Financial Management Midterm I

Which of the following are examples of short-run fixed costs?

- Bond interest - Rent

The use of financial leverage can:

- Increase the potential reward for investors. - Greatly magnify both gains and losses. - Increase the chance of financial distress and business failure.

Which of these are generally considered to be short-run fixed costs?

- Property taxes - Rent payments for a warehouse - Management salaries

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 the firm?

The cash flow identity reflects that

- cash flow from the firm's assets equals the total of cash flow to creditors and cash flow to stockholders. - cash is either used to produce the product or service, pay creditors or pay out to the owners of the firm. - a firm generates cash through its various activities.

Which three of the following are most apt to create problems when comparing financial statements for multiple firms?

-Seasonality -Differing fiscal years -Differing accounting methods

The Tax Cuts and Jobs Act of 2017 set the corporate tax rate to be ______ regardless of the level of taxable income.

21%

What does stockholders' equity represent?

A residual claim against the book value of the firm's assets. (The book value of the firm's assets less the book value of its liabilities.)

What does a balance sheet reflect about a firm?

Accounting value on a specific date

Which one of these will decrease a firm's sustainable rate of growth?

An increase in the dividend payout ratio

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

Dividend policy Financial policy Profit margin

Assets are listed on a balance sheet in which order?

In order of decreasing liquidity

Which one of the following is true according to Generally Accepted Accounting Principles?

Income is recorded based on the realization principle.

Which one of the following is an expense for accounting purposes, but is not an operating cash flow for financial purposes?

Interest expense

Which of the following is a current asset?

Inventory

Which one of the following statements concerning net working capital is correct?

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

Which one of the following is correct in relation to pro forma statements?

The addition to retained earnings is equal to net income less cash dividends.

A financial planning model can be used to test the feasibility of a planned growth rate because it incorporates which of the following?

The firm's dividend policy The firm's use of financial leverage The asset turnover rate

The ratio of total assets to sales is known as the _____.

capital intensity ratio

When combining common-size and common-base year analysis, the effect of overall growth in assets can be eliminated by first forming the:

common-size statements

When utilizing the percentage of sales approach, managers:

consider the current production capacity level.

A firm with a market-to-book ratio that is greater than 1 is said to have ______ value for shareholders.

created

The more debt a firm has, the greater its:

degree of financial leverage

A common-base year financial statement presents items relative to a certain base, which is the _____.

dollar amount of each item during a common base year

The present value of a series of future cash flows is the amount you would need today to _____.

exactly duplicate those future cash flows

Barker Fabricating is operating at 79 percent capacity and earning a substantial profit. An increase in sales is least likely to increase the firm's:

fixed assets

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

fixed commitments

The passage of the Tax Cuts and Jobs Act of 2017 was to make the federal corporate tax rate in the United States a _____ tax.

flat

Given an internal growth rate of 3 percent, a firm can _____.

grow by 3 percent or less without any additional external financing

A ______ PE ratio may indicate that investors believe a company has better prospects for future growth in earnings.

higher

All else equal, a(n) (decrease/increase) in the debt-equity ratio will increase ROE, and therefore sustainable growth.

increase

Total capitalization equals total equity plus total:

long-term debt

The ___________ principle of GAAP states that costs associated with a good or service should be recorded at the same time as the revenue from selling that good or service.

matching

The aggregation process determines the total _____.

needed investment

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

pay operating costs

Assets can be described as items that _____.

provide market value to the firm a firm owns generate revenue

Ratios that measure a firm's liquidity are known as ______ ratios.

short-term solvency

Common-size statements are used for comparing firms with differing ____.

sizes

Another name for short-term financial management is ___ management.

working capital