

accounts receivable

The short run is a period when there are ____ costs

both fixed and variable

which of the following are components of cash flow from assets?

capital spending operating cash flow change in net working capital

Working capital includes which of the following?

cash inventory short-term assets

In finance, the value of a firm depends on its ability to generate ______

cash flows

The Sarbanes-Oxley Act requires corporate officers to:

confirm the validity of the financial statements be responsible for error in the annual report

Net working capital equals ______

current assets - current liabilities

A bad financial decision is defined as a decision that ______ shareholder wealth.

Decreases

which of the following is an example of a non-cash items on an income statement?

Depreciation

which of the following are included in a firm's capital structure?

Equity Long-term debt

The exchange rate in an agreement to exchange currency at some time in the future is call the ______ rate

Forward

Two traders agree today to exchange currencies in six months. This is considered a

Forward Trade

the inventory turnover ratios for Proctor and Gamble over the past three years are 5.09, 5.72, and 5.92 times respectively. Explaining the upward trend in the inventory turnover ratio requires:

Further investigation Examination of whether the increase is due to declining inventory or increasing sales

What does GAAP stand for?

Generally Accepted Accounting Principles

How is the price-earnings (PE) ratio computed?

Market price per share/ Earnings per share

How is the market-to-book ratio measured?

Market value per share/Book value per share

Which of the following items is added back to EBIT while calculating the cash coverage ratio, but not while calculation the times interest earned ratio?

Non-cash expenses

According to GAAP, when is income reported?

When it is earned or accrued

If a company's balance sheet shows $400 in cash, $100 in inventory, and $200 in current liabilities, its cash ratio is _____

2.0

Assets can be categorized as

Tangible and intangible assets current and fixed assets

A Eurbond refers to a bond:

That is issued in multiple countries, usually denominated in the currency of the issuer's country

currently, the spot exchange rate for Swiss franc is SF 1= $1.10 or SF 1 = $1.12 90 days forward. Which of the following is true?

The Swiss franc is at a forward premium The dollar is selling at a discount to the Swiss franc

A cross-rate between two foreign currencies is usually quoted in what currency?

The US dollar

What does Times Interest Earned (TIE) Ratio of 3.5 times mean?

The company's interest obligations are covered 3.5 times by its EBIT

The different types of exchange rate risk include which of the following?

Translation exposure, Long-term exposure, short-term exposure


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