FINA 3311 Chp 1, 2, 3, & 18 Practice
If interest paid is $100 and net new borrowing is $150, then cash flow to creditors equals:
-$50
Assume current assets = $11,300; long-term liabilities = $45,000; and total debt = $54,800. What is the current ratio?
1.15 ($11,300/($54,800-45,000)
what is depreciation
A systematic expensing of an asset based on the asset's estimated life
the threat of ______ motivates managers to make good decisions
A takeover
Gilts are securities issued by the ______________.
British and Irish governments
Currently, $1 will buy Can$.99 while $1 will buy A$.95. How many Canadian dollars are needed to buy one Australian dollar?
Can $1.04
an increase in the net working capital ratio would cause which ratio to decrease, all else equal
Current Ratio
Successful strategies that will increase the return on asset, all else equal
Decrease the number of days' sales in inventory
If US dollars are deposited in banks outside the US banking system, they are referred to as:
Eurodollars
The ratio that capture information about property, plant, and equipment utilization is
Fixed asset turnover
A U.S. company has excess cash earned in Italy. To convert these funds to USD, they would access the:
Foreign Exchange Market (FOREX)
Users of the foreign exchange market include ____
Importers who pay for goods using foreign currencies Foreign exchange brokers who match buy and sell orders Speculators who try to profit from changes in exchange rates
which of the following are true concerning triangle arbitrage?
It helps keep the currency market equilibrium It is a profitable situation involving three separate currency exchange transactions
Which of the following are true of a sole proprietorship?
It is one of the simplest types of businesses to form A proprietorship has a limited life
Which of the following are defining features of the primary market?
It is the market where initial public offerings are made Proceeds from the sale of securities goes to the issuing firm
A cornerstone in the pricing of money market issues and other short-term debt
LIBOR
what is the acronym for the interest rate most international banks charge one another for overnight Eurodollar loans?
LIBOR
Unanticipated changes in relative economic conditions that affects the value of a foreign operation are known as ______
Long-term exposure to exchange rate risk
The goal of a "for profit" business is to _____ the value of shareholder wealth
Maximize
which of the following is the correct equation for computing return on assets (ROA)?
Net income / Total assets
How if ownership transferred in a corporation?
Ownership is transferred by gifting or selling shares of stock
The profit margin is equal to net income divided by ____
Sales
Which of the following represents the receivables turnover ratio?
Sales/Accounts receivable
The owners of a corporation are called
Shareholders
Who is entitled to the residual value of a firm's cash flows?
Shareholders
Alpha Co. imports raw materials and uses forward contracts to reduce which of the following risks?
Short-run exposure to exchange rate risk
The day-to-day fluctuations in exchange rates create
Short-term exchange rate risk exposure
____ financial statements provide for comparison of firms that differ in size
Standardized
what does it mean when a firm has a days' sales in receivables of 45?
The firm collects its credit sales in 45 days on average
When a US company calculates its accounting net income, it must report all income, including income from foreign operations, in dollar. This leads to ____ exposure to exchange rate risk
Translation
A way to establish a benchmark for ration analysis is to identify a peer group
True
The controller is responsible for which of the following tasks?
financial accounting Tax reporting and payments
Depreciation is the accountant's estimate of the cost of ____ used in the production process matched with the benefits produce from owning it.
fixed assets equipment
Costs that do not change in the short run arise because of ____
fixed commitments
Under GAAP, assets are generally carried on a firm's balance sheet at ____.
historical cost book value
the purpose of a(n) ______ is to measure performance over a set period of time.
income statement
Cash flow to creditors equals:
interest paid - net new borrowing
The management of exchange rate risk should probably be centralized so that the firm has an understanding of ______
its overall positions in foreign currency
Current assets on the common-size balance sheet over the past three years have increased from 32 to 35 percent while current liabilities have decreased from 29 to 25%. This indicates the firm as increased its ____.
liquidity
Since ___________ and ownership are separated, a corporation's life is unlimited.
management
the ______ tax rate is the tax rate paid on the next dollar income
marginal
Based on the DuPont Identity, an increase in sales, all else held equal, ____ ROE
may increase or decrease may not change
The foreign exchange market is where ____
one country's currency is traded for another country's currency
Why is it more challenging to manage long-term exchange rate risk exposure than to hedge short-term risks?
organized forward markets do not exist for long-term needs of corporations
A positive operating cash flow indicates that the firm is generating enough cash to:
pay everyday cash outflows
If a company has had negative earnings for several periods they might choose to use a ____
price-sales ratio
Cash flow refers to ______
the difference between the number of dollars that came in and the number that went out
The goal of the financial management is to increase the value of ______
the existing shares of stock
On which side of the balance sheet do liabilities appear?
the right side
what is the purpose of the income statement?
to measure performance over a set period of time
financial leverage refers to a firm's ______
use of debit in its capital structure
Which of these questions can be answered by reviewing a firm's balance sheet
what is the total amount of assets the firm owns? How much debt is used to finance thee firm?
The quick ratio provides a more reliable measure of liquidity than the current ratio especially when the company's inventory takes _____ to sell.
a long time
liquidity refers to the ease of changing ______
assets to cash
On a balance sheet, assets are listed at their ____ value
book
The use of local financing from the government of the foreign country where the operation is located ______
can reduce political risk
Which of the following are components of cash flow from assets?
capital spending Operating cash flow Change in net working capital
The current ratio computes the relationship between ____
current assets and current libailities
When a firm smooths earnings to please investors, it is called ________.
earnings management
the GAAP matching principle requires revenues to be matched with:
expenses
What does stockholders' equity represent?
A residual claim against the firm's total assets
The ____ identity can help to explain why two firms with the same return on equity may not be operating in the same way
DuPont
A general partnership has which of the following characteristics?
Each owner has unlimited liability for all firm debts All the partners share in gains or losses of the partnership
The Sarbanes-Oxley Act provides incentives for companies to go public in US markets
False
Corporations in other countries are often called:
Joint stock companies Limited liability company Public limited companies
The rate most international banks charge for overnight Eurodollar deposits
LIBOR
what is the main goal of financial management?
To maximize current share value
A common-size balance sheet expresses accounts as a percentage of ______
Total assets
Free cash flow is also known as cash flow from assets
True
Operating cash flow does not include depreciation or interest
True
The corporation borrows money in its own name
True
net earnings refers to income earned ____
after interest and taxes
The costs incurred due to a conflict of interest between stockholders and management are called ______ costs
agency
What should you keep in mind when examining an income statement?
cash versus non-cash items time and costs GAAP
The federal government taxes which of the following?
corporate earnings and shareholder dividends
long-term solvency ratios are also known as:
financial leverage ratios
If a company has inventory, the quick ratio will always be ____ the current ratio
less than
A limited liability company's owners have ______ liability
limited
In a limited partnership, a limited partner's liability for business debts is ______
limited to their cash contribution to the partnership
Which of the following are classified as liabilities on a firm's balance sheet?
long-term debt accounts payable
Rank the ease (from easiest to hardest) of turning the following assets into cash.
1. Cash equivalents 2. accounts receivable 3. inventory 4. plant and equipment
The price of a foreign currency expressed in U.S. dollars is called a(n)
Exchange rate
What is one of the most important aspects of doing business internationally?
Exchange rate risk
Bonds issues in a single country, denominated in that country's currency, but not issued by a domestic firm in that country
Foreign Bonds
British and Irish government securities
Gilts
Issues of local British Authorities
Gilts
A treasure's responsibilities typically include:
Making financial plans handling cash flows managing capital expenditure decisions
Whenever ___ information is available, it should be used instead of accounting data
Market
Which of the following is the correct equation for return on equity?
Net income / total equity
long-term liabilities are not due in the current year (from the date of the balance sheet)
True
Financial statement analysis is primarily "management by _____"
exception
depreciation is the accountant's estimate of the cost of ____ used in the production process matched with the benefits produce from owning it
fixed assets equipment
For a mature firm, operating cash flow:
is usually positive is a sign of trouble if negative over a long period of time
Yankee bonds, Samurai bonds, and bulldog bonds
Foreign bonds
For financial decision-making purposes, the most important tax rate is the ________ tax rate.
Marignal
Non-cash items are expenses that directly affect ____ but do not directly affect _____.
Net income; cash flow
what is the impact on the total asset turnover ratio if sales increases significantly while there is no change in any of the other variables?
The total asset turnover ratio will increase
the price at which willing buyers would trade is called ______ value
market
what three questions are the financial managers concerned with?
working capital management capital budgeting capital structure
______ ______ can be used to encourage managers to maximize the value of the stock
stock options
which of the following create problems with financial statement analysis?
the firm or its competitors are conglomerates The firm and its competitors operate under different regulatory environments The firm or its competitors are global companies
Common-size statements are best used for comparing:
year-to-year for your firm firms of different sizes
If dividends are $100, stock sold is $10, and stock repurchased is $25, what is the cash flow to stockholders?
$115
If ending net fixed assets are $100, beginning net fixed assets are $60, and depreciation is $10, then the change in capital spending is ______.
$140 ($100-60+10)
A customer has yet to pay the bill for products purchased from Firm A on credit. This customer's trade credit is recorded in which of Firm A's balance sheet accounts?
Accounts receivable
The relationship between stockholders and management can best be described as a(n) ______ relationship
Agency
If you hire a real estate company to sell your house, you are most apt to encounter which one of the following?
Agency problem
In the long-run, costs may be considered as _______.
All variable
A security issued in the United States representing shares of a foreign stock is called a(n):
American Depository Receipt
Which of the following refer to a firm with a large portion of its business outside of its parent country?
An international corporation A multinational
Net working capital will be negative when current assets ____ current liabilities
Are less than
Which of the following is (are) true of financial ratios?
Are used for comparison purposes Are developed from a firm's financial information
An organization must prepare ______ and bylaws when forming a corporation
Articles of incorporation
the cash flow identity states that cash flows from ____ should equal cash flows to creditors and equity investors
Assets
which of the following is the balance sheet equation?
Assets equal liabilities plus stockholders' equity
If a firm's current assets equal $200 and its current liabilities equal $150, then its net working capital equals ____
$50
which of the following is the correct representation of the cash coverage ratio?
(EBIT + depreciation) / Interest expense
What is the formula for computing a firm's sustainable growth rate?
(ROE x b) / (1-ROE x b)
what is the formula for computing a firm's sustainable growth rate?
(ROE x b) / (1-ROE x b)
The debt to equity ratio for a company with $1 million in total debt and $2 million in equity is ____
0.50
AD Corporation has a return on equity of 20% on total equity of 800,000. AD generated of 1.6 million in sales on 2.7 million in assets. A DuPont decomposition of ROE shoes the 20% return on equity is from a(n) ____ total asset turnover ratio.
0.59
Alpha Co. has interest expense of 1.2 million, total assets of 84 million, sales of 76 million, long-term debt of 16.4 million, and net income of 12.1 million. How will interest expense be recorded in the common-size income statement?
1.58% ($1.2m/$76m)
A firm with the profit margin of 10% generates _____ in net income for every dollar in sales.
10 cents
BC Corporation has 1,800 shares outstanding and earned $2,700 last year on assets of $2 million and equity of $1.5 million. What is the PE ratio if the stock is currently selling at $18 per share?
12 times $18($2,700/1,800)
Nestor's has net income of $315,000, total sales of $3.52 million, total assets of $4.4 million, and total equity of $1.98 million. What is the return on equity?
15.91% ($315,000/$1.98m)
A firm has an operating profit (EBIT) of 600 on sales of 1,000. Interest expense is 250 and taxes are 120. What is the times interest earned ratio?
2.40 ($600/$250)
Omega Co. has annual sales of $250,000, costs of goods sold of $168,000, and assets of $322,000. Accounts receivable are $86,200. What is the receivables turnover?
2.90
A corporation receives cash from financial markets by selling ________ and _________.
Bonds and stocks
______ budgeting is the process of planning and managing a firm's long-term assets
Capital
Which term applies to the mixture of debt and equity maintained by a firm?
Capital structure
which of the following are traditional financial ratio categories?
Financial leverage ratios Turnover ratios Profitability ratios
Which of the following is NOT a component of cash flow from assets
Financing expenses
An interest rate swap involves swapping a ____ payment for a ____ payment
Floating rate; fixed rate Fixed rate; floating rate
Where does cash generated by a corporation typically go?
Paid to shareholders and creditors To pay corporate taxes Reinvested in the firm
A ______ is similar to a proprietorship, except that there are two or more owners
Partnership
Which of the following is NOT one of the basic areas of finance?
Personal finance
Changes in value due to the actions of governments is referred to as ______ risk
Political
Measures investors' expectations of growth in a company?
Price-earnings ratio
which one of these is an important mechanism used by unhappy stockholders to replace current management?
Proxy fight
AC Motors has net income of $51,750, total assets of $523,400, total debt of $267,000, and total sales of $491,300. What is the return on equity?
20.18%
AD Corporation has a return on equity of 20% on total equity of 800,000. AD generated of 1.6 million in sales on 2.7 million in assets. A DuPont decomposition of ROE shoes the 20% return on equity is from an equity multiplier of ____.
3.38
Days' sales in receivables is given by the following ratio:
365/Receivables turnover
According to the originators of the current U.S. corporate tax code, the tax rates in effect for 2015 are:
40%
Better Life Corporation has sales of $500,000 on assets of $2,000,000. At year end accounts receivable were still 5% of assets. The firm's receivable turnover is ___ times.
5
Ad corporation's return on assets is 14% and the firm retains 40% of all its earnings. AD's internal growth rate is ____%.
5.93
Turner's return on equity is 12 percent and its retention ratio is 60 percent. What is its sustainable growth rate?
7.76%
Alpha manufacturing has cost of good sold of $90 million and a net income of $9.6 million on total sales of $120 million. Total assets are $150 million. A common size income statement will show cost of goods sold of 75% and a net profit of __%
8
BC Corporation had net income of $3.5 million and paid out 700,000 in cash dividends to stockholders. Their retention ratio is ___%.
80
An agreement to exchange currencies at a future point in time at an exchange rate that is agreed upon today is called?
A forward trade
which one of the following is true?
Cash flows can be derived from financial statements
in large firms, financial activity is usually associated with which top officer?
Chief Financial Officer
which of the following would help a company take action to improve its ratios?
Comparing to aspirant companies Comparing to peer companies Comparing to its own historical ratios Comparing to major copmetitors
which of the following positions generally report to the chief financial officer (CFO)?
Controller Treasurer
The ______ office responsible for corporate tax reporting
Controller's
Which of the following are reason that the corporation is the most important form of business?
Corporations are separate legal entities Corporations can sue and be sued Corporations can enter contracts
Product costs are usually shown on the income statement under the heading of ____
Cost of goods sold
How is the inventory turnover ratio computed?
Cost of goods sold/inventory
The foreign exchange market allows for the trading of
Currencies
Business finance is broadly concerned with which of the following
How to finance long-term investments How to manage day-to-day finances of the firm Which long-term investment to make
Based on the sustainable growth rate, which of the following factors affect a firm's ability to sustain growth?
Profit margin financial policy dividend policy
Which of the following pairs matches the nickname of the foreign bond with the country of issue?
Rembrandt Netherlands
If two traders agree to exchange currencies tomorrow based on the exchange rate today, which exchange rate will apply?
Spot exchange rate
And agreement to trade currencies within two business days at today's exchange rate is called a
Spot trade
Which of the following are considered non-owner stakeholders in a company?
Supplies Government Employees
An agreement to exchange a floating-rate payment for a fixed one
Swap
An agreement to exchange one currency for another
Swap
If two parties agree to exchange U.S. dollars for Japanese yen, this agreement is called a
Swap
A balance sheet reflects a firm's:
accounting value on a specific date
Which one of these is considered to be the most liquid?
accounts receivable
The short run is a period when there are ____ costs
both fixed and variable
which of the following are components of cash flow from assets?
capital spending operating cash flow change in net working capital
Working capital includes which of the following?
cash inventory short-term assets
In finance, the value of a firm depends on its ability to generate ______
cash flows
The Sarbanes-Oxley Act requires corporate officers to:
confirm the validity of the financial statements be responsible for error in the annual report
Net working capital equals ______
current assets - current liabilities
A bad financial decision is defined as a decision that ______ shareholder wealth.
Decreases
which of the following is an example of a non-cash items on an income statement?
Depreciation
which of the following are included in a firm's capital structure?
Equity Long-term debt
The exchange rate in an agreement to exchange currency at some time in the future is call the ______ rate
Forward
Two traders agree today to exchange currencies in six months. This is considered a
Forward Trade
the inventory turnover ratios for Proctor and Gamble over the past three years are 5.09, 5.72, and 5.92 times respectively. Explaining the upward trend in the inventory turnover ratio requires:
Further investigation Examination of whether the increase is due to declining inventory or increasing sales
What does GAAP stand for?
Generally Accepted Accounting Principles
How is the price-earnings (PE) ratio computed?
Market price per share/ Earnings per share
How is the market-to-book ratio measured?
Market value per share/Book value per share
Which of the following items is added back to EBIT while calculating the cash coverage ratio, but not while calculation the times interest earned ratio?
Non-cash expenses
According to GAAP, when is income reported?
When it is earned or accrued
If a company's balance sheet shows $400 in cash, $100 in inventory, and $200 in current liabilities, its cash ratio is _____
2.0
Assets can be categorized as
Tangible and intangible assets current and fixed assets
A Eurbond refers to a bond:
That is issued in multiple countries, usually denominated in the currency of the issuer's country
currently, the spot exchange rate for Swiss franc is SF 1= $1.10 or SF 1 = $1.12 90 days forward. Which of the following is true?
The Swiss franc is at a forward premium The dollar is selling at a discount to the Swiss franc
A cross-rate between two foreign currencies is usually quoted in what currency?
The US dollar
What does Times Interest Earned (TIE) Ratio of 3.5 times mean?
The company's interest obligations are covered 3.5 times by its EBIT
The different types of exchange rate risk include which of the following?
Translation exposure, Long-term exposure, short-term exposure