Exam #1
Depreciation does which of the following for a profitable firm?
Lowers taxes
Which one of the following statements correctly applies to a sole proprietorship?
Obtaining additional equity is exclusive dependent on the owner's personal finances.
The Jones Brothers recently established a trust fund that will provide annual scholarships of $12,000 indefinitely. These annual scholarships can best be described by which one of the following terms?
Perpetuity
Blooming Gardens has an inventory turnover of 16. This means the firm:
Sells its inventory an average of 16 times each year
Which one of the following is a correct statement, all else held constant?
The future value is directly related to the interest rate
Which one of the following features distinguishes an ordinary annuity from an annuity due?
Timing of the annuity payments
Kelso's Pharmacy generates $2 in sales for every $1 the firm has invested in total assets. Which one of the following ratios would reflect this relationship?
Total asset turnover
The potential conflict of interest between a firm's owners and its managers is referred to as which type of conflict?
Agency
Letitia borrowed $6,000 from her bank 2 years ago. The loan term is 4 years. Each year, she must repay the bank $1,500 plus the annual interest. Which type of loan does she have?
Amortized
Which one of the following statements concerning the balance sheet is correct?
Assets are listed in descending order of liquidity
The financial statement that summarizes a firm's accounting value as of a particular date is called the:
Balance sheet
Which one of the following actions will increase the current ratio, all else constant? Assume the current ratio is greater that 1.0.
Cash payment of an account payable
Working capital management includes which one of the following?
Determining which customers will be granted credit
Computing the present value of a future cash flow to determine what that cash flow is worth today is called:
Discounted cash flow valuation
The Du Pont identity can be totally defined by which one of the following?
Equity multiplier, return of assets, and profit margin
Travis borrowed $10,000 four years ago at an annual interest rate of 7 percent. The loan term is six years. Since he borrowed the money, Travis has been making annual payments of $700 to the bank. Which type of loan does he have?
Interest-only
The cash coverage ratio is used to evaluate the:
ability of a firm to pay the interest on its debt.
Which of the following will increase the future value of a lump sum investment?
ii and iii only, ii. Increasing the interest rate and iii. Increasing the time period
A credit card has an annual percentage rate of 12.9 percent and charges interest monthly. The effective annual rate on this account:
will be greater than 12.9 percent
