Finc Exam 1: 1,2, 3, 5

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

Distributed profits may experience double taxation.

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

Which one of the following questions involves a capital structure decision? Which one of two project proposals should the firm implement? How should the firm allocate its limited available funds among acceptable projects? How much funding should be allocated to financing customer purchases of a new product? How much debt should the firm incur to fund a project? How much inventory will be needed to support a project?

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

Which one of the following questions is least likely to be addressed by financial managers? In which region of the country should a new product be launched? Should customers be given 30 or 45 days to pay for their credit purchases? Should the firm pay off its debt early? Should the firm acquire new equipment? How much cash should the firm keep on hand?

In which region of the country should a new product be launched?

Which one of the following is a cash flow from a corporation into the financial markets? Borrowing of long-term debt Payment of government taxes Payment of loan interest Issuance of corporate debt Sale of common stock

Payment of loan interest

Nirav just opened a savings account paying 2 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 information, Nirav: 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.

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?

$15,800

A firm reported sales of $350,000, interest expense of $2,330, costs of $140,000, and depreciation expense of $17,800. The firm's average income tax rate is 21 percent. How much operating cash flow did the firm generate?

$170,127

Zeng Graphics has taxable income of $48,900 and a tax rate of 21 percent. What is the change in retained earnings if the firm pays $20,200 in dividends for the year?

$18,431

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

Clark-Phillips Incorporated purchased $145,000 in new equipment and sold equipment with a net book value of $68,400 during the year. What is the amount of net capital spending if the depreciation was $38,600?

$76,600

Cain's has a debt-equity ratio of .94. Return on assets is 8.5 percent, and total equity is $520,000. What is the net income?

$85,748

The Somerville Corporation has cost of goods sold of $11,518, interest expense of $315, dividends of $420, depreciation of $811, and a change in retained earnings of $296. What is the taxable income given a tax rate of 21 percent?

$906.33

Jacob's Escape has accounts payable of $2,214, inventory of $7,950, cash of $1,263, fixed assets of $8,400, accounts receivable of $3,907, and long-term debt of $4,200. What is the value of the net working capital to total assets ratio?

.51

If a firm has a debt-equity ratio of 1.0, then its total debt ratio must be which one of the following?

0.5

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%

Steele Video has sales of $96,400, costs of $53,800, interest paid of $2,800, and depreciation of $7,100. The tax rate is 21 percent. What is the value of the cash coverage ratio?

15.21

Bohensky's has net income of $73,402, a price-earnings ratio of 13.7, and earnings per share of $.43. How many shares of stock are outstanding?

170,702

For the past year, Pellicier, Incorporated, had depreciation of $2,419, beginning total assets of $23,616, and ending total assets of $21,878. Current assets decreased by $1,356. What was the amount of net capital spending for the year?

2,037

Dandelion Fields has a Tobin's Q of .96. The replacement cost of the firm's assets is $225,000 and the market value of the firm's debt is $101,000. The firm has 20,000 shares of stock outstanding and a book value per share of $2.09. What is the market-to-book ratio?

2.75 times

Castaneda Accounting has sales of $332,700, cost of goods sold of $221,800, inventory $13,700, accounts receivable of $22,400, and accounts payable of $11,900. How many days of sales are in receivables?

24.57 days

Happy Pets has annual sales of $328,000 with 8,000 shares of stock outstanding. The firm has a net profit margin of 4.5 percent and a price-sales ratio of 1.20. What is the firm's price-earnings ratio?

26.7

Which one of the following statements related to the cash flow to creditors must be correct? If the cash flow to creditors is positive, the firm must have borrowed more money than it repaid. If the cash flow to creditors is negative, the firm must have a negative cash flow from assets. A positive cash flow to creditors represents a net cash outflow from the firm. A positive cash flow to creditors means that a firm has increased its long-term debt. If the cash flow to creditors is zero, a firm has no long-term debt.

A positive cash flow to creditors represents a net cash outflow from the firm.

Which one of the following is a current liability?

An invoice payable to a supplier in 45 days

Which one of the following statements is generally correct? Private placements must be registered with the SEC. All secondary markets are auction markets. Dealer markets have a physical trading floor. Auction markets match buy and sell orders. Dealers arrange trades but never own the securities traded.

Auction markets match buy and sell orders.

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

Corporations pay the same rate of taxes regardless of the amount of taxable income.

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

Which one of the following statements concerning net working capital is correct? Net working capital increases when inventory is purchased with cash. Net working capital may be a negative value. Total assets must increase if net working capital increases. Net working capital excludes inventory. Net working capital is the amount of cash a firm currently has available for spending.

Net working capital may be a negative value.

Which one of the following variables is the exponent in the present value formula?

Number of time periods

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

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

Which one of the following statements is correct? A general partnership is a legal person. Taxable income earned by a partnership is treated as individual income. Partnerships are the most complicated type of business to form. All partnerships are required to have at least one limited partner. Only firms organized as partnerships have limited lives.

Taxable income earned by a partnership is treated as individual income.

A firm's mixture of debt and equity financing is the result of its ______ decisions. working capital management cash management cost analysis capital budgeting capital structure

capital structure

The cash flow that is available for distribution to a corporation's creditors and stockholders is called the:

cash flow from assets

Relationships determined from a company's financial information and used for comparison purposes are known as:

financial ratios

All of the following issues represent problems encountered when comparing the financial statements of two separate entities except the issue of the companies: being conglomerates with unrelated lines of business. having geographically varying operations. using differing accounting methods. differing seasonal peaks. having the same fiscal year.

having the same fiscal year.

Your aunt has promised to give you $5,000 when you graduate from college. You expect to graduate three years from now. If you speed up your plans to enable you to graduate two years from now, the present value of the promised gift will: remain constant. increase. decrease. equal $5,000. be less than $5,000.

increase

Which one of the following is excluded from the cash flow from assets? Accounts payable Inventory Sales Interest expense Cost of goods sold

interest expense

Jared 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. present value interest.

interest on interest

Eduardo sold 500 shares of Northcutt Corporation stock on the New York Stock Exchange. This transaction: took place in the primary market. occurred in a dealer market. occurred in the secondary market involved a proxy. was a private placement.

occurred in the secondary market

Usually, the treasurer of a corporation reports directly to the:

vice president of finance.

Njoku Marketing paid $1,282 in interest and $975 in dividends last year. Current assets increased by $2,700, current liabilities decreased by $420, and long-term debt increased by $2,200. What was the cash flow to creditors?

−$918

Muro Press has net working capital of $2,715, net fixed assets of $22,407, sales of $31,350, and current liabilities of $3,908. How many dollars' worth of sales are generated from every $1 in total assets?

$1.08

At the beginning of the year, Smidovec Plumbing had current liabilities of $15,932 and total debt of $68,847. By year end, current liabilities were $13,870 and total debt was $72,415. What is the amount of net new borrowing for the year?

$5,630

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 NI - dividens cash = r/e increase or decrease

Last year, Yang Software had $15,900 of sales, $500 of net new equity, dividend payments of $75, addition to retained earnings of $418, depreciation of $680, and $511 of interest expense. What are the earnings before interest and taxes at a tax rate of 21 percent?

1,135.05

Soran Freight Forwarding has total assets of $694,800 at year's end. The beginning owners' equity was $362,400. During the year, the company had sales of $711,000, a net profit margin of 5.2 percent, a tax rate of 21 percent, and paid $12,500 in dividends. What is the equity multiplier at year end?

1.80

The Connection has an equity multiplier of 1.13, a total asset turnover of .56, and a net profit margin of 18.8 percent. What is the return on assets?

10.53%

At the beginning of the year, the long-term debt of a firm was $72,918 and total debt was $138,407. At the end of the year, long-term debt was $68,219 and total debt was $145,838. The interest paid was $6,430. What is the amount of the cash flow to creditors?

11,129

Morgan Corporation has a debt-equity ratio of 48 percent, sales of $829,000, net income of $47,300, and total debt of $206,300. What is the return on equity?

11.01%

Custom Framing has a net profit margin of 5.6 percent, a return on assets of 12.5 percent, and an equity multiplier of 1.49. What is the return on equity?

18.63%

Pavlak Surveyors has beginning current assets of $1,360, beginning current liabilities of $940, ending current assets of $1,720, and ending current liabilities of $1,080. What is the change in net working capital?

220

Billings Incorporated has net income of $161,000, a net profit margin of 7.6 percent, and an accounts receivable balance of $127,100. Assume that 66 percent of sales are on credit. What is the days' sales in receivables?

33.18 days

Corner Supply has a current accounts receivable balance of $246,000. Credit sales for the year just ended were $2,430,000. How many days, on average, did it take for credit customers to pay off their accounts during this past year?

36.95 days

Lawn Care, Incorporated, has sales of $367,400, costs of $183,600, depreciation of $48,600, interest of $39,200, and a tax rate of 21 percent. The firm has total assets of $328,700, long-term debt of $62,400, and current liabilities of $76,300. What is the return on equity?

39.92%

Allouette has earnings per share of $1.36. The firm's earnings have been increasing at an average rate of 2.9 percent annually and are expected to continue doing so. The firm has 21,500 shares of stock outstanding at a price per share of $23.40. What is the firm's PEG ratio?

5.93

AdVentures has sales of $528,700, costs of goods sold of $252,100, inventory of $43,900, accounts receivable of $78,900, and accounts payable of $32,400. How many days, on average, does it take the firm to sell its inventory assuming that all sales are on credit?

63.56 days

All else constant, which one of the following will result in the lowest present value of a lump sum? 6 percent interest for 5 years 6 percent interest for 8 years 6 percent interest for 10 years 8 percent interest for 5 years 8 percent interest for 10 years

8 percent interest for 10 years

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%

Tellez Finance has current liabilities of $28,000, sales of $156,900, and cost of goods sold of $62,400. The current ratio is 1.22 and the quick ratio is .71. How many days, on average, does it take to sell the inventory?

83.53 days

For a corporation that earned positive taxable income, which one of the following statements is correct? Taxable income minus dividends paid will equal the ending retained earnings for the year. An increase in depreciation expense will increase the operating cash flow. Net income divided by the number of shares outstanding will equal the dividends per share. Interest paid will be included in both net income and operating cash flow. An increase in the tax rate will increase both net income and operating cash flow.

An increase in depreciation expense will increase the operating cash flow.

Which one of the following standardizes items on the income statement and balance sheet relative to their values as of a chosen point in time?

Common-base year statement

Which of the following parties are not considered stakeholders of a firm? Employees Government Competitors Customers Suppliers

Competitors

Which one of the following actions will increase the present value of an amount to be received sometime in the future? Increase in the time until the amount is received Increase in the discount rate Decrease in the future value Decrease in the interest rate Decrease in both the future value and the number of time periods

Decrease in the interest rate

The value of which one of the following is excluded from the firm's book value, but is included in the market value? Transportation equipment Computer software Distribution warehouse Land acquired more than 50 years ago Employees' collective experience level

Employees' collective experience level

Which one of the following is an agency cost? Accepting an investment opportunity that will add value to the firm Increasing the quarterly dividend Investing in a new project that creates firm value Hiring outside accountants to audit the company's financial statements Closing a division of the firm that is operating at a los

Hiring outside accountants to audit the company's financial statements

Which one of the following statements is correct? Book values should always be given precedence over market values. Financial statements are rarely used as the basis for performance evaluations. Historical information is useful when projecting a company's future performance. Potential lenders place little value on financial statement information. Reviewing financial information over time has very limited value.v

Historical information is useful when projecting a company's future performance.

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

ROA × Equity multiplier

Which of the following actions would be most likely to decrease agency costs for the firm? Increase employees' salaries to exceed the salaries paid by competitors Pay all employees based on the amount of revenue generated by the firm Prohibit employees from becoming shareholders of the firm Pay bonuses to employees only if profits increase from one year to the next Reward high performing employees with shares of stock

Reward high performing employees with shares of stock

Symone sold shares of Naraghi Corporation stock to Aleena. The stock is listed on the NYSE. This trade occurred in which one of the following? Primary, dealer market Secondary, dealer market Primary, auction market Secondary, auction market Secondary, OTC market

Secondary, auction market

The Natural Pet had sales of $763,500 in 2020, and $864,200 in 2021. The firm's current accounts remained constant. Given this information, which one of the following statements must be true? The total asset turnover rate increased. The days' sales in receivables increased. The receivables turnover rate decreased. The fixed asset turnover decreased. The net working capital turnover rate increased.

The net working capital turnover rate increased.

Limited partners benefit from which of the primary advantages? They have the opportunity to earn tax-free income. Their responsibility for the firm's debts is prorated based on their percentage of ownership. They do not face any potential financial losses. They have control over the administrative affairs of the partnership. Their maximum loss cannot exceed the amount of their capital investment.

Their maximum loss cannot exceed the amount of their capital investment.

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? What is the most efficient process for producing a product? How many hours of overtime should manufacturing employees be allowed to work? When is the appropriate time to replace the delivery fleet? Should a newly available parcel of land be acquired?

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

On a common-base year financial statement, inventory for the current year will be expressed relative to which one of the following?

base-year inv

A firm that opts to "go dark" in response to the Sarbanes-Oxley Act: must continue to provide audited financial statements to the public. must continue to provide a detailed list of internal control deficiencies on an annual basis. can provide less information to its shareholders than it did prior to "going dark". can continue publicly trading its stock but only on the exchange on which it was previously listed. ceases to exist.

can provide less information to its shareholders than it did prior to "going dark".

Cullen invested $5,000 five years ago and earns 6 percent annual interest. By leaving his interest earnings in her account, he increases the amount of interest he earns each year. His investment is best described as benefitting from: simplifying. compounding. aggregating. accumulating. discounting. PrevQuestion 2 of 40 Total2 of 40Visit question mapNext

compounding

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

corporation

On the statement of cash flows, which one of the following is considered an operating activity? Increase in net fixed assets Decrease in accounts payable Purchase of equipment Dividends paid Repayment of long-term debt

decrease in accounts payable

Which one of the following is a source of cash? Increase in accounts receivable Decrease in common stock Increase in fixed assets Decrease in accounts payable Decrease in inventory

decrease in inventory

All other things beings equal, and assuming all ratios have positive values, an increase in current liabilities will: increase the cash ratio. increase the net working capital to total assets ratio. decrease the cash coverage ratio. decrease the quick ratio. increase the current ratio.

decrease the quick ratio.

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

decrease; operating

Assuming a firm earns taxable income, an increase in ______ will cause the cash flow from assets to increase.

depreciation expense

Cash flow from assets is also known as the firm's:

free cash flow

Assume 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

fv

A firm owned by two or more people who each have unlimited liability for all of the firm's debts is called a: corporation. sole proprietorship. general partnership. limited partnership. limited liability company.

general partnership.

A sole proprietorship: has a limited life. can generally raise large sums of capital quite easily. can transfer ownership of the firm more easily than a corporation can. is taxed the same as a C corporation. is the most regulated form of organization.

has limited life

The growth of both sole proprietorships and partnerships is frequently limited by the firm's: double taxation. bylaws. inability to raise cash. limited liability. agency problems.

inability to raise cash.

For a firm that must pay income taxes, depreciation expense:

increases expenses and lowers taxes.

Both Archer's and Burger Bar have price-earnings ratios of 16.2. However, Archer's has a higher PEG ratio than Burger Bar. It must be true that Archer's ______ than Burger Bar. as more net income has a higher market value per share is increasing its earnings at a slower rate has a higher market-to-book ratio has a higher earnings growth rate

is increasing its earnings at a slower rate

Assume your goal is to have $2 million in your retirement account on the day you retire. To fund this goal, you will make one lump-sum deposit today. If you plan to retire ______ rather than ______ and you earn a ______ rate of interest, then you can deposit a smaller lump-sum today.

later; sooner; high

The ______ tax rate is the percentage of the last dollar you earned that must be paid in taxes. marginal residual total average standard

marginal

Financial managers should primarily focus on the interests of:

shareholders

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

short-term solvency

Eunchae invested $2,000 six years ago at 4.5 percent interest. She spends all of her interest earnings immediately so she only receives interest on her initial $2,000 investment. Which type of interest is she earning?

simple

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 refurbish its equipment or replace it? How much inventory should the company keep on hand? Should the company close one of its current stores? How much money should the company borrow to buy a new building?

How much inventory should the company keep on hand?

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

corporation

Corporate bylaws: must be amended should a firm decide to increase the number of shares authorized. cannot be amended once adopted. define the name by which the firm will operate. describe the intended life and purpose of the organization. determine how a corporation regulates itself.

determine how a corporation regulates itself.

Andrew just calculated the present value of a $15,000 bonus he will receive next year. The interest rate he used in his calculation 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.

Madelyn is calculating the present value of a bonus she will receive next year. The process she is using is called:

discounting

Decisions made by financial managers should primarily focus on increasing the:

market value per share of outstanding stock.

A limited partnership: has a limited tax liability. can opt to be taxed as a corporation. is the newest form of business organization. must have at least one general partner. consists solely of limited partners.

must have at least one general partner.

The price-sales ratio is especially useful when analyzing firms that have: volatile market prices. negative earnings. positive PEG ratios. a high Tobin's Q. increasing sales.

negative earnings

As the degree of financial leverage increases, the: probability a firm will encounter financial distress increases. amount of a firm's total debt decreases. less debt a firm has per dollar of total assets. number of outstanding shares of stock increases. accounts payable balance decreases.

probability a firm will encounter financial distress increases.

Which one of the following grants an individual the right to vote on behalf of a shareholder?

proxy

Which one of the following is most likely to be a fixed cost? Raw materials Rent Management bonuses Manufacturing wages Shipping and freight

rent