Ch 1-3 Assessment

Kalagara Outfitters neither sold nor repurchased any shares of stock during the year. The firm had annual sales of $7,202, depreciation of $1,196, cost of goods sold of $4,509, interest expense of $318, taxes of $248, beginning-of-year shareholders' equity of $4,808, and end-of-year shareholders' equity of $4,922. What is the amount of dividends paid during the year? $817 $515 $864 $1,009 $709

$817 Net income = $7,202 − 4,509 − 1,196 − 318 − 248 Net income = $931 Dividends paid = $931 − ($4,922 − 4,808) Dividends paid = $817 Since no stock was sold or repurchased, the change in shareholders' equity equals the change in retained earnings.

Vaca Books has a net profit margin of 5.1 percent, a total asset turnover of 1.84, and a return on equity of 16.2 percent. What is the debt-equity ratio? Multiple Choice .64 .73 .42 .83 .81

.73 Equity multiplier = .162/[.051(1.84)] Equity multiplier = 1.73 Debt-equity ratio = 1.73 − 1 Debt-equity ratio = .73

The Sarbanes-Oxley Act of 2002 is a governmental response to: the terrorist attacks on 9/11/2001. deregulation of the stock exchanges. the harm caused to stock markets by SARS, MERS, COVID-19, and other pandemics. decreasing corporate profits. management greed and abuses.

management greed and abuses.

Zheng Equipment has total assets with a current book value of $368,900 and a current replacement cost of $486,200. The market value of these assets is $464,800. What is the value of Tobin's Q? 1.05 1.26 .96 .76 .79

.96 Tobin's Q = $464,800/$486,200 Tobin's Q = .96

Which one of the following is excluded from the cash flow from assets? Sales Inventory Interest expense Accounts payable Cost of goods sold

Interest expense

Which one of the following is classified as a current asset? Notes payable Office furniture Accounts payable Patent Inventory

Inventory

Marissa and Raj are equal general partners in a business. They are content with their current management and tax situation but are uncomfortable with the idea of unlimited liability. If they wish to remain as the only two owners of the business, which form of business entity should they consider to replace their current arrangement? Joint stock company Limited liability company Sole proprietorship Limited partnership Corporation

Limited liability company

A positive cash flow to stockholders indicates which one of the following with certainty? The amount of the sale of common stock exceeded the amount of dividends paid. Both the cash flow to assets and the cash flow to creditors must be positive. Both the cash flow to assets and the cash flow to creditors must be negative. No dividends were distributed, but new shares of stock were sold. The dividends paid exceeded the net new equity raised.

The dividends paid exceeded the net new equity raised.

Which one of the following statements is correct concerning the NYSE? The listing requirements for the NYSE are more stringent than those of Nasdaq. The NYSE is the largest dealer market for listed securities in the United States. The NYSE is an OTC market functioning as both a primary and a secondary market. Any corporation desiring to be listed on the NYSE can do so for a fee. The publicly traded shares of an NYSE-listed firm must be worth at least $250 million.

The listing requirements for the NYSE are more stringent than those of Nasdaq.

Njoku Marketing paid $1,282 in interest and $975 in dividends last year. Current assets increased by $2,700, current liabilities decreased by $420, and long-term debt increased by $2,200. What was the cash flow to creditors? $1,839 −$530 $3,094 −$918 2,132

−$918 CFC = $1,282 − 2,200 CFC = −$918

Boutique Marketing has total debt of $4,910 and a debt-equity ratio of .52. What is the value of the total assets? $11,034.00 $14,352.31 $9,571.95 $16,128.05 $7,253.40

$14,352.31 Total equity = $4,910/.52 Total equity = $9,442.31 Total assets = $4,910 + 9,442.31 Total assets = $14,352.31

Zeng Graphics has taxable income of $48,900 and a tax rate of 21 percent. What is the change in retained earnings if the firm pays $20,200 in dividends for the year? $18,942 $18,431 $19,948 $18,574 $19,374

$18,431 Change in retained earnings = ($48,900)(1 − .21) − $20,200 Change in retained earnings = $18,431

Agrawal, Incorporated, 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 total shareholders' equity that the company should report? $18,700 $35,500 $15,300 $23,700 $6,900

$18,700 Shareholders' equity = $5,900 + 21,200 − 8,400 Shareholders' equity = $18,700 The amount of retained earnings is not provided, so you must use total assets minus total liabilities to derive the correct answer.

Riggs Company has current assets of $10,406, long-term debt of $4,780, and current liabilities of $9,822 at the beginning of the year. At year end, current assets are $11,318, long-term debt is $5,010, and current liabilities are $9,741. The firm paid $277 in interest and $320 in dividends during the year. What is the cash flow to creditors for the year? −$97 −$507 $47 −$47 $507

$47 CFC = $277 − ($5,010 − 4,780) CFC = $47

The Somerville Corporation has cost of goods sold of $11,518, interest expense of $315, dividends of $420, depreciation of $811, and a change in retained earnings of $296. What is the taxable income given a tax rate of 21 percent? $776.41 $906.33 $646.15 $967.78 $955.38

$906.33 Net income = $296 + 420 Net income = $716 Taxable income = $716/(1 − .21) Taxable income = $906.33

Vasquez Pottery has shareholders' equity of $218,700. The firm owes a total of $141,000, only 40 percent of which is payable within the next 12 months. The firm has net fixed assets of $209,800. What is the amount of the net working capital? $149,900 $125,600 $56,500 −$47,500 $93,500

$93,500 Current liabilities = .40($141,000) Current liabilities = $56,400 Total assets = $218,700 + 141,000 Total assets = $359,700 Current assets = $359,700 − 209,800 Current assets = $149,900 NWC = $149,900 − 56,400 NWC = $93,500

The Music Alliance has a debt-equity ratio of .57. What is the total debt ratio? .30 .44 .36 2.75 2.27

.36 Given the debt-equity ratio of .57, if total debt is $.57 then total equity is $1.00 and total assets are $1.57. Total debt ratio = $.57/$1.57 Total debt ratio = .36

Last year, which is used as the base year, a firm had cash of $52, accounts receivable of $223, inventory of $509, and net fixed assets of $1,107. This year, the firm has cash of $61, accounts receivable of $204, inventory of $527, and net fixed assets of $1,216. What is this year's common-base-year value of inventory? 1.18 .88 .67 .91 1.04

1.04 Common-base year inventory = $527/$509 Common-base-year inventory = 1.04

Coulter Supply has a total debt ratio of .46. What is the equity multiplier? 1.17 1.47 2.17 1.85 .89

1.85 Debt-equity ratio = .46/(1 − .46) Debt-equity ratio = .85 Equity multiplier = 1 + .85 Equity multiplier = 1.85

McKusker and Trout has annual sales of $649,200, cost of goods sold of $389,400, interest of $23,650, depreciation of $121,000, and a tax rate of 21 percent. What is the cash coverage ratio for the year? 8.43 18.22 11.64 5.87 10.99

10.99 Cash coverage ratio = ($649,200 − 389,400)/$23,650 Cash coverage ratio = 10.99

Lawn Care, Incorporated, has sales of $367,400, costs of $183,600, depreciation of $48,600, interest of $39,200, and a tax rate of 21 percent. The firm has total assets of $328,700, long-term debt of $62,400, and current liabilities of $76,300. What is the return on equity? 25.21% 78.78% .76% 29.02% 39.92%

39.92% Net income = ($367,400 − 183,600 − 48,600 − 39,200)(1 − .21) Net income = $75,840 Total equity = $328,700 − 62,400 − 76,300 Total equity = $190,000 ROE = $75,840/$190,000 ROE = .3992, or 39.92%

Park Resources has sales of $687,400, cost of goods sold of $454,200, and a net profit margin of 5.5 percent. The balance sheet shows common stock of $324,000 with a par value of $5 a share, and retained earnings of $689,500. What is the price-sales ratio if the market price is $43.20 per share? 12.74 6.12 4.28 4.07 14.51

4.07 Price-sales ratio = $43.20/[$687,400/($324,000/$5)] Price-sales ratio = 4.07

Roessler Fine Dining has total assets of $310,100 and net fixed assets of $168,500. The average daily operating costs are $2,980. What is the value of the interval measure? 68.05 days 31.47 days 104.62 days 47.52 days 56.22 days

47.52 days Interval measure = ($310,100 − 168,500)/$2,980 Interval measure = 47.52 days

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

An increase in the market value per share

______ are personally responsible for 100 percent of the firm's debts. Both general partners and sole proprietors Both limited and general partners All business owners Sole prorprieters but not general partners General Partners but not sole proprieters

Both general partners and sole proprietors

Parsa's Organics currently has $56 in debt for every $100 in equity. If the company were to use some of its cash to decrease its debt, while maintaining its current equity and net income, which one of the following would decrease? Return on assets Equity multiplier Net profit margin Total asset turnover Return on equity

Equity multiplier

Which one of the following is an agency cost? Increasing the quarterly dividend Accepting an investment opportunity that will add value to the firm Closing a division of the firm that is operating at a loss Investing in a new project that creates firm value Hiring outside accountants to audit the company's financial statements

Hiring outside accountants to audit the company's financial statements

Which one of the following is a source of cash for a tax-exempt firm? Decrease in accounts payable Increase in accounts receivable Increase in common stock Increase in depreciation Increase in inventory

Increase in common stock

During the year, Manbeck Gardens decreased its accounts receivable by $160, increased its inventory by $115, and decreased its accounts payable by $70. How did these three accounts affect the sources or uses of cash by the firm? Net source of cash of $120 Net use of cash of $25 Net use of cash of $115 Net source of cash of $45 Net source of cash of $205

Net use of cash of $25 Sources(uses) of cash = $160 − 115 − 70 Sources(uses) of cash = −$25

Which one of the following statements concerning net working capital is correct? Firms with equal amounts of net working capital have equal amounts of liquidity. An increase in net working capital must also increase current assets. A firm's ability to meet its current obligations increases as its net working capital decreases. Net working capital increases when inventory is sold for cash at a profit. Net working capital is a part of operating cash flow.

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

Which one of the following would cause a cash outflow from a corporation? Assigning common stock to employees Paying dividends Issuing new securities Receiving a tax refund from the government Taking out a loan from a bank

Paying dividends

Which one of the following is a working capital management decision? What percentage of the firm's equity should the firm issue to fund an acquisition? Should the firm require immediate payment from customers or offer credit terms? Which one of several acceptable projects should be implemented? What amount of long-term debt is required to complete a project? What equipment will be required to complete a project?

Should the firm require immediate payment from customers or offer credit terms?

The coding system established by the U.S. government to classify companies by the nature of their business operations is known as the: Governmental ID codes. Government Engineered Coding System. Centralized Business Index. Peer Grouping codes. Standard Industrial Classification codes.

Standard Industrial Classification codes.

All else constant, an increase in which of the following must increase the return on equity? Total asset turnover and debt-equity ratio Debt-equity ratio and total debt Equity multiplier and total equity Net income and total equity Total assets and sales

Total asset turnover and debt-equity ratio

Shareholders can replace company management by implementing: stock options. a proxy fight. promotions. the Sarbanes-Oxley Act. an agency play.

a proxy fight.

Total income taxes divided by total taxable income equals the ______ tax rate. residual average deductible total marginal

average

Determining the number of shares of stock to issue is an example of a ______ decision. capital allocation capital rationing net working capital capital structure capital budgeting

capital structure

A ______ has all the respective rights and privileges of a legal person. general partnership limited liability company limited partnership corporation sole proprietorship

corporation

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

current assets minus current liabilities.

A firm owned by two or more people who each have unlimited liability for all of the firm's debts is called a: sole proprietorship. limited partnership. general partnership. limited liability company. corporation.

general partnership.

A sole proprietorship: can generally raise large sums of capital quite easily. can transfer ownership of the firm more easily than a corporation can. is taxed the same as a C corporation. is the most regulated form of organization. has a limited life.

has a limited life.

Net capital spending: is equal to ending net fixed assets minus beginning net fixed assets. is equal to the net change in the current accounts. is equal to zero if the decrease in the net fixed assets is equal to the depreciation expense. is equivalent to the cash flow from assets minus the operating cash flow minus the change in net working capital. reflects the net changes in total assets over a stated period of time.

is equal to zero if the decrease in the net fixed assets is equal to the depreciation expense.

A limited liability company: is comprised of limited partners only. is taxed similarly to a C corporation. can only have a single owner. generates totally tax-free income. is taxed similarly to a partnership.

is taxed similarly to a partnership.

A partner in a firm knows that the maximum financial loss he or she will experience is the amount he or she invested in the firm. The partner is called a ______ partner. limited general sole zero corporate

limited

Mortgage lenders probably have the most interest in the ______ ratios. long-term debt and times interest earned return on equity and price-earnings return on assets and net profit margin price-earnings and debt-equity market-to-book and times interest earned

long-term debt and times interest earned

Eduardo sold 500 shares of Northcutt Corporation stock on the New York Stock Exchange. This transaction: was a private placement. involved a proxy. occurred in a dealer market. took place in the primary market. occurred in the secondary market.

occurred in the secondary market.

In a typical corporate organizational structure: the vice president of finance reports to the chair of the board. the chief operations officer reports to the vice president of production. the controller reports to the chief financial officer. the chief executive officer reports to the president. the treasurer reports to the president.

the controller reports to the chief financial officer.

Dominic's Custom Draperies has a fixed asset turnover rate of 1.13 and a total asset turnover rate of .94. Its competitor, Window Fashions, has a fixed asset turnover rate of 1.26 and a total asset turnover rate of .91. Both companies have similar operations. Based on this information, Dominic's must be _____ than Window Fashions. utilizing greater financial leverage utilizing its fixed assets more efficiently utilizing its total assets more efficiently generating net profit less efficiently generating net profit more efficiently

utilizing its total assets more efficiently

For the year, Movie Mania increased current liabilities by $1,400, decreased cash by $1,200, increased net fixed assets by $340, increased accounts receivable by $200, and decreased inventory by $150. What is the annual change in net working capital? −$2,210 $590 $550 −$70 −$2,550

−$2,550 Change in NWC = −$1,400 − 1,200 + 200 − 150 Change in NWC = −$2,550

Last year, Yang Software had $15,900 of sales, $500 of net new equity, dividend payments of $75, addition to retained earnings of $418, depreciation of $680, and $511 of interest expense. What are the earnings before interest and taxes at a tax rate of 21 percent? $589.46 $1,331.54 $1,135.05 $949.46 $1,560.85

$1,135.05 Net income = $75 + 418 Net income = $493 Taxable income = $493/(1 − .21) Taxable income = $624.05 EBIT = $624.05 + 511 EBIT = $1,135.05

For the past year, Zhao Events had taxable income of $198,600, beginning common stock of $68,000, beginning retained earnings of $318,750, ending common stock of $71,500, ending retained earnings of $316,940, interest expense of $11,300, and a tax rate of 21 percent. What is the amount of dividends paid during the year? $153,555 $157,280 $158,704 $159,935 $163,200

$158,704 Net income = $198,600(1 − .21) Net income = $156,894 Dividends paid = $156,894 − ($316,940 − 318,750) Dividends paid = $158,704

Which one of the following represents the most liquid asset? $500 worth of inventory that is sold today for $500 in cash $500 of accounts receivable that will be collected in full next week $500 account receivable that is discounted and collected for $480 today $500 worth of inventory that is discounted and sold today for $485 in cash $500 worth of inventory that is sold today on credit for $515

$500 worth of inventory that is sold today for $500 in cash

Vuong Rentals has sales of $546,000, costs of $295,000, depreciation expense of $37,000, interest expense of $15,000, and a tax rate of 21 percent. The firm paid $59,000 in cash dividends. What is the addition to retained earnings? $103,460 $98,210 $81,700 $121,680 $95,200

$98,210 Net income = ($546,000 − 295,000 − 37,000 − 15,000)(1 − .21) Net income = $157,210 Addition to retained earnings = $157,210 − 59,000 Addition to retained earnings = $98,210

Hamner Time has sales of $122,000, costs of $54,600, depreciation of $32,800, interest of $12,000, and a tax rate of 21 percent. The firm has total assets of $422,900, long-term debt of $146,800, and current liabilities of $65,200. What is the return on equity? 6.28% 15.32% .08% 8.47% 5.36%

8.47% Net income = ($122,000 − 54,600 − 32,800 − 12,000)(1 − .21) Net income = $17,854 Total equity = $422,900 − 146,800 − 65,200 Total equity = $210,900 ROE = $17,854/$210,900 ROE = .0847, or 8.47%

Which one of the following statements related to corporate income taxes is correct? Corporations pay the same rate of taxes regardless of the amount of taxable income. The marginal tax rate will always exceed a corporation's average tax rate. Above a certain level, if the corporation earns additional income, it will be taxed at a higher rate. A corporation's taxes equals its taxable income multiplied by the marginal tax rate. A corporation's marginal tax rate must be equal to or lower than its average tax rate.

Corporations pay the same rate of taxes regardless of the amount of taxable income.

Which one of the following questions involves a capital structure decision? How much inventory will be needed to support a project? How much debt should the firm incur to fund a project? How much funding should be allocated to financing customer purchases of a new product? How should the firm allocate its limited available funds among acceptable projects? Which one of two project proposals should the firm implement?

How much debt should the firm incur to fund a project?

Which of the following actions would be most likely to decrease agency costs for the firm? Reward high performing employees with shares of stock Pay all employees based on the amount of revenue generated by the firm Prohibit employees from becoming shareholders of the firm Pay bonuses to employees only if profits increase from one year to the next Increase employees' salaries to exceed the salaries paid by competitors

Reward high performing employees with shares of stock

The Natural Pet had sales of $763,500 in 2020, and $864,200 in 2021. The firm's current accounts remained constant. Given this information, which one of the following statements must be true? The net working capital turnover rate increased. The days' sales in receivables increased. The receivables turnover rate decreased. The fixed asset turnover decreased. The total asset turnover rate increased.

The net working capital turnover rate increased.

The cash flow that is available for distribution to a corporation's creditors and stockholders is called the: operating cash flow. cash flow to stockholders. net capital spending. net working capital. cash flow from assets.

cash flow from assets.

The growth of both sole proprietorships and partnerships is frequently limited by the firm's: limited liability. agency problems. bylaws. inability to raise cash. double taxation.

inability to raise cash.