FI 302

Gross profit is calculated as

Total sales - cost of sales

Which of the following statements regarding the balance sheet is INCORRECT?

The balance sheet reports liabilities on the left hand side

If Firm A and Firm B are in the same industry and use the same production method, and Firm A's asset turnover is higher than that of Firm B, then all else equal we can conclude

Firm A is more efficient than Firm B

Which of the following statements regarding arbitrage and security prices is INCORRECT?

When a bond is underpriced, the arbitrage strategy involves selling the bond and investing some of the proceeds

Which of the following statements regarding Net Present Value (NPV) is INCORRECT?

When faced with a set of alternatives, choose the one with the lowest NPV in order to minimize the preset value of costs

A ________ is when a rich individual or organization purchases a large fraction of the stock of a poorly performing firm and in doing so gets enough votes to replace the board of directors and the CEO

hostile takeover

The firm's asset turnover measures

how efficiently the firm is utilizing its assets to generate sales

The inventory days ratio measures

inventory / (average daily cost of sales)

The distinguishing feature of a corporation is that:

it is a legally defined, artificial being, separate from its owners.

The person charged with running the corporation by instituting the rules and policies set by the board of directors is called

the chief executive officer

Which of the following statements is FALSE?

If the corporation fails to satisfy debt holders' claims, debt holders may lose control of the firm.

Which of the following is NOT a section on the cash flow statement

Income generating activities

Which of the following statements regarding the NPV decision rule is FALSE?

Reject projects with a NPV of zero, as accepting them is equivalent to reducing firm value.

Which of the following organization forms accounts for the greatest number of firms?

Sole proprietorship

Which of the following is NOT a financial statement that every public company is required to produce?

Statement of Sources and Uses of Cash

Which of the following statements regarding the income statement is INCORRECT?

The income statement shows the earnings and expenses at a given point in time

You overhear your manager saying that she plans to book an Ocean-view room on her upcoming trip to Miami for a meeting. You know that the interior rooms are much less expensive, but that your manager is traveling at the Company's expense. This use of additional funds comes about as a result of

an agency problem

cash ratio

cash / (current liabilities)

An agency problem can be alleviated by

compensating managers in such a way that acting in the best interest of shareholders is also in the best interest of managers.

If shareholders are unhappy with a CEO's performance, they are most likely to

sell their shares

In a corporation, the ultimate decisions regarding business matters are made by

the Board of Directors

The inventory days ratio measures

the average length of time it takes a company to sell its inventory

If we use future value rather than present value to decide whether to make an investment

we will make the same decision using either future value or present value

Which of the following organization forms accounts for the most revenue?

"C" corporation

Which of the following organization forms for a business does NOT avoid double taxation?

"C" corporation

P/E ratio

(market capitalization) / (net income)

return on assets

(net income + interest expense) / (total assets)

return on equity

(net income) / (book value of equity)

EPS

(net income) / (shares outstanding)

net profit margin

(net income) / (total sales)

operating margin

(operating income) / (sales)

Which of the following statements is FALSE?

Bid prices exceed ask prices

If you buy shares of Coca-Cola on the primary market

Coca-Cola receives the money because the company has issued new shares