Finance 300 Final Exam

When making financial decisions, managers should always look at marginal, or incremental cash flows.

True

A corporation's operating profit margin is equal to

EBIT divided by sales.

In an ideal world, which of the following would be used to evaluate firm performance?

market value of assets

If the stock market is efficient, then investors do not need to read the Wall Street Journal or research companies before they select which stocks to buy because market prices already reflect all publicly available information.

False

Investors will be indifferent between two investments if both investments have the same expected return.

False

There is no legal distinction made between the assets of the business and the personal assets of any of the owners in the limited partnership.

False

Which of the following represents an attempt to measure the net results of the firm's operations (revenues versus expenses) over a given time period?

Income Statement

Which of the following best describes cash flow from financing activities?

Increase (or minus decrease) in stock, plus increase (or minus decrease) in debt, minus interest paid, minus dividends paid

The current ratio of a firm would be decreased by which of the following?

Inventories are sold on a long-term credit basis.

Which of the following accounts does NOT belong in the equity section of a balance sheet?

Long-Term Debt

Which of the following is an advantage of the general partnership form of business organization?

Low cost of formation

The primary goal of a publicly owned corporation is to

Maximize shareholder wealth

Which of the following statements is MOST correct concerning diversification and risk?

Risk-averse investors often choose companies from different industries for their portfolios because the correlation of returns is less than if all the companies came from the same industry.

Common-sized income statements restate the numbers in the income statement as a percentage of sales to assist in the comparison of a firm's financial performance across time and with competitors.

True

Diversifying among different kinds of assets is called asset allocation.

True

If two companies have the same revenues and operating expenses, their net incomes will still be different if one company finances its assets with more debt and the other company with more equity.

True

Its ability to raise capital by selling stock makes the corporation the best form of organization in terms of raising capital.

True

Ratios are used to standardize financial information, thereby making it easier to interpret.

True

Seasonality causes comparability problems in ratio analysis. A common solution is to use an average account balance as opposed to an ending account balance.

True

Which of the following accounts does NOT belong on the asset side of a balance sheet?

accruals

What information does a firm's balance sheet provide to the viewing public?

an itemization of all of a firm's assets, liabilities, and equity as of the balance sheet date

The appropriate measure for risk according to the capital asset pricing model is

beta

Advantages of the corporate form of business organization include

easier transfer of ownership

The increase in owners' equity for a given period is equal to

net income minus dividends.

Which of the following has the most significant influence on return on equity?

operating income

Which of the following accounts belongs in the equity section of a balance sheet?

retained earnings

Gross profit is equal to

sales - cost of goods sold

Common-sized balance sheets

show each balance sheet account as a percentage of total assets.

The Colorado Jet Boat Company had a cash balance of $3 million at the beginning of 2010. During 2010, Sales were $8 million and expenses were $7 million. Therefore,

the cash balance at the end of 2010 cannot be determined from the information given.

A financial manager is evaluating a project which is expected to generate profits of $100,000 per year for the next 10 years. The project should be accepted if

the present value of the project's cash inflows exceeds the present value of the project's cash outflows.

Capital budgeting is concerned with

what long-term investments a firm should undertake.