Finance Exam 3 Review

Which one of the following terms is applied to the financial planning method which uses the projected sales level as the basis for determining changes in balance sheet and income statement account values? a. sales dilution method b. common-size method c. sales reconciliation method d. trend method e. percentage of sales method

e. percentage of sales method

A stakeholder is: a. a person who initially founded a firm and currently has management control over that firm b. any person or entity other than a stockholder or creditor who potentially has a claim on the cash flows of a firm c. a creditor to whom a firm currently owes money d. a person who owns shares of stock e. any person who has voting rights based on stock ownership of a corporation

b. any person or entity other than a stockholder or creditor who potentially has a claim on the cash flows of a firm

Which one of the following accounts is the most liquid? a. inventory b. land c. accounts receivable d. equipment e. building

c. accounts receivable

Which one of the following is a source of cash? a. repurchase of common stock b. purchase of inventory c. acquisition of debt d. granting credit to a customer e. payment to a supplier

c. acquisition of debt

Which one of the following is a capital structure decision? a. determining which one of two projects to accept b. determining the amount of funds needed to finance customer purchases of a new product c. determining how much debt should be assumed to fund a project d. determining how much inventory will be needed to support a project e. determining how to allocate investment funds to multiple projects

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

Which one of the following terms is defined as dividends paid expressed as a percentage of net income? a. dividend section b. dividend portion c. dividend payout ratio d. dividend yield e. dividend retention ratio

c. dividend payout ratio

Which one of the following functions should be the responsibility of the controller rather than the treasurer? a. equipment purchase analysis b. payment to a vendor c. income tax returns d. daily cash deposit

c. income tax returns

Which on of the following is a source of cash? a. decrease in notes payable b. decrease in common stock c. increase in accounts payable d. increase in accounts receivable e. increase in inventory

c. increase in accounts payable

A general partner: a. has no say over a firm's daily operations b. faces double taxation whereas a limited partner does not c. is personally responsible for all the partnerships debts d. has a max loss equal to his or her equity investment e. receives a salary in lieu of a portion of the profits

c. is personally responsible for all the partnerships debts

A business partner whose potential financial loss in the partnership will not exceed his or her investment in that partnership is called a: a. zero partner b. corporate shareholder c. limited partner d. generally partner e. sole proprietor

c. limited partner

Phil is working on a financial plan for the next three years. The time period is referred to as which one of the following? a. planning agenda b. short-run c. planning horizon d. financial range e. current financing period

c. planning horizon

A common-size income statement is an accounting statement that expresses all of a firm's expenses as a percentage of: a. total equity b. net income c. sales d. taxable income e. total assets

c. sales

The book value of a firm is: a. adjusted to the market value whenever the market value exceeds the stated book value b. based on historical cost c. more of a financial than an accounting valuation d. equivalent to the firm's market value provided that the firm has some fixed assets e. generally greater than the market value when fixed assets are included

b. based on historical cost

Financial planning: a. is a process that firms employ only when major changes to a firm's operations are anticipated b. considers multiple options and scenarios for the next two to five years c. provides minimal benefits for firms that are highly responsive to economic changes d. is a process that firms undergo once every five years e. focuses solely on the short-term outlook for a firm

b. considers multiple options and scenarios for the next two to five years

A firm currently has $600 in debt for every $1,000 in equity. Assume the firm uses some of its cash to decrease its debt while maintaining its current equity and net income. Which one of the following will decrease as a result of the action? a. profit margin b. equity multiplier c. return of equity d. total asset turnover e. return on assets

b. equity multiplier

Which one of the following is included in a firm's market value but yet is excluded from the firm's accounting value? a. an item held by the firm for future sale b. good reputation of the company c. money due from a customer d. equipment owned by the firm e. real estate investment

b. good reputation of the company

The percentage of the next dollar you earn that must be paid in taxes is referred to as the _____ tax rate. a. average b. marginal c. total d. residual e. mean

b. marginal

Depreciation: a. decreases net fixed assets, net income, and operating cash flows b. reduces both taxes and net income c. reduces both the net fixed assets and the costs of a firm d. increases the net fixed assets as shown on the balance sheet e. is a noncash expense which increases the net income

b. reduces both taxes and net income

Which one of the following will increase the value of a firm's net working capital? a. collecting an accounts receivable b. selling inventory at a profit c. using cash to pay a supplier d. depreciating an asset e. purchasing inventory on credit

b. selling inventory at a profit

Activities of a firm which require the spending of cash are known as: a. cash receipts b. uses of cash c. cash on hand d. sources of cash e. cash collections

b. uses of cash

When constructing a pro forma statement, net working capital generally: a. varies only if the firm is producing at less than full capacity b. remains fixed c. varies only if the firm maintains a fixed debt-equity ratio d. varies proportionally with sales e. varies only if the firm is currently producing at full capacity

d. varies proportionally with sales

The common set of standards and procedures by which audited financial statements are prepared is known as the : a. Financial Accounting Reporting Principles b. matching principle c. cash flow identity d. Standard Accounting Value Guidelines e. Generally Accepted Accounting Principles

e. Generally Accepted Accounting Principles

Which one of the following statements concerning net working capital is correct? a. The lower the value of net working capital the greater the ability of firm to meet its current obligations b. Firms with equal amounts of net working capital are also equally liquid c. Net working capital is a part of the opreating cash flow d. An increase in net working capital must also increase current assets e. Net working capital increases when inventory is sold for cash at a profit

e. Net working capital increases when inventory is sold for cash at a profit

Atlas Industries combines the smaller investment proposals from each operational unit into a single project for planning purposes. This process is referred to as which one of the following? a. summation b. conjoining c. appropriation d. conglomeration e. aggregation

e. aggregation

The cash flow of a firm which is available for distribution to the firm's creditors and stockholders is called the: a. cash flow to stockholders b. net working capital c. operating cash flow d. net capital spending e. cash flow from assets

e. cash flow from assets

An increase in current liabilities will have which one of the following effects, all else held constant? Assume all ratios have positive values. a. increase in the cash ratio b. increase in the net working capital to total assets ratio c. increase in the current ratio d. decrease in the cash coverage ratio e. decrease in the quick ratio

e. decrease in the quick ratio

Which one of the following best illustrates that the management of a firm is adhering to the goal of financial management? a. increase in the number of share outstanding b. decrease in the net working capital c. decrease in the per unit production costs d. increase in the amount of the quarterly dividend e. increase in the market value per share

e. increase in the market value per share

A pro forma statement indicates that both sales and fixed assets are projected to increase by 7 percent over their current levels. Given this, you can safely assume that the firm: a. currently has excess capacity b. is projected to grow at the sustainable rate of growth c. retains all of its net income d. is projected to grow at the internal rate of growth e. is currently operating at full capacity

e. is currently operating at full capacity

Which one of the following must be true if a firm had a negative cash flow from assets? a. Newly issued shares of stock were sold b. The firm borrowed money c. The firm had a net loss for the period d. The firm acquired new fixed assets e. The firm utilized outside funding

e. the firm utilized outside funding

Which one of the following is defined as a firm's short-term assets and its short-term liabilities? a. debt b. capital structure c. investment capital d. net capital e. working capital

e. working capital

The cash flow related to interest payments less any net new borrowing is called the: a. cash flow to creditors b. cash flow from assets c. net working capital d. operating cash flow e. capital spending cash flow

a. cash flow to creditors

Which one of the following standardizes items on the income statement and balance sheet relative to their values as of a chosen point in time? a. common-base year statement b. statement of standardization c. statement of cash flows d. common size statement e. base reconciliation statement

a. common-base year statement

A firm is currently operating at full capacity. Net working capital, costs, and all assets vary directly with sales. The firm does not wish to obtain any additional equity financing. The dividend payout ratio is currently at 40 percent. If the firm has a positive external financing need, that need will be met by: a. long-term debt b. retained earinings c. accounts payable d. fixed assets e. common stock

a. long-term debt

Which one of these is most apt to be a fixed cost? a. office salaries b. raw materials c. manufacturing wages d. shipping and freight e. management bonuses

a. office salaries

Which one of the following statements concerning a sole proprietorship is correct? a. the owner of a sole proprietorship is personally responsible for all of the company's debts b. the profits of a sole proprietorship are subject to double taxation c. A sole proprietorship is structured the same as a limited liability company d. there are very few sole proprietorships remaining in the U.S. today e. A sole proprietorship is designed to protect the personal assets of the owner

a. the owner of a sole proprietorship is personally responsible for all of the company's debts

The formula which breaks down the return on equity into three component part is referred to as which one of the following? a. equity performance formula b. Du Pont identity c. SIC formula d. equity equation e. profitability determinant

b. Du Pont identity

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. statement of cash flows b. income statement c. creditor's statement d. balance sheet e. dividend statement

d. balance sheet

Which one of the following terms is defined as the management of a firm's long-term investments? a. agency cost analysis b. capital structure c. working capital management d. capital budgeting e. financial allocation

d. capital budgeting

Cash flow to stockholders is defined as: a. the total amount of interest and dividends paid during the past year b. operating cash flow minus the cash flow to creditors c. cash flow from assets plus the cash flow to creditors d. dividend payments less net new equity raised e. the change in total equity over the past year

d. dividend payments less net new equity raised

Non-cash items refer to: a. accrued expenses b. the ownership of intangible assets such as patents c. sales which are made using store credit d. expenses which do not directly affect cash flow e. inventory items purchased using credit

d. expenses which do not directly affect cash flow

Shareholder's equity: a. is equal to total assets plus total liabilities b. increases in value anytime total assets increases c. includes long-term debt, preferred stock, and common stock d. represents the residual value of a firm e. decreases whenever new shares of stock are issued

d. represents the residual value of a firm

You are getting ready to prepare pro forma statements for your business. Which one of the following are you most apt to estimate first as you begin this process? Select one: a. external financing need b. fixed assets c. current assets d. sales forecast e. projected net income

d. sales forecast

Which one of the following is classified as an intangible fixed asset? a. accounts receivable b. inventory c. production equipment d. trademark e. building

d. trademark

Which one of the following best describes the primary advantage of being a limited partner instead of a general partner? a. no potential financial loss b. greater control over the business affairs of the partnership c. active participation in the firm's activities d. maximum loss limited to the capital invested e. tax-free income

d. maximum loss limited to the capital invested

Relationships determined from a firm's financial information and used for comparison purposes are known as: a. scenario analysis b. dimensional analysis c. identities d. financial ratios e. solvency analysis

d. financial ratios

Which one of the following is correct in relation to pro forma statements? a. Fixed assets must increase if sales are projected to increase b. The addition to retained earnings is equal to net income plus dividends paid c. Net working capital is affected only when a firm's sales are expected to exceed the firm's current production capacity d. Inventory changes are directly proportional to sales changes e. Long-term debt varies directly with sales when a firm is currently operating at maximum capacity

d. inventory changes are directly proportional to sales changes