Finance Test 1

A firm has sales of $2,190, net income of $174, net fixed assets of $1,600, and current assets of $720. The firm has $310 in inventory. What is the common-size statement value of inventory? A. 13.36 percent B. 14.16 percent C. 19.38 percent D. 30.42 percent E. 43.06 percent

13.36 percent

A firm uses 2011 as the base year for its financial statements. The common-size, base-year statement for 2012 has an inventory value of 1.08. This is interpreted to mean that the 2012 inventory is equal to 108 percent of which one of the following? A. 2011 inventory B. 2011 total assets C. 2012 total assets D. 2011 inventory expressed as a percent of 2011 total assets E. 2012 inventory expressed as a percent of 2012 total assets

2011 inventory expressed as a percent of 2011 total assets

Which one of the following is defined as a firm's short-term assets and its short-term liabilities? A. working capital B. debt C. investment capital D. net capital E. capital structure

Working Capital

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

balance sheet

Activities of a firm which require the spending of cash are known as: A. sources of cash. B. uses of cash. C. cash collections D. cash receipts. E. cash on hand.

uses of cash.

A firm has net working capital of $640. Long-term debt is $4,180, total assets are $6,230, and fixed assets are $3,910. What is the amount of the total liabilities? A. $2,050 B. $2,690 C. $4,130 D. $5,590 E. $5,860

$5,860

The _____ tax rate is equal to total taxes divided by total taxable income. A. deductible B. residual C. total D. average E. marginal

average

Which one of the following represents the most liquid asset (Think this one through)? A. $100 account receivable that is discounted and collected for $96 today B. $100 of inventory which is sold today on credit for $103 C. $100 of inventory which is discounted and sold for $97 cash today D. $100 of inventory that is sold today for $100 cash E. $100 accounts receivable that will be collected in full next week

$100 of inventory that is sold today for $100 cash

Public offerings of debt and equity must be registered with which one of the following? A. New York Board of Governors B. Federal Reserve C. NYSE Registration Office D. Securities and Exchange Commission E. Market Dealers Exchange

Securities and Exchange Commission

The U.S. government coding system that classifies a firm by the nature of its business operations is known as the: A. NASDAQ 100. B. Standard & Poor's 500 .C. Standard Industrial Classification code. D. Governmental ID code. E. Government Engineered Coding System.

Standard Industrial Classification code.

Which of the following accounts are included in working capital management? A. accounts payable and accounts receivable B. account payable and fixed assets C. accounts receivable and fixed assets D. accounts payable, accounts receivable, and inventory E. accounts receivable, fixed asset, and inventory

accounts payable, accounts receivable, and inventory

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

agency problem

Atlas Industries combines capital budgeting items from each operational unit in its financial planning to a single project or amount. This process is referred to as which one of the following? A. conjoining B. aggregation C. conglomeration D. appropriation E. summation

aggregation

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

based on historical cost.

The cash flow of a firm which 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.

cash flow from assets.

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

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

On the Statement of Cash Flows, which of the following are considered operating activities? A. cost of goods sold and interest paid only B. interest paid and dividends paid C. cost of goods sold, decrease in accounts payable, and interest paid only D. cost of goods sold, interest paid, and dividends paid only E. cost of goods sold, decrease in accounts payable, interest paid, and dividends paid

cost of goods sold, decrease in accounts payable, and interest paid only

Net working capital is defined as: A. total liabilities minus shareholders' equity .B. current liabilities minus shareholders' equity. C. fixed assets minus long-term liabilities. D. total assets minus total liabilities. E. current assets minus current liabilities.

current assets minus current liabilities.

Which of the following parties are considered stakeholders of a firm: A. employee B. common stock holder C. employee and government D. long-term creditor and common stockholder E. long-term creditor, government, and common stockholder

employee and government

Noncash items refer to: A. accrued expenses. B. inventory items purchased using credit. C. the ownership of intangible assets such as patents. D. expenses which do not directly affect cash flows. E. sales which are made using store credit.

expenses which do not directly affect cash flows.

Cash flow from assets is also known as the firm's: A. capital structure. B. equity structure. C. hidden cash flow. D. free cash flow. E. historical cash flow.

free cash flow.

If a firm produces a twelve percent return on assets and also a twelve percent return on equity, then the firm: A. may have short-term, but not long-term debt. B. is using its assets as efficiently as possible. C. has no net working capital. D. has a debt-equity ratio of 1.0. E. has an equity multiplier of 1.0.

has an equity multiplier of 1.0.

The higher the degree of financial leverage employed by a firm, the: A. higher the probability that the firm will encounter financial distress. B. lower the amount of debt incurred. C. less debt a firm has per dollar of total assets. D. higher the number of outstanding shares of stock. E. lower the balance in accounts payable.

higher the probability that the firm will encounter financial distress.

Which one of the following is the financial statement that summarizes a firm's revenue and expenses over a period of time? A. income statement B. balance sheet C. statement of cash flows D. tax reconciliation statement E. market value report

income statement

A general partner: A. is personally responsible for all the partnership debts B. has no say over a firm's daily operations. C. faces double taxation whereas a limited partner does not. D. has a maximum loss equal to his or her equity investment. E. receives a salary in lieu of a portion of the profits.

is personally responsible for all the partnership debts

Which one of the following statements is correct? A. Book values should always be given precedence over market values. B. Financial statements are frequently used as the basis for performance evaluations. C. Historical information provides no value to someone who is predicting future performance. D. Potential lenders place little value on financial statement information. E. Reviewing financial information over time has very limited value.

Financial statements are frequently used as the basis for performance evaluations.

The common set of standards and procedures by which audited financial statements are prepared is known as the: A. matching principle. B. cash flow identity. C. Generally Accepted Accounting Principles. D. Financial Accounting Reporting Principles E. Standard Accounting Value Guidelines.

Generally Accepted Accounting Principles

In developing a financial plan managers need to consider certain basic elements. Which of these needs to be considered: I-needed investment in new assets; II- degree of financial leverage; III- amount of cash; IV- amount of liquidity and working capital; VI - management changes needed to achieve plan goals A. I only B. I, III, VI only C. II, III, IV, VI only D. I, II, III only E. I,II, III, IV

I,II, III, IV

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

$18,700

A firm has $520 in inventory, $1,860 in fixed assets, $190 in accounts receivables, $210 in accounts payable, and $70 in cash. What is the amount of the current assets? A. $710 B. $780 C. $990 D. $2,430 E. $2,640

$780

A firm generated net income of $862. The depreciation expense was $47 and dividends were paid in the amount of $25. Accounts payables decreased by $13, accounts receivables increased by $28, inventory decreased by $14, and net fixed assets decreased by $8. There was no interest expense. What was the net cash flow from operating activity? A. $776 B. $802 C. $882 D. $922 E. $930

$882

Uptown Men's Wear has accounts payable of $2,214, inventory of $7,950, cash of $1,263, fixed assets of $8,400, accounts receivable of $3,907, and long-term debt of $4,200. What is the value of the net working capital to total assets ratio? A. 0.31 B. 0.42 C. 0.47 D. 0.51 E. 0.56

0.51

The Burger Hut has sales of $29 million, total assets of $43 million, and total debt of $13 million. The profit margin is 11 percent. What is the return on equity? A. 7.42 percent B. 10.63 percent C. 11.08 percent D. 13.31 percent E. 14.28 percent

10.63 percent

The _________ is ultimately responsible for overseeing the firm and its management. A. CEO B. Chief Financial Officer C. Shareholders D. Board of Directors E. Chief Audit Officer

Board of Directors

Which one of the following is true according to Generally Accepted Accounting Principles? A. Depreciation may or may not be recorded at management's discretion. B. Income is recorded based on the matching principle. C. Costs are recorded based on the realization principle. D. Depreciation is recorded based on the recognition principle. E. Costs of goods sold are recorded based on the matching principle.

Costs of goods sold are recorded based on the matching principle.

The formula which breaks down the return on equity into three component parts is referred to as which one of the following? A. equity equation B. profitability determinant C. SIC formula D. Du Pont identity E. equity performance formula

Du Pont identity

Sam, Alfredo, and Juan want to start a small U.S. business. Juan will fund the venture but wants to limit his liability to his initial investment and has no interest in the daily operations. Sam will contribute his full efforts on a daily basis but has limited funds to invest in the business. Alfredo will be involved as an active consultant and manager and will also contribute funds. Sam and Alfredo are willing to accept liability for the firm's debts as they feel they have nothing to lose by doing so. All three individuals will share in the firm's profits and wish to keep the initial organizational costs of the business to a minimum. Which form of business entity should these individuals adopt? A. sole proprietorship B. joint stock company C. limited partnership D. general partnership E. corporation

limited partnership

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

marginal

Which one of the following best states the primary goal of financial management? A. maximize current dividends per share B. maximize the current value per share C. increase cash flow and avoid financial distress D. minimize operational costs while maximizing firm efficiency E. maintain steady growth while increasing current profits

maximize the current value per share

Which one of these is most apt to be a fixed cost? A. raw materials B. manufacturing wages C. management bonuses D. office salaries E. shipping and freight

office salaries

Which term relates to the cash flow which results from a firm's ongoing, normal business activities? A. operating cash flow B. capital spending C. net working capital D. cash flow from assets E. cash flow to creditors

operating cash flow

Phil is working on a financial plan for the next three years. This time period is referred to as which one of the following? A. financial range B. planning horizon C. planning agenda D. short-run E. current financing period

planning horizon

Shareholders' equity: A. increases in value anytime total assets increases. B. is equal to total assets plus total liabilities. C. decreases whenever new shares of stock are issued. D. includes long-term debt, preferred stock, and common stock. E. represents the residual value of a firm.

represents the residual value of a firm.

Shareholders probably have the most interest in which one of the following sets of ratios? A. return on assets and profit margin B. long-term debt and times interest earned C. price-earnings and debt-equity D. market-to-book and times interest earned E. return on equity and price-earnings

return on equity and price-earnings

Which one of the following is a primary market transaction? A. sale of currently outstanding stock by a dealer to an individual investor B. sale of a new share of stock to an individual investor C. stock ownership transfer from one shareholder to another shareholder D. gift of stock from one shareholder to another shareholder E. gift of stock by a shareholder to a family member

sale of a new share of stock to an individual investor

A common-size income statement is an accounting statement that expresses all of a firm's expenses as percentage of: A. total assets. B. total equity. C. net income. D. taxable income. E. sales.

sales.

Which one of the following parties has ultimate control of a corporation? A. chairman of the Board B. board of directors C. chief executive officer D. chief operating office E. shareholders

shareholders

The sources and uses of cash over a stated period of time are reflected on the: A. income statement. B. balance sheet. C. tax reconciliation statement. D. statement of cash flows. E. statement of operating position.

statement of cash flows.

The controller of a corporation generally reports directly to the: A. board of directors. B. chairman of the board. C. chief executive officer. D. president. E. vice president of finance.

vice president of finance.