FIN 301: Exam 1 Quizzes
Given the following, calculate WACC for company XYZ: Debt: $1,200 ROE: 15% Equity: $4,500 Interest Cost on Debt: 5.0% Cost of Equity: 8.0% Tax Rate: 40.0% A. 6.95% B. 7.37% C. 4.05% D. 8.0% E. 13%
A. 6.95%
What is Berkshire Hathaway's primary business? A. Insurance B. Automobiles C. Investment Banks D. Textiles E. Semi-Conductors
A. Insurance
If investors want to assess how efficient a company is at using its productive resources, they would most likely look at which ratios? A. Activity ratios B. Leverage ratios C. Liquidity D. Profitability ratios E. Inventory ratios
A. activity ratios
Calculate the stock return from the following information: Beginning Price: $20.00 Price 1 Year Later: $15.00 Annual dividend: $2.00 A. 4.67% B. -15.0% C. 10.0% D. -13.3% E. 20.0%
B. -15%
Calculate the ROE using the DuPont Model for a company with the following data: Profit margin = 6% Total Asset Turnover = 1.2 Inventory Turnover = 2.1 Equity Multiplier = 2.0 Current Ratio = .7 A. 9% B. 25% C. 14% D. 5% E. 8%
C. 14%
What is the main difference between stakeholders and stockholders? A. Stakeholders have a residual claim on the company's cash flows B. Stockholders are protected by contracts with the corporation C. Stakeholders are protected by contracts with the corporation D. Stockholders have a guaranteed payment for what they invest in the corporation E. Stockholders do not have economic interest in a corporation
C. Stakeholders are protected by contracts with the corporation
1. On a common size balance sheet, Power, Plant and Equipment (PPE) is expressed as a percentage of what value? A. Revenue B. Cash C. Total Liabilities D. Total Assets E. Inventory
D. Total Assets
In which managerial defense mechanism does the target company look to fend off a hostile takeover by providing big bonuses to their executives if employment is terminated? A. Greenmail B. The White Knight C. Crown Jewels D. Golden Parachutes E. Poison Pill
D. golden parachutes
The time value of money implies that: A. Investors are indifferent to receiving a dollar today vs. a dollar in the future B. A dollar today is worth the SAME as a dollar tomorrow C. A dollar today is worth LESS than a dollar tomorrow D. The value of money does not change over time E. A dollar tomorrow is worth LESS than a dollar today
E. A dollar tomorrow is worth LESS than a dollar today
Which of the following is an example of a capital structure decision? A. A trucking company purchasing a new fleet of trucks B. A retailer liquidating aged inventory at a discount C. A manufacturing company selling its products and demanding payment 30 days later D. An oil & gas company drilling new offshore oil wells E. An tech company refinancing long term debt with the proceeds of an equity issuance
E. An tech company refinancing long term debt with the proceeds of an equity issuance
Which of the following metrics exemplify a firm that is DEFINITELY creating shareholder value? A. Return on Equity = 12%, Profit Margin = 4% B. Cost of Capital = 7%, Profit Margin = 10% C. Return on Investment = 12%, Cost of Capital = 15% D. Cost of Capital = 11%, Profit Margin = 9% E. Cost of Capital = 10%, Return on Investment = 12%
E. Cost of Capital = 10%, Return on Investment = 12%
Which of the following is true of financial crises? A. Stock returns are low leading to a crisis B. Crises typically only occur once every 75 - 100 years C. Government's rarely get involved D. Crises are a recent phenomenon and did not occur prior to 1900 E. Crises usually involve easy financing
E. Crises usually involve easy financing
Which of the following is an advantage of the Corporate Organizational Form? A. Double taxation B. Ease of formation C. Profits are taxed only as income D. High level of liability E. Easy to raise capital
E. Easy to raise capital
Which of the following is one of the three primary areas of finance? A. Global Finance B. Corporate Governance C. Audit & Assurance D. Financial Accounting E. Investments
E. Investments
The time value of money implies that: A. A dollar today is worth MORE than a dollar tomorrow B. A dollar today is worth LESS than a dollar tomorrow C. The value of money does not change over time D. Investors are indifferent to receiving a dollar today vs. a dollar in the future E. The value of a dollar tomorrow depends on many things, but time is not one of them
A. A dollar today is worth MORE than a dollar tomorrow
Which one of the following is an element of the new corporate finance environment? A. Greater economic volatility and risk B. Lack of complex financial instruments C. Decrease in international trade D. Inflation is less of a factor in corporate finance E. Higher commodity prices
A. Greater economic volatility and risk
Which of the following is NOT a principle used in investment decisions by Warren Buffett? A. Invest in high growth companies B. Invest in companies you are comfortable owning long term C. Invest in companies with management teams that create shareholder value D. Invest in companies with high and increasing profit margins E. Invest in businesses that you understand
A. Invest in high growth companies
Which of the following is a principle held by Gordon Gekko? A. Management must be accountable to the shareholders B. Management should not have a stake in the company C. Managers that have a stake in the company create a greater potential for the agency problem D. Managerial efficiency is not important E. A company's stakeholders are more important than its stockholders
A. Management must be accountable to the shareholders
Which activity is most likely to increase shareholder value? A. Minimizing the company's cost of capital B. Minimizing the amount of projects the company spends money on C. Financing the company's business with expensive debt D. Maximizing the amount of corporate assets E. Investing in projects that are always the least risky
A. Minimizing the company's cost of capital
Which of the following companies has the highest market capitalization? A. Share Price: $60, Shares Outstanding: 15 million, Earnings per share: $3 B. Share Price: $30, Shares Outstanding: 25 million, Earnings per share: $10 C. Share Price: $85, Shares Outstanding: 10 million, Earnings per share: $5 D. Share Price: $90, Shares Outstanding: 9 million, Earnings per share: $8.50 E. Share Price: $75, Shares Outstanding: 11 million, Earnings per share: $6
A. Share Price: $60, Shares Outstanding: 15 million, Earnings per share: $3
Which of the following is TRUE regarding Company ABC given the following information? Current Assets = $350 Fixed Assets =$120 Current Liabilities = $200 Long term Debt = $110 Sales = $600 Net Income = $140 A. Shareholders' Equity = $160 B. Current Ratio = .6 C. Asset turnover=5 D. Debt to equity ratio= 0.92 E. Return on Equity = 17%
A. Shareholder's Equity = $160
Which of the following drives stock price in the short run? A. Supply and Demand B. Treasurer Predictions C. Fundamentals D. Rationality E. Insider Trading
A. Supply and Demand
Which is the primary reason that corporations are the most prevalent organization form? A. The ease of raising capital B. Limited tax liability C. Anyone can form a corporation D. Beneficial corporate governance features E. None of the above
A. The ease of raising capital
Which of the following trends is accurate? A. WTI Oil price has declined from over $50 / barrel to roughly $30 / barrel in the past 6 months B. The DJIA has declined 2,000 points over the past 6 months and is currently about 4,000 C. The NASDAQ has risen to historical highs of about 18,000 D. The price of gold has rebounded from lows in the financial crisis and is currently over $2,000 / oz E. Due to Fed Stimulus, the 10-yr Treasury yield has been increasing for the past 5-yrs and stands over 10%
A. WTI Oil price has declined from over $50 / barrel to roughly $30 / barrel in the past 6 months
Which of the following is true regarding capital budgeting? A. A company should invest in projects with a projected ROI > than cost of capital (WACC) B. A company should invest in projects with a projected ROI < than cost of capital (WACC) C. Capital budgeting is related to day to day financial operations of a business D. Issuing long term debt is an example of a capital budgeting decision E. A company should invest in all projects with a positive ROI
A. a company should invest in projects with projected ROI > than cost of capital
Which of the following concerning the relationship between risk and return is correct? A. A risk averse investor would prefer a stock with an expected 10% return and a standard deviation of 10% to a stock with an expected return of 10% with a standard deviation of 20% B. Investors generally require a lower return as they take on more risk C. Safer investments tend to have higher returns D. Higher risk investments historically provided lower returns E. A risk taking investor would prefer a stock with an expected 10% return and a standard deviation of 10% to a stock with an expected return of 10% with a standard deviation of 20%
A. a risk averse investor would prefer a stock with an expected 10% return and a standard deviation of 10% to a stock with a standard deviation
Given the following information, which is true? Company 1 - Current Ratio: 2.3x, Times Interest Earned: 3.2x, Inventory Turnover: 6.0x Company 2 - Current Ratio: 0.7x, Times Interest Earned: 1.4x, Inventory Turnover: 3.2x Company 3 - Current Ratio: 1.3x, Times Interest Earned: 5.7x, Inventory Turnover: 3.4x A. Company 2 has the highest probability of defaulting on its debt B. Company 3 is more liquid than Company 1 C. Company 1 is the least efficient at managing inventory D. Lenders would view Company 3 as higher risk of default than company 2 E. Company 2 is the most liquid firm
A. company 2 has the highest probability of defaulting on its debt
Which of the following is true regarding corporate governance? A. From the 1980's to the 1990's it became easier to fire CEO's for poor performance B. The crisis in Corporate Governance of the late 90's and early 2000's was primarily caused by Activist Investors C. Corporate Defense Mechanisms against takeovers were active in the 1980's but are no longer prevalent in corporate governance D. In the Rest of the World model, there are minority shareholders that own a company and are represented by a Board of Directors E. It is typical in the Anglo-American model for a company to be owned by one majority shareholder that manages the company according their interests
A. from the 1980s to the 1990s it became easier to fire CEOs for poor performance
Given the following information, calculate X Company's Gross Profit and Gross Margin. Revenue: $1,300 SG&A: 450 Cost of Goods Sold: $600 Taxes: 50 A. Gross Profit= $700, Gross Margin=54% B. Gross Profit= $200, Gross Margin=15% C. Gross Profit= $250, Gross Margin=19% D. Gross Profit= $700, Gross Margin=186% E. Gross Profit=$200, Gross Margin=29%
A. gross profit = $700, Gross Margin = 54%
Which of the following statements is true A. Purchase of Property, plant and equipment is a cash flow from investing activities B. Changes in Accounts Payable is a cash flow from financing activities C. Disposal of Fixed Assets is a cash flow from operating activities D. Issuance of stocks creates an Intangible Asset E. Stock purchase and dividend payments are cash flows from operating activities
A. purchase of property, plant, and equipment is a cash flow from investing activities
Company XYZ capitalized advertising expenses in order to increase its current profit. This is an example of which unethical behavior A. shifting expenses to a later period B. recording too much revenue C. failure to disclose all liabilities D. recording revenue too soon E. boosting income with one-time gain
A. shifting expenses to a later period
What is the purpose of the unethical behavior known as income smoothing? A. To make profits appear more consistent than they are B. To mask previous bad investments C. To increase the amount that can be paid in dividends D. To appear more profitable than competitors in all fiscal quarters E. To increase the amount of assets reported on the balance sheet
A. to make profits appear more consistent than they are
Given the following information, which is ratio is correct? Revenue: $10,000 Operating Profit (EBIT): $2,400 Interest Expense: $500 Net Profit: $800 Total Assets: $14,000 A. Total Asset Turnover = 0.71 B. Common Size Interest Expense = 3.57% C. Times Interest Earned = 1.6x D. Return on Assets = 17% E. Net Profit Margin = 5.71%
A. total asset turnover = 0.71
Which of the following is true of the principles of finance? A. Inflation drives stock prices in the short run B. A dollar today is worth more than a dollar tomorrow C. Investors can beat efficient capital markets by using asset pricing models D. Corporate managers should focus on creating stakeholder value E. Asset allocation is the decision of which individual stocks to invest in
B. A dollar today is worth more than a dollar tomorrow
Given the following information, calculate X Company's Cost of Goods Sold and Gross Margin. Revenue: $2,500 SG&A: 650 Taxes: 50 Gross Profit: $1150 A. Cost of Goods Sold= $1,850, Gross Margin = 74% B. Cost of Goods Sold= $1,350, Gross Margin = 46% C. Cost of Goods Sold= $700, Gross Margin = 28% D. Cost of Goods Sold= $2,950, Gross Margin = 46% E. Cost of Goods Sold= $500, Gross Margin=37%
B. Cost of goods sold = $1350, Gross Margin = 46%
According to the Theory of Efficient Capital Markets: A. Stock prices are not affected by new information B. Current stock prices reflect all publicly available information C. Stock prices adjust to new information slowly over time D. Stock prices only react instantly to positive financial information E. Investors can easily beat the market
B. Current stock prices reflect all publicly available information
A management team that creates shareholder value: A. Grows EPS over time B. Generates return on investment greater than the cost of capital C. Ensures cost of capital exceeds return on investment D. Generates positive net income E. Maximizes executive compensation
B. Generates return on investment greater than the cost of capital
Which of the following is true regarding corporate governance? A. In the 1980's management owned a significant amount of stock in the companies they managed B. In the Japan-Germany model companies receive capital from dedicated sources of capital and equity is not sold C. Activist Investors were active in the 1980's but are no longer prevalent in corporate governance D. Sarbanes-Oxley was the regulation that solved corporate governance issue in the 1980's E. There are very few corporate takeovers in the Anglo-American model due to majority equity owners providing oversight
B. In the Japan-Germany model companies receive capital from dedicated sources of capital and equity is not sold
Which of the following is one of the three primary areas of finance? A. Tax B. Institutions & Markets C. Audit & Assurance D. Financial Accounting E. International Finance
B. Institutions & Markets
Which of the following is an example of the agency problem? A. Management invests in a project that has a return greater than the cost of capital B. Management invests in private jets for executives C. Management receives compensation based on the company's performance D. Management owns stock in the corporation and supports an increase to the dividend E. Management has stock options in the company, potentially providing large payouts if the company does well
B. Management invests in private jets for executives
The Matching Principle in GAAP: A. Matches sales to inventory shipments B. Matches the expenses related to a sale in the same period C. Matches ROE to a firm's capital investment D. Matches costs of goods sold with the inventory on the balance sheet E. Matches revenues with profits on the income statement
B. Matches the expenses related to a sale in the same period
Given the following information, a rational investor would most likely invest in which stock? br> Stock A: Mean Return - 10%; Standard Deviation - 10% br> Stock B: Mean Return - 10%; Standard Deviation - 16% br> A. Stock A because it is riskier than Stock B B. Stock A because it is not as risky as Stock B C. Stock B because it is riskier than Stock A D. Stock B because it is not as risky as Stock A E. No difference because they have the same rate of return
B. Stock A because it is not as risky as Stock B
Which of the following trends is accurate? A. The price of gold has declined from over $50 / oz to roughly $30 / oz in the past 6 months B. The DJIA has declined 2,000 points over the past 6 months and is currently about 16,000 C. The S&P 500 currently stands at its highest ever level of about 4,000 D. WTI oil price has rebounded from lows in the financial crisis and is currently over $100 / barrel E. Due to Fed Stimulus, the 10-yr Treasury yield has been increasing for the past 5-yrs and stands over 10%
B. The DJIA has declined 2,000 points over the past 6 months and is currently about 16,000
Which of the following is the goal of Capital Budgeting? A. To maximize inventory B. To make long-term investments that offer the highest risk-adjusted returns C. To minimize the use of short-term capital D. To minimize the cost of capital for the business E. To hold as much cash as possible
B. To make long-term investments that offer the highest risk-adjusted returns
Which of the following events would increase a company's cash flow? A. Accounts Receivable turnover ratio went from 10.0 to 8.0 B. Accounts Payable turnover ratio went from 8.0 to 4.0 C. Issued a dividend of $1.50 per share D. Bought $5M office building E. Increase in inventory
B. accounts payable turnover ratio went from 8.0 to 4.0
An apparel company sold its manufacturing facilities and recorded the proceeds as revenue. This is an example of which unethical behavior A. shifting expenses to a later period B. boosting income with one-time gain C. income smoothing D. fraud E. recording revenue too soon
B. boosting income with one time gain
Which of the following statements is true? A. Purchase of Property, plant and equipment is a cash flow from financing activities B. Changes in Accounts Payable is a cash flow from operating activities C. Payment of loan is a long term asset D. Issuance of common stock is a cash flow from investing activities E. Payment of dividends is a cash flow from investing activities
B. changes in accounts payable is a cash flow from operating activities
Which financial ratio is of most interest to suppliers? A. Debt to equity ratio B. Current ratio C. Total Asset Turnover D. Return on Equity E. Accounts payable Turnover
B. current ratio
If lenders want to assess the likelihood of borrowers being able to make interest payments, they would most likely look at which ratios? A. Activity ratios B. Liquidity ratios C. Inventory ratios D. Profitability ratios E. Receivables ratios
B. liquidity ratios
If a company shifts current costs to a future period (which is a financial shenanigan), what will be the effect on financial ratios (assuming all else is constant)? A. Profit margins in the next period will be higher B. Profit margins in the current period will be higher C. Shareholders' Equity will be lower for the current period D. Cash balances will be lower in the current period E. Total assets on the common size balance sheet will be higher for both periods
B. profit margins in the current period will be higher
If a company shifts future costs to the current period (which is a financial shenanigan), what will be the effect on financial ratios (assuming all else is constant)? A. Profits margins in the next period will be lower B. Profit margins in the current period will be lower C. Times interest earned ratio will be higher in the current period D. Shareholders' Equity on the common size balance sheet will be higher for the current period E. Total assets on the common size balance sheet will be lower in both periods
B. profit margins in the current period will be lower
Assume a firm has $12.5 million in operating profit. The firm's tax rate is 40%. What is the tax shield of the firm's $50 million in debt that charges an 8% interest rate? A. $2.4 million B. $1.0 million C. $1.6 million D. $20 million E. $4.0 million
C. $1.6 million
Assume a firm has $50 million in operating profit. The firm's tax rate is 35%. What is the tax shield of the firm's $160 million in debt that charges a 7% interest rate? A. $7.3 million B. $6.3 million C. $3.9 million D. $11.2 million E. $56.0 million
C. $3.9 million
Which of the following is true of financial statements? A. Balance sheets show the market value of assets B. Total assets must equal total liability minus shareholders' equity C. A company's primary source of cash flow is from operating activities D. Depreciation only affects the income statement, not the balance sheet or cash flow statement E. Revenue is included on the cash flow statement
C. A company's primary source of cash flow is from operating activities
Which of the following statements are true regarding traditional and behavioral finance? A. According to behavioral finance, markets are always efficient B. Traditional finance claims that the market goes through cycles based on investor emotions C. According to Traditional finance, the price of a stock always reflects its value D. Behavioral Finance proposes that investor behavior is rational and decisions maximize expected utility E. Traditional finance does not account for arbitrageurs. Arbitrage did not gain popularity until it was introduced by proponents of behavioral finance
C. According to Traditional finance, the price of a stock always reflects its value
Lion Corp. received $20,000 worth of inventory from a supplier but will not pay for 30 days. Other than inventory, where is this transaction represented in the financial statements? A. Cash B. Revenue C. Accounts Payable D. Accounts Receivable E. Unearned Revenue
C. Accounts payable
As an investor, Warren Buffet prefers companies with which of the following characteristics: A. Industry with few and insignificant barriers to entry B. High Tech Companies C. Companies that generate free cash flow D. Companies with low ROE E. High risk, high return potential
C. Companies that generate free cash flow
Which company had the highest growth rate in net profits? A. Company A: 2014 - $40, 2015 - $55 B. Company B: 2014 - $100, 2015 - $130 C. Company C: 2014 - $10, 2015 - $15 D. Company D: 2014 - $90, 2015 - $130 E. Company A: 2014 - $250, 2015 - $350
C. Company C: 2014 - $10, 2015 - $15
The managerial defense mechanism that occurs when a company is targeted for hostile takeover and responds by selling off its prized assets is______. A. The Pac-Man defense B. Greenmail C. Crown Jewels D. Poison Pill E. Golden Parachutes
C. Crown Jewels
Which of the following is an example of a working capital decision? A. Buying new equipment to make production more efficient B. Refinancing long term debt C. Delaying payments to suppliers in order to conserve cash D. Increasing marketing expenditures in an effort to grow sales E. Issuing additional stock in order to take on a new project at the company
C. Delaying payments to suppliers in order to conserve cash
Which of the following is a disadvantage of the Corporate Organizational Form? A. Increased liability B. Difficulty of formation C. Double taxation D. Limited liability E. Ability to raise capital
C. Double taxation
Which of the following drives stock price in the long run? A. Supply and Demand B. Treasurer Predictions C. Earnings D. Rationality E. Insider Trading
C. Earnings
Which of the following is true of the principles of finance? A. Return of a small company stock is lower than the return of a large company stock B. A dollar tomorrow is worth more than a dollar today C. Efficient Capital Markets are tough to beat D. Rational investors are risk takers E. Inflation improves investment returns in the long run
C. Efficient Capital Markets are tough to beat
Which of the following is a common element of financial crises? A. Difficult to obtain financing B. Natural disasters C. Excessive investment in an asset class D. Stock returns are low leading to a crisis E. Unstable currency
C. Excessive investment in an asset class
Which of the following statements regarding business organizational forms is true? A. Partnerships are the easiest business organizational form to establish B. It is more difficult to raise capital in a corporation than in a sole proprietorship C. Liability of owners is limited to their investment in a corporation D. The greatest advantage of a corporation is double taxation E. Corporations have always been the dominant form of business organization
C. Liability of owners is limited to their investment in a corporation
Which of the following is part of the treasurer's function? A. Auditing the company's financials B. Publishing financial statements C. Making capital expenditures D. Monitoring accounting systems E. Filing the company's taxes
C. Making capital expenditures
Which of the following is a tenet of good management according to Gordon Gekko? A. Managerial efficiency is not important B. Management is not accountable to shareholders C. Management should have ownership in the company D. Shareholder activism hurts a company's stock price E. Managers that have a stake in the company create a greater potential for the agency problem
C. Management should have ownership in the company
Which of the following metrics exemplify a firm that is DEFINITELY creating shareholder value? A. Return on Equity = 8%, Cost of Capital = 6% B. Cost of Capital = 12%, Profit Margin = 9% C. Return on Investment = 7%, Cost of Capital = 5% D. Profit Margin = 7%, Cost of Capital = 4% E. Cost of Capital = 8%, Return on Assets = 8%
C. Return on Investment = 7%, Cost of Capital = 5%
Which of the following concerning the relationship between risk and return is correct? A. A risk averse investor would prefer a stock with an expected 10% return and a standard deviation of 20% to a stock with an expected return of 10% with a standard deviation of 10% B. Investors generally demand higher return for less risky investments C. Riskier investments tend to have higher returns D. Safer investments historically provide the highest returns E. A risk taking investor would prefer a stock with an expected 10% return and a standard deviation of 10% to a stock with an expected return of 10% with a standard deviation of 20%
C. Riskier investments tend to have higher returns
According to the Theory of Efficient Capital Markets: A. Stock prices do not reflect all publicly available information B. Stock prices take a long time to capture new information C. Stock prices react instantaneously to new information D. Stock prices react positively to all new information E. Investors can easily predict exact stock prices
C. Stock prices react instantaneously to new information
Given the following information, which is ratio is correct? Revenue: $8,000 Operating Profit (EBIT): $2,000 Interest Expense: $750 Net Profit: $800 Total Assets: $7,500 A. Total Asset Turnover = 1.40 B. Common Size Interest Expense = 5% C. Times Interest Earned = 2.7x D. Return on Assets = 11.4% E. Net Profit Margin = 4.29%
C. Times interest earned = 2.7x
Given the following information, which is true? Company 1 - Current Ratio: 0.8x, Times Interest Earned: 1.3x, Inventory Turnover: 3.0x Company 2 - Current Ratio: 2.3x, Times Interest Earned: 5.4x, Inventory Turnover: 2.1x Company 3 - Current Ratio: 1.6x, Times Interest Earned: 3.2x, Inventory Turnover: 4.5x A. Company 1 is the most efficient at managing inventory B. Company 2 is the least liquid firm C. Company 1 is more efficient at managing inventory than Company 2 D. Lenders would view Company 3 as higher risk of default than Company 1 E. Company 1 is the most liquid firm
C. company 1 is more efficient at managing inventory than company 2
Which of the following is true of financial statements? A. Net income minus COGS equals gross profit B. Retained Earnings is an asset C. Depreciation is a source of cash on the cash flow statement D. Liabilities must equal shareholders' equity E. Cash flows from investing activities are always positive
C. depreciation is a source of cash on the cash flow statement
Which of the following events would reduce a company's cash flow? A. Accounts Payable Turnover went from 6.0 to 4.0 B. Get $1M loan from a bank C. Issued a dividend of $0.80 per share D. Sold unused office building for $10M E. Decrease in Inventory
C. issued a dividend of $0.80 per share
Nittany Co. purchased a new truck for its operations. Where is this transaction represented in the financial statements? A. Cost of Goods Sold B. Depreciation Expense C. Property, Plant and Equipment D. Accounts Receivable E. Inventory
C. property, plant, and equipment
Which would most likely cause a profitable company to run out of cash? A. High liquidity ratios B. The company is delaying payments to its suppliers C. The company is increasing inventory for an anticipated sales increase D. Customers are paying their bills more quickly E. The company has low profit margins
C. the company is increasing inventory for an anticipated sales increase
Which of the following is true regarding depreciation methods and deferred taxes? A. The primary source of deferred taxes is companies' use of straight line depreciation when reporting to shareholders B. Using accelerated depreciation methods for fixed assets provides for higher reported net income than straight line depreciation C. The primary source of deferred taxes is from companies' use of accelerated depreciation in reporting net income to the Internal Revenue Service D. Companies report higher depreciation and net income using straight line depreciation for fixed assets E. Companies report lower depreciation and higher net income using accelerated depreciation for fixed assets
C. the primary source of deferred taxes is from companies' use of accelerated depreciation in reporting net income to the Internal Revenue Service
Why did Bernard Madoff's Ponzi scheme fall apart? A. Too many new investors wanted him to manage their portfolios B. His auditor turned him in C. There was a financial crisis and too many investors withdrew their money D. He lacked the name recognition to attract investors E. The SEC investigation revealed his scheme
C. there was a financial crisis and too many invests withdrew their money
Which of the following is the goal of Working Capital Management? A. To maximize inventory B. To make long-term investments that offer the highest risk-adjusted returns C. To minimize the use of short-term capital D. To minimize the cost of capital for the business E. To hold as much cash as possible
C. to minimize the use of short-term capital
Calculate the stock return from the following information: Beginning Price: $25.00 Price 1 Year Later: $23.00 Annual dividend: $0.50 A. -10.9% B. 8.6% C. 2.0% D. -6.0% E. 6.5%
D. -6.0%
Calculate the ROE using the DuPont Model (strategic profit model) for a company with the following data: Profit margin = 11% Total Asset Turnover = 2.4 Inventory Turnover = 1.6 Equity Multiplier = 0.75 Current Ratio = 2.2 A. 39% B. 13% C. 58% D. 20% E. 18%
D. 20%
Given the following, calculate WACC for company XYZ: Debt: $1,500 ROE: 25% Equity: $5,000 Interest Cost on Debt: 4.0% Cost of Equity: 7.0% Tax Rate: 30.0% A. 6.31% B. 3.77% C. 7.0% D. 6.03% E. 11.0%
D. 6.03%
Which activity is most likely to increase shareholder value? A. Minimizing the amount of projects the company spends money on B. Using only equity to finance the company's acquisitions C. Maximizing the cost of capital D. Allocating capital to investments with the highest risk-adjusted return E. Maximizing the amount of corporate assets
D. Allocating capital to investments with the highest risk-adjusted return
Which company had the highest growth rate in revenues? A. Company A: 2014 - $12, 2015 - $16 B. Company B: 2014 - $100, 2015 - $120 C. Company C: 2014 - $500, 2015 - $650 D. Company D: 2014 - $9, 2015 - $13 E. Company A: 2014 - $300, 2015 - $400
D. Company D: 2014 - $9, 2015 - $13
Which of the following is true regarding stockholders versus stakeholders? A. In a liquidation, stockholders are paid before stakeholders B. Gordon Gekko believes management should maximize value for all stakeholders C. Employees are considered stockholders but not stakeholders D. In a liquidation, stockholders are only paid if there is cash remaining after stakeholder contracts are fulfilled E. Stockholders are protected by contracts with the corporation
D. In a liquidation, stockholders are only paid if there is cash remaining after stakeholder contracts are fulfilled
Which one of the following is an element of the new corporate finance environment? A. Lower economic volatility B. Higher inflation C. Increase in indirect investment D. Institutionalization of markets E. Decrease in international trade
D. Institutionalization of markets
Which of the following is an example of the agency problem? A. Management makes an acquisition to increase the growth prospects for the company B. Management advocates increasing share buybacks to the Board of Directors C. Management lays off employees to cut costs in an economic downturn D. Management acquires a negative ROI investment in order to increase company revenues and executive compensation E. Management has stock options in the company, potentially providing large payouts if the company does well
D. Management acquires a negative ROI investment in order to increase company revenues and executive compensation
Given the following information, a rational investor would most likely invest in which stock? Stock A: Mean Return - 20%; Standard Deviation - 42% Stock B: Mean Return - 20%; Standard Deviation - 30% A. Stock A because it is riskier than Stock B B. Stock A because it is not as risky as Stock B C. Stock B because it is riskier than Stock A D. Stock B because it is not as risky as Stock A E. No difference because they have the same rate of return
D. Stock B because it is not as risky as Stock A
Which group has the residual claim in a company's cash flows? A. Employees B. Suppliers C. Lenders D. Stockholders E. Government
D. Stockholders
Which of the following statements regarding business organizational forms is true? A. Liability of owners is limited to their investment in a Partnership B. Owners of corporations are taxed on their share of profits, but there are no taxes on the business C. Corporations are easier to form than partnerships D. The primary advantage of a corporation is that it is relatively easy to raise capital E. Corporations have always been the dominant form of business organization
D. The primary advantage of a corporation is that it is relatively easy to raise capital
Which of the following statements are true regarding traditional and behavioral finance? A. According to Traditional finance, prices reflect the biases and emotions of investors B. Traditional finance assumes that investors are not always rational, but behavioral finance claims that all decisions makers will act to maximize utility C. According to Behavioral finance, decisions makers act in accordance with expected risk and return derived from an asset pricing model such as CAPM D. Traditional Finance proposes that investor behavior is rational and decisions maximize expected utility E. Traditional finance does not account for arbitrageurs. Arbitrage did not gain popularity until it was introduced by proponents of behavioral finance
D. Traditional Finance proposes that investor behavior is rational and decisions maximize expected utility
Why was Bernie Madoff able to continue his Ponzi scheme for 30+ years? A. His fund continued to exceed benchmark market returns B. There were no major financial crises during this time period C. He was relatively unknown until the financial crisis in 2008 and regulators did not notice his scheme D. He attracted new investment faster than current investors withdrew their money E. He invested in the International Reply Coupon bubble to generate strong returns until the market collapsed
D. he attracted new investment faster than current investors withdrew their money
Which would most likely cause a profitable company to run out of cash? A. High leverage ratios B. Declining revenues C. Revenue growing faster than net income D. Increase in receivables and inventory E. Significant depreciation expense as % of sales
D. increase in receivables and inventory
According to the Revenue Recognition Principle in GAAP: A. Dividends can be paid only after taxable income is positive B. Expenses can be realized when cash payment is made C. Companies can realize revenue only if the transaction is profitable D. Revenue is recognized when a good or service is provided, not when the money is received E. Companies can realize certain gains on their operating books, while omitting them from their
D. revenue is recognized when a good or service is provided, not when the money is received
Which of the following is part of the controller's function? A. Determining the feasibility of various projects B. Financial planning C. Managing short and long term capital requirements D. Working capital management E. Preparing financial statements and reports
E. Preparing financial statements and reports
Which of the following is TRUE regarding Company ABC given the following information? Current Assets = $350 Fixed Assets =$120 Current Liabilities = $200 Long term Debt = $110 Sales = $600 Net Income = $80 A. Shareholders' Equity = $190 B. Current Ratio = 0.6 C. Asset turnover=5 D. Debt to equity ratio= 0.92 E. Return on Equity = 50%
E. Return on Equity = 50%
Which financial ratios are used to determine management's effectiveness at creating shareholder value? A. Net Profit & Interest Expense B. Net Profit & Cost of Capital C. Return on Investment & Interest Expense D. Sales & Cost of Capital E. Return on Investment & Cost of Capital
E. Return on Investment & Cost of Capital
Which of the following companies has the highest market capitalization? A. Share Price: $50, Shares Outstanding: 100 million, P/E Ratio: 16x B. Share Price: $70, Shares Outstanding: 85 million, P/E Ratio: 10x C. Share Price: $85, Shares Outstanding: 75 million, P/E Ratio: 18x D. Share Price: $100, Shares Outstanding: 62 million, P/E Ratio: 13x E. Share Price: $80, Shares Outstanding: 80 million, P/E Ratio: 8x
E. Share Price: $80, Shares Outstanding: 80 million, P/E Ratio: 8x
1. On a common size balance sheet, Accounts payable is expressed as a percentage of what value? A. Cost of Goods Sold (COGS) B. Revenue C. Total Liabilities D. Shareholders' Equity E. Total Liabilities & Shareholders' Equity
E. Total Liabilities and Shareholder's Equity
Which of the following is true regarding depreciation methods and deferred taxes? A. Companies report the same financial results to investors and to the IRS B. Using accelerated depreciation methods for fixed assets provides for higher reported net income than straight line depreciation C. Companies employ straight line depreciation in reporting net income to the IRS D. Companies report higher depreciation and net income using straight line depreciation for fixed assets E. Companies report higher depreciation and lower net income using accelerated depreciation for fixed assets to the IRS
E. companies report higher depreciation and lower net income using accelerated depreciation for fixed assets to the IRS
