Corporate Finance CH. 1 & 2 & 3

An increase in which one of the following will increase a firm's quick ratio without affecting its cash ratio?

accounts receivable

The cash flow related to interest payments less any net new borrowing is called the:

cash flow to creditors

Which of the following parties are not considered stakeholders of a firm?

competitiors

A business that is a legal entity separate from the owners, yet treated as a legal person, is called a(n):

corporation

Ratios that measure how efficiently a firm manages its assets and operations to generate net income are referred to as ______ ratios.

profitability

Financial managers should primarily focus on the interests of:

shareholders

Which one of the following is a working capital management decision?

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

The cash coverage ratio directly measures the ability of a company to meet its obligation to pay:

interest to a lender

Which one of the following is a current liability?

An invoice payable to a supplier in 45 days

Nataro, Incorporated, has sales of $742,000, costs of $316,000, depreciation expense of $39,000, interest expense of $34,000, and a tax rate of 21 percent. What is the net income for this firm?

278,870

The balance sheet of Perez Printing shows $680 in inventory, $2,140 in fixed assets, $210 in accounts receivables, $250 in accounts payable, and $80 in cash. How much net working capital does the company have?

$720 (inventory+ AR+cash)- (AP) = NWC

Which one of the following is a correct formula for computing the return on equity?

ROA × Equity multiplier

Krauss Upholstery purchased all of its fixed assets three years ago for $4 million. These assets can be sold today for $2 million. The current balance sheet shows net fixed assets of $2,500,000, current liabilities of $1,375,000, and net working capital of $725,000. If all the current assets were liquidated today, the company would receive $1.9 million in cash. The book value of the total assets today is ________ and the market value of those assets is ________.

$4,600,000; $3,900,000

Which one of the following represents the most liquid asset?

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

All other things beings equal, and assuming all ratios have positive values, an increase in current liabilities will:

All other things beings equal, and assuming all ratios have positive values, an increase in current liabilities will:

Which of the following actions could cause a company's change in net working capital to be negative for a given year?

Borrow money from the bank using a note payable in nine months

Which one of the following is a disadvantage of the corporate form of business?

Distributed profits may experience double taxation.

Which one of the following will decrease the value of a firm's net working capital?

Donating inventory to charity

The relationship between the return on assets and the return on equity is identified by the:

DuPont identity

Which one of the following questions involves a capital structure decision?

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

Which one of the following statements related to liquidity is correct?

Liquid assets are valuable to a firm.

Which of the following actions would be most likely to decrease agency costs for the firm?

Reward high performing employees with shares of stock

Which one of the following is a primary market transaction?

Sale of a new share of stock from a corporation to an individual investor

Humphries has cash of $10,000, accounts receivable of $2,500, accounts payable of $900, and inventory of $1,200. What is the value of the quick ratio?

13.89

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?

NWC =CA-CL look at notebook!

At the beginning of the year, Scoopers Ice Cream had cash of $183, accounts receivable of $392, accounts payable of $463, and inventory of $714. At year end, cash was $167, accounts payable was $447, inventory was $682, and accounts receivable was $409. What is the amount of the net source or use of cash by working capital accounts for the year?

Net source of $15 cash

Which one of the following is a source of cash?

decrease in inventory

Shen Systems purchased equipment four years ago at a cost of $218,000. The equipment is valued at $97,400 on today's balance sheet but could actually be sold for $92,900. This is the only fixed asset the firm owns. Net working capital is $41,300 and long-term debt is $102,800. What is the book value of shareholders' equity?

$35,900

Silva Enterprises has inventory of $11,600, fixed assets of $22,400, total liabilities of $12,900, cash of $1,900, accounts receivable of $8,700, and long-term debt of $6,500. What is the net working capital?

15800

Which form of business would be the best choice if it were necessary to raise large amounts of capital

Corporation

Which one of the following statements regarding corporations is correct?

Corporations can have an unlimited life.

Which one of the following accurately lists the three components of the DuPont identity?

Equity multiplier, net profit margin, and total asset turnover

Which one of the following best states the primary goal of financial management?

Maximize the current value per share

Which one of the following questions involves a capital budgeting decision?

Should the firm purchase a new machine for the production line?

The coding system established by the U.S. government to classify companies by the nature of their business operations is known as the:

Standard Industrial Classification codes.

A positive cash flow to stockholders indicates which one of the following with certainty?

The dividends paid exceeded the net new equity raised.

All else constant, an increase in which of the following must increase the return on equity?

Total asset turnover and debt-equity ratio

Mikeska Equipment Repair has net working capital of $560. Long-term debt is $3,970, total assets are $7,390, and fixed assets are $3,910. What is the amount of the total liabilities?

Total liabilities= current liabilities + long term Liabilities CA= Total A-fixed A $7,390-3,910= 3,480 NWC= CA-CL $560= 3,480- CL CL= 2,920 CL+LTL= TL 2,920+3,970= 6,890

Which one of the following involves a working capital management decision?

What is the maximum level of cash to be kept in the firm's bank account?

Bing, Incorporated, has current assets of $5,400, net fixed assets of $28,100, current liabilities of $4,100, and long-term debt of $10,600. a. What is the value of the shareholders' equity account for this firm? b.How much is net working capital?

a. 18,800 b. 1,300

Corporate dividends represent:

aftertax income from the corporation which becomes taxable income for the recipient

Financial managers should strive to maximize the current value per share of the existing stock to:

best represent the interests of the current owners of the firm.

A firm's liquidity is measured with which one of the following ratios?

current ratio

Which one of the following is a use of cash?

decrease in accounts payable

When developing a common-size balance sheet to evaluate last year's performance, all accounts are expressed as a percentage of:

last years total assets

Mortgage lenders probably have the most interest in the ______ ratios.

long-term debt and times interest earned

The price-sales ratio is especially useful when analyzing firms that have:

negative earnings

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 use of cash 25

A firm's ______ is the firm's mix of short-term assets and short-term liabilities.

net working capital

Eduardo sold 500 shares of Northcutt Corporation stock on the New York Stock Exchange. This transaction:

occurred in the secondary market.

The cash flow that results from a company's ongoing, normal business activities is called:

operating cash flow.

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

short term solvency

A firm owned by a single person who has unlimited liability for the firm's debt is called a:

sole proprietorship

During the year, the accounts payable of a company rose from $115,200 to $134,300. This change represents a:

source of $19,100 of cash as an operating activity.

The sources and uses of cash over a stated period of time are reflected on the:

statement of cash flows

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 its total assets more efficiently

Which one of the following questions is a working capital management decision?

How much inventory should the company keep on hand?

Which one of the following is least apt to help convince managers to work in the best interest of the stockholders? Assume there are no golden parachutes.

Increasing managers' base salaries