FINANCE 3010

Changes in the net working capital requirements: can affect the cash flows of a project every year of the project's life. only affect the initial cash flows of a project. only affect the initial and final cash flows of a project. are generally excluded from project analysis due to their irrelevance to the total project. are excluded from project analysis as long as they are recovered when the project ends.

can affect the cash flows of a project every year of the project's life

Which one of the following terms is defined as the management of a firm's long-term investments? Working capital management Financial allocation Agency cost analysis Capital budgeting Capital structure

capital budgeting

The interest earned on both the initial principal and the interest reinvested from prior periods is called: free interest. dual interest. simple interest. interest on interest. compound interest.

compound interest

Agency problems are most associated with: sole proprietorships. general partnerships. limited partnerships. corporations. limited liability companies.

corporations

Art invested $100 two years ago at 8 percent interest. The first year, he earned $8 interest on his $100 investment. He reinvested the $8. The second year, he earned $8.64 interest on his $108 investment. The extra $.64 he earned in interest the second year is referred to as: free interest. bonus income. simple interest. interest on interest.

interest on interest

Which of the following is a current liability? Note payable to a supplier in 13 months Amount due from a customer in two weeks Account payable to a supplier that is due next week Loan payable to the bank in 18 months Amount due from a customer that is past due

account payable to a supplier that is due next week

The depreciation tax shield is best defined as the: amount of tax that is saved when an asset is purchased. tax that is avoided when an asset is sold as salvage. amount of tax that is due when an asset is sold. amount of tax that is saved because of the depreciation expense. amount by which the aftertax depreciation expense lowers net income.

amount of tax that is saved because of the depreciation expense

The percentage of the next dollar you earn that must be paid in taxes is referred to as the _____ tax rate. mean residual total average marginal

marginal

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 per unit production costs An increase in the number of shares outstanding A decrease in the net working capital An increase in the market value per share

an increase in the market value per share

Your credit card charges you .85 percent interest per month. This rate when multiplied by 12 is called the ____ rate. effective annual annual percentage periodic interest compound interest

annual percentage

The _____ tax rate is equal to total taxes divided by total taxable income. deductible residual total average marginal

average

Decisions made by financial managers should primarily focus on increasing the: size of the firm. growth rate of the firm. gross profit per unit produced. market value per share of outstanding stock. total sales.

market value per share of outstanding stock

Which one of the following best states the primary goal of financial management? Maximize current dividends per share Maximize the current value per share Increase cash flow and avoid financial distress Minimize operational costs while maximizing firm efficiency Maintain steady growth while increasing current profits

maximize the current value per share

Which term relates to the cash flow that results from a company's ongoing, normal business activities? Operating cash flow Capital spending Net working capital Cash flow from assets Cash flow to creditors

operating cash flow

The option that is forgone so that an asset can be utilized by a specific project is referred to as which one of the following? Salvage value Wasted value Sunk cost Opportunity cost Erosion

opportunity cost

Kurt won a lottery and will receive $1,000 a year for the next 50 years. The current value of these winnings is called the: single amount. future value. present value. simple amount. compounded value.

present value

Which of the following is classified as a tangible fixed asset? Accounts Receivable Production Equipment Cash Patent Inventory

production equipment

Which one of the following best illustrates erosion as it relates to a hot dog stand located on the beach? Providing both ketchup and mustard for customers' use Repairing the roof of the hot dog stand because of water damage Selling fewer hot dogs because hamburgers were added to the menu Offering french fries but not onion rings Losing sales due to bad weather

selling fewer hot dogs because hamburgers were added to the menu

GL Plastics spent $1,200 last week repairing a machine. This week the company is trying to decide if the machine could be better utilized if they assigned it a proposed project. When analyzing the proposed project, the $1,200 should be treated as which type of cost? Opportunity Fixed Incremental Erosion Sunk

sunk

The current book value of a fixed asset that was purchased two years ago is used in the computation of which one of the following? Depreciation tax shield Tax due on the current salvage value of that asset Current year's operating cash flow Change in net working capital MACRS depreciation for the current year

tax due on the current salvage value of that asset

Which one of the following best describes the concept of erosion? Expenses that have already been incurred and cannot be recovered Change in net working capital related to implementing a new project The cash flows of a new project that come at the expense of a firm's existing cash flows The alternative that is forfeited when a fixed asset is utilized by a project The differences in a firm's cash flows with and without a particular project

the cash flows of a new project that come at the expense of a firm's existing cash flows

Working capital management decisions include determining: the minimum level of cash to be kept in a checking account. the best method of producing a product. the number of employees needed to work during a particular shift. when to replace obsolete equipment. if a competitor should be acquired.

the minimum level of cash to be kept in a checking account

Which one of the following statements correctly defines a time value of money relationship? Time and future values are inversely related, all else held constant. Interest rates and time are positively related, all else held constant. An increase in a positive discount rate increases the present value. An increase in time increases the future value given a zero rate of interest. Time and present value are inversely related, all else held constant.

time and present value are inversely related, all else held constant

An example of a capital budgeting decision is deciding: how many shares of stock to issue. whether or not to purchase a new machine for the production line. how to refinance a debt issue that is maturing. how much inventory to keep on hand. how much money should be kept in the checking account.

whether or not to purchase a new machine for the production line

Which one of the following is an example of a sunk cost? $1,500 of lost sales because an item was out of stock $1,200 paid to repair a machine last year $20,000 project that must be forfeited if another project is accepted $4,500 reduction in current shoe sales if a store commences selling sandals $1,800 increase in comic book sales if a store ceases selling puzzles

$1,200 paid to repair a machine last year

You want to have $30,000 saved 5 years from now to buy a house. How much less do you have to deposit today to reach this goal if you can earn 3.5 percent rather than 2.5 percent on your savings? Today's deposit is the only deposit you will make to this savings account. $1,256.43 $891.18 $1,124.60 $945.11 $1,219.02

$1,256.43

Which one of the following questions is a working capital management decision? Should the company issue new shares of stock or borrow money? Should the company update or replace its older equipment? How much inventory should be on hand for immediate sale? Should the company close one of its current stores? How much should the company borrow to buy a new building?

How much inventory should be on hand for immediate sale?

Which one of the following is the financial statement that shows the accounting value of a firm's equity as of a particular date? Income statement Creditor's statement Balance sheet Statement of cash flows Dividend statement

balance sheet

Sam just opened a savings account paying 3.5 percent interest, compounded annually. After four years, the savings account will be worth $5,000. Assume there are no additional deposits or withdrawals. Given this, Sam: will earn the same amount of interest each year for four years. will earn simple interest on his savings every year for four years. could have deposited less money today and still had $5,000 in four years if the account paid a higher rate of interest. has an account currently valued at $5,000. could earn more interest on this account if the interest earnings were withdrawn annually.

could have deposited less money today and still had $5,000 in four years if the account paid a higher rate of interest

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

current assets minus current liabilities

Steve just computed the present value of a $10,000 bonus he will receive next year. The interest rate he used in his computation is referred to as the: current yield. effective rate. compound rate. simple rate. discount rate.

discount rate

The process of determining the present value of future cash flows in order to know their value today is referred to as: compound interest valuation. interest on interest valuation. discounted cash flow valuation. future value interest factoring. complex factoring.

discounted cash flow valuation

You are investing $100 today in a savings account. Which one of the following terms refers to the total value of this investment one year from now? Future value Present value Principal amount Discounted value Invested principal

future value

Kelley's Baskets makes handmade baskets and is currently considering making handmade wreaths as well. Which one of the following is the best example of an incremental operating cash flow related to the wreath project? Storing supplies in the same space currently used for materials storage Utilizing the basket manager to oversee wreath production Hiring additional employees to handle the increased workload should the firm accept the wreath project Researching the market to determine if wreath sales might be profitable before deciding to proceed

hiring additional employees to handle the increased workload should the firm accept the wreath project

Capital structure decisions include determining: which one of two projects to accept. how to allocate investment funds to multiple projects. the amount of funds needed to finance customer purchases of a new product. how much debt should be assumed to fund a project. how much inventory will be needed to support a project.

how much debt should be assumed to fund a project

Which one of the following is the financial statement that summarizes a firm's revenue and expenses over a period of time? Income statement Balance sheet Statement of cash flows Tax reconciliation statement Market value report

income statement

Depreciation for a tax-paying firm: increases expenses and lowers taxes. increases the net fixed assets as shown on the balance sheet. reduces both the net fixed assets and the costs of a firm. is a noncash expense that increases the net income. decreases net fixed assets, net income, and operating cash flows.

increases expenses and lowers taxes

Which one of the following actions by a financial manager is most apt to create an agency problem? Refusing to borrow money when doing so will create losses for the firm Refusing to lower selling prices if doing so will reduce the net profits Refusing to expand the company if doing so will lower the value of the equity Agreeing to pay bonuses based on the market value of the company's stock rather than on its level of sales Increasing current profits when doing so lowers the value of the company's equity

increasing current profits when doing so lowers the value of the company's equity

The difference between a company's future cash flows if it accepts a project and the company's future cash flows if it does not accept the project is referred to as the project's: incremental cash flows. internal cash flows. external cash flows. erosion effects.

incremental cash flows

Which one of the following is an expense for accounting purposes but is not an operating cash flow for financial purposes? Interest expense Taxes Cost of goods sold Labor costs Administrative expenses

interest expense