FIN 301: Iowa State Exam 1

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

Which one of the following statements related to corporate income taxes is correct? 1. A corporation's marginal tax rate must be equal to or lower than its average tax rate. 2. A corporation's taxes equals its taxable income multiplied by the marginal tax rate. 3. Above a certain level, if the corporation earns additional income, it will be taxed at a higher rate. 4. The marginal tax rate will always exceed a corporation's average tax rate. 5. Corporations pay the same rate of taxes regardless of the amount of taxable income.

5

Balance Sheet

Showing a firm's accounting value ON A PARTICULAR DATE

Working Capital Management

a firm's SHORT-TERM assets and liabilities

According to the statement of cash flows, an increase in inventory will ______ the cash flow from ______ activities.

decrease; operating

Which one of the following involves a working capital management decision? 1. What is the maximum level of cash to be kept in the firm's bank account? 2. What is the most efficient process for producing a product? 3. How many hours of overtime should manufacturing employees be allowed to work? 4. When is the appropriate time to replace the delivery fleet? 5. Should a newly available parcel of land be acquired?

1

which of the the following financial statements summarizes a firm's revenue and expenses during a period of time? 1. income statement 2. balance sheet 3. statement of cash flows 4. tax reconciliation 5. market value report

1

Hinojosa Music has projected annual net income of $272,600, of which 28 percent will be distributed as dividends. The company will sell $75,000 worth of common stock. What will be the cash flow to stockholders if the tax rate is 21 percent?

1,328

Oldie's Vintage has sales of $4,300, net income of $320, total assets of $4,800, and total equity of $2,950. Interest expense is $65. What is the common-size statement value of the interest expense?

1.51%

Yarratu Signs has sales of $84,300 net income of $16,860, total assets of $421,500, and total debt of $168,600. Assets and costs are proportional to sales. Debt and equity are not. No dividends or taxes are paid. Next year's sales are projected to be $90,201. What is the amount of the external financing needed?

11,465

Brusewitz Drilling has annual sales of $96,700, a net profit margin of 7.45 percent, and a payout ratio of 40 percent. The firm has $11,500 of debt and owners' equity of $31,200. What is the internal growth rate for this firm assuming the payout ratio remains constant?

11.26%

Fierro Fitness had sales of $3,340, net income of $274, net fixed assets of $2,600, and current assets of $920. The firm has $430 in inventory. When evaluating last year's performance, what is the common-size statement value of inventory?

12.22%

Cookies by Casey has sales of $487,000 with costs of $263,000. Interest expense is $26,000 and depreciation is $42,000. The tax rate is 21 percent. What is the net income?

123,240

Wommack Interiors had beginning long-term debt of $51,207 and ending long-term debt of $36,714. The beginning and ending total debt balances were $59,513 and $42,612, respectively. The interest paid was $2,808. What is the amount of the cash flow to creditors?

17,301

Wood Recovery has sales of $397,000, total assets of $225,000, and total debt of $101,700 million. The net profit margin is 6.2 percent. What is the return on equity?

19.96%

Activities of a firm that require spending of cash are known as: 1. sources of cash 2. uses of cash 3. cash collections 4. cash receipts 5. cash on hand

2

During the year, the accounts payable of a company rose from $115,200 to $134,300. This change represents a: 1. use of $19,100 of cash as investment activity. 2. source of $19,100 of cash as an operating activity. 3. source of $19,100 of cash as a financing activity. 4. source of $$19,100 of cash as an investment activity. 5. use of $19,100 of cash as an operating activity.

2

When developing a common-size balance sheet to evaluate last year's performance, all accounts are expressed as a percentage of: 1. last year's sales 2. last year's total assets 3. the base year's total equity 4. the base year's sales 5. the base year's total assets

2

Which one of the following is a disadvantage of the corporate form of business? 1. Shareholders may experience limited liability. 2. Distributed profits may experience double taxation. 3. Raising capital may be more difficult than for other forms of business. 4. The firm may have unlimited life. 5. The firm may issue additional shares of stock.

2

Randall's Bakery has sales of $42,000 and a net profit margin of 5.8 percent. The firm estimates that sales will increase by 4.5 percent next year and that all costs will vary in direct relationship to sales. What is the pro forma net income?

2,545.62

Based on the tax table below, what is the average tax rate for a sole proprietor with taxable income of $155,000? Ignore any standard or itemized deductions. 0 - 9,875 10% 9,875 - 40,125 12% 40,125 - 85,525 22% 85,525 - 163,300 24%

20.18%

A sole proprietorship: 1. is designed to protect the personal assets of the owner. 2. may earn profits that are subject to double taxation. 3. requires the owner to be personally responsible for all of the company's debts. 4. is the least represented type of firm in the U.S. today. 5. provides the same benefits to owners that a limited liability company does.

3

In a typical corporate organizational structure: 1. vice president of finance reports to the head of the board 2. the chief executive officer reports to the president 3. the controller reports to the chief financial officer 4. the treasurer reports to the president 5. the chief operations officer reports to the vice president of production

3

Which one of the following is correct in relation to pro forma statements? 1. Fixed assets must increase if sales are projected to increase. 2. Net working capital is affected only when a firm's sales are expected to exceed the firm's current production capacity. 3. The addition to retained earnings is equal to net income less cash dividends. 4. Long-term debt varies directly with sales when a firm is currently operating at maximum capacity. 5. Inventory changes are not proportional to sales changes.

3

Herrera Corporation has total sales of $3,110,400 and costs of $2,776,000. Depreciation is $258,000 and the tax rate is 21 percent. The firm is all-equity financed. What is the operating cash flow?

318,356

Khadimally, Incorporated, expects sales of $763,500 next year. The net profit margin is 5.3 percent and the firm has a dividend payout ratio of 18 percent. What is the projected increase in retained earnings?

33,181.71

Barnett Saddlery had beginning net fixed assets of $218,470 and ending net fixed assets of $209,411. During the year, assets with a book value of $6,943 were sold. Depreciation for the year was $42,822. What is the amount of net capital spending?

33,763

A firm's external financing need is met by: 1. retained earnings. 2. net working capital and retained earnings. 3. net income and retained earnings. 4. debt and/or equity. 5. owners' equity, including retained earnings.

4

Deciding which long-term investment a firm should make is a _______ decision. 1. Working Capital Management 2. Capital Constraints 3. Cost of Capital 4. Capital Budgeting 5. Capital structure

4

Financial managers should primarily focus on the interests of: 1. themselves. 2. the vice president of finance. 3. their immediate supervisor. 4. shareholders. 5. the board of directors.

4

The cash flow that is available for distribution to a corporation's creditors and stockholders is called the: 1. operating cash flow. 2. net capital spending. 3. net working capital. 4. cash flow from assets. 5. cash flow to stockholders.

4

The sources and uses of cash over a stated period of time are reflected on the: 1. income statement 2. balance sheet 3. tax reconciliation statement 4. statement of cash flows 5. statement of operating position

4

net working capital 1. total liabilities - shareholder's equity 2. current liabilities - shareholder's equity 3. fixed assets - long term liabilities 4. current assets - current liabilities 5. total assets - total liabilities

4

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

The Sarbanes-Oxley Act of 2002 is a governmental response to: 1. decreasing corporate profits. 2. the terrorist attacks on 9/11/2001. 3. the harm caused to stock markets by SARS, MERS, COVID-19, and other pandemics. 4. deregulation of the stock exchanges. 5. management greed and abuses.

5

The retention ratio can be computed as: 1. 1 − Plowback ratio. 2. Change in retained earnings/Cash dividends. 3. 1 + Dividend payout ratio. 4. (Change in retained earnings + Cash dividends)/Net income. 5. 1 − (Cash dividends/Net income).

5

When constructing a pro forma statement, net working capital generally: 1. remains fixed. 2. varies only if the firm is currently producing at full capacity. 3. varies only if the firm maintains a fixed debt-equity ratio. 4. varies only if the firm is producing at less than full capacity. 5. varies proportionally with sales.

5

Which of the following is a source of cash? 1. Increase in accounts receivable 2. decrease in common stock 3. increase in fixed assets 4. decrease in accounts payable 5. decrease in inventory

5

Lewis & Price Corporation paid $700 in dividends and $320 in interest this past year. Common stock remained constant at $6,800 and retained earnings decreased by $180. What is the net income for the year?

520

Sweet Home Bakery has a return on assets of 10.9 percent, a return on equity of 16.7 percent, and a retention ratio of 40 percent. What is its sustainable growth rate?

7.16%

Campos Restaurant Supply has a return on assets of 9 percent, a return on equity of 11.3 percent, and a payout ratio of 22 percent. What is its internal growth rate?

7.55%

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

Halabi's Market has annual sales of $813,200, total debt of $171,000, total equity of $396,000, and a net profit margin of 5.78 percent. What is the return on assets?

8.29%

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?

8.47%

Shen & Sanchez Engineering is an all-equity firm that has net income of $96,200, depreciation expense of $6,300, and an increase in net working capital of $2,800. What is the amount of the net cash from operating activity?

99,700

Which of the following questions should be considered when developing a corporation's financial plan? I. How much net working capital will be needed? II. Will additional fixed assets be required? III. Will dividends be paid to shareholders? IV. How much new debt must be obtained?

I, II, III, IV

which of the following is most liquid: inventory building accounts receivable equipment land

accounts receivable

A firm's mixture of debt and equity financing is the result of its _______ decisions.

capital structure

agency problem

conflict where one party, motivated by self-interest, should act in the best interest of another.

Agency problems are most likely to be associated with:

corporations

Capital Structure

mixture of debt and equity maintained by a firm - How much should the firm borrow? - what are the least expensive sources of funds for the firm?

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

net working capital

Capital Budgeting

process of planning and managing a firm's LONG-TERM investments

Income Statement

statement summarizing a firm's performance over A PERIOD OF TIME

Statement of Cash Flows

the sources and uses of cash over a stated period of time