Finance
Which of the following is the first step involved in constructing pro forma financial statements? a. Forecasting the income statement b. Determining the additional funds needed (AFN) to support expected growth c. Implementing the financing feedbacks d. Determining the operating breakeven point e. Forecasting the next period's balance sheet
a. Forecasting the income statement
Ruby Enterprises Ltd. has long-term bonds worth $20 million, retained earnings of $45 million, accounts payable of $10 million, notes payable of $12 million, and inventory worth $18 million. What is the value of total liabilities of Ruby Enterprises? a.$42 million b.$87 million c.$60 million d.$105 million e.$85 million
a.$42 million 20+10+12=42
Trident Food Corporation generated the following income statement for the most recent fiscal year: Sales revenues $150,000 Variable cost of sales (112,500) Gross profit 37,500 Fixed operating costs (24,000) Net operating income (EBIT) 13,500 Interest (10,000) Earnings before taxes 3,500 Taxes (40%) (1,400) Net income 2,100 Which of the following is the degree of total leverage for Trident Foods? a.10.71× b.17.86× c.71.43× d.42.86× e.6.43×
a.10.71× 37,500/13,500=2.78 13,500/3,500=3.86
Which of the following is considered a use of cash in a cash flow statement? a.Increase in fixed assets b.Increase in common stock c.Decrease in inventory d.Increase in accrued wages e.Decrease in accounts receivable
a.Increase in fixed assets
Which of the following is true of the degree of total leverage (DTL)? a.It is the percentage change in EPS that results from a 1 percent change in sales. b.It is the percentage change in EPS that results from a given percentage change in EBIT. c.It represents the level of production and sales at which net operating income is zero. d.It is the percentage change in NOI (or EBIT) associated with a given percentage change in sales. e.It is the level of EBIT at which EPS equals zero.
a.It is the percentage change in EPS that results from a 1 percent change in sales.
How is the net working capital calculated? a.Net working capital = current assets minus current liabilities b.Net working capital = total assets minus current assets c.Net working capital = total liabilities minus retained earnings d.Net working capital = total liabilities minus current liabilities e.Net working capital = total equity minus retained earnings
a.Net working capital = current assets minus current liabilities
Which of the following financial statements shows a firm's financing activities (how funds were generated) and investment activities (how funds were used) over a particular period of time? a.Statement of cash flows b.Balance sheet c.Income statement d.Statement of retained earnings e.Proxy statement
a.Statement of cash flows
The relationship between sales volume and operating profitability is explored in _____. a.cost-volume-profit planning b.the degree of financial leverage c.financial breakeven analysis d.economies of scale e.the projected balance sheet method
a.cost-volume-profit planning
The degree of financial leverage (DFL) is defined as the percentage change in _____ that results from a given percentage change in earnings before interest and tax (EBIT). a.earnings per share (EPS) b.net operating income (NOI) c.operating fixed costs d.net income e.sales
a.earnings per share (EPS)
The financial breakeven point is the level of _____ at which earnings per share (EPS) is equal to zero. a.net operating income (NOI) b.gross profit c.retained earnings d.degree of financial leverage (DFL) e.net income
a.net operating income (NOI)
According to the forecasting and control function, if a firm cannot obtain the funds required to meet the sales forecast, then it should _____. a.scale back the projected level of operations b.plan for the acquisition of required funds well in advance c.expand its production facilities d.reformulate its plans to increase retained earnings e.build up its inventory quickly
a.scale back the projected level of operations
Which of the following statements increases the complexity of the manager's task in a multinational corporation? a.Cash flows in various parts of a multinational corporate system are often denominated in the same currencies. b.The currency values of different countries in which a firm operate experience fluctuations. c.The management personnel of a firm in different countries are fluent in English and several other languages. d.All the countries in which a firm operates have uniform political and economic institutions. e.No nation can place constraints on the transfer of corporate resources.
b. The currency values of different countries in which a firm operate experience fluctuations.
Which of the following is true about a common size balance sheet? a. The assets, liabilities, and equities are reported as a percentage of common stock. b. The assets, liabilities, and equities are reported as a percentage of total assets. c. The assets, liabilities, and equities are reported at its market value. d. The assets, liabilities, and equities are arranged in the alphabetical order. e. The assets, liabilities, and equities are reported as a percentage of the assets, liabilities, and equities of a competing firm.
b. The assets, liabilities, and equities are reported as a percentage of total assets.
Other things held constant, which of the following will not affect the current ratio, assuming an initial current ratio greater than 1.0? a.Long-term debt is issued to pay off current liabilities. b.Accounts receivable are collected. c.A bank loan is obtained, and the proceeds are credited to the firm's checking account. d.Fixed assets are sold for cash. e.Cash is used to pay off accounts payable.
b.Accounts receivable are collected.
Which of the following mathematical expressions is used to compute the degree of financial leverage at a particular level of earnings before interest and tax (EBIT)? Assume that the preferred stockholders receive no dividends. a.Earnings before interest and tax ÷ Earnings per share (EPS) b.Earnings before interest and tax ÷ (Earnings before interest and tax - Interest) c.Gross profit ÷ Earnings before interest and tax d.(Earnings before interest and tax - Interest - Taxes) ÷ Number of shares e.Sales ÷ (Earnings before interest and tax - Interest)
b.Earnings before interest and tax ÷ (Earnings before interest and tax - Interest)
Which of the following statements shows the portion of the firm's earnings that has been saved rather than paid out as dividends? a.Income statement b.Statement of retained earnings c.Proxy statement d.Balance sheet e.Statement of cash flows
b.Statement of retained earnings
Which of the following is true about the book value and market value of a firm's debt? a.The market value of a firm's debt will be equal to the market value of a firm's assets. b.The book value of a firm's debt will be equal to the market value of the firm's debt. c.The book value of a firm's debt will be higher than the market value of the firm's debt. d.The book value of a firm's debt will be equal to the market value of firm's assets. e.The market value of a firm's debt will be higher than the book value of firm's assets.
b.The book value of a firm's debt will be equal to the market value of the firm's debt.
By definition, a firm's operating breakeven point represents the level of production and sales at which: a.fixed variable costs equal operating revenue. b.net operating income equals zero. c.variable costs equal operating revenue. d.additional funds needed equal zero. e.the cost of equity equals the cost of debt.
b.net operating income equals zero.
The appropriate goal for management decisions is: a. Maximizing net income (profits) b. Maximizing dividends paid to common stockholders c. Maximizing the market value of the firm's stock d. Minimizing variable operating expenses e. Maximizing the firm's net worth, or book value
c. Maximizing the market value of the firm's stock
Which of the following statements is true of operating breakeven analysis? a. It involves determining the operating income the firm needs to just cover all of its financing costs. b. It involves the analysis of the interest payments to bondholders and the dividend payments to preferred stockholders. c. It involves determining the point at which revenue from sales equals operating costs. d. It involves determining the level of production and sales at which net operating income is equal to one. e. It involves the analysis of the level of production and sales at which financing costs are recovered.
c. It involves determining the point at which revenue from sales equals operating cos
Which of the following leverages considers the effect on earnings per share (EPS) of the changing operating income (EBIT)? a.Contribution leverage b.Total leverage c.Financial leverage d.Combined leverage e.Operating leverage
c.Financial leverage
Financial breakeven analysis determines the operating income at which the _____ is equal to zero. a.degree of financial leverage (DFL) b.gross profit c.earnings per share d.degree of operating leverage e.earnings before interest and tax (EBIT)
c.earnings per share
The prices at which the currency of one country can be converted into the currencies of other countries are known as _____. a.conversion costs b.procurement prices c.exchange rates d.transfer prices e.political risk costs
c.exchange rates
The extent to which the operating income can decline before a firm is unable to meet its annual interest costs can be found in: a.the fixed charge coverage ratio. b.the debt ratio. c.the times-interest-earned ratio. d.the return on equity .e.the profit margin.
c.the times-interest-earned ratio.
An analysis of a firm's financial ratios over time used to determine the improvement or deterioration in its financial situation is called _____. a.sensitivity analysis b.ratio analysis c.trend analysis d.the DuPont chart e.benchmarking analysis
c.trend analysis
Pearl Automotive Ltd. has a current ratio of 2. The company wants to window dress its financial statements. Which of the following transactions will increase the current ratio of Pearl Automotive, assuming all other variables remain constant? a.Collecting accounts receivable b.Purchase of fixed assets for cash c.Selling of inventory on credit d.Repayment of short-term loan e.Purchase of inventory on credit
d.Repayment of short-term loan
Shareholders can ensure that firms pursue goals that are in their best interest by _____. a.actively implementing remedies to realign management decisions with the interests of investors b.ensuring that management is working towards maximizing current earnings c.compensating managers on the basis of the firm's best performance in the last five years d.binding the management with stockholder-sponsored proposals e.providing incentives to managers to motivate them to take actions that maximize stock prices
e.providing incentives to managers to motivate them to take actions that maximize stock prices
Assuming everything else equal, one of the concepts to consider to make sound financial decisions is: a.investors always achieve higher returns from less risky assets b.the riskier assets are more valuable than (preferred to) less risky assets c.the riskier assets always have lower market value d. the sooner cash is received, the more valuable it is e. investors always prefer short-term, low value, and high-risk assets
d.the sooner cash is received, the more valuable it is
