Finance 3311

The cash flow resulting form a firm's ongoing, normal business activities is referred to as the: a. cash flow to investors b. additions to net working capital c. free cash flow d. net capital spending e. operating cash flow

operating cash flow

You can invest in an account that pays simple interest or an account that pays compound interest. In either case, you plan to invest $3,500 today and both accounts have an annual interest rate of 9 percent. How much more interest will you receive in the 6th year in the account that pays compound interest?

$169.67

Days' sales in inventory is measured as: a. 365 days divided by the inventory turnover b. inventory divided by cost of goods sold, times 365 days c. inventory turnover times 365 days d. inventory turnover plus 365 days e. 365 days divided by the inventory

a. 365 days divided by the inventory turnover

A proxy fight occurs when: a. a group solicits voting rights to replace the board of directors b. the firm is declared insolvent c. a competitor offers to sell their ownership interest in the firm d. the board of directors disagree on the members of the management team e. the firm files for bankruptcy

a. a group solicits voting right to replace the board of directors

Financial managers should primarily strive to: a. maximize the current value per share of existing stock b. maximize current market share in every market in which the firm participates c. maximize current dividends even if doing so adds financial distress costs to the firm d. minimize costs while increasing current dividends e. maximize the current profits of the firm

a. maximize the current value per share of existing stock

An increase in total assets: a. must be offset by an equal increase in liabilities and stockholders' equity b. requires an investment in fixed assets c. means that stockholders' equity must also increase d. can only occur when a firm has positive net income e. means that net working capital is also increasing

a. must be offset by an equal increase in liabilities and stockholders' equity

For a growing firm, the change in net working capital is generally: a. positive b. equal to zero c. highly negative d. negative e. highly erratic

a. positive

Net present value: a. provides the means for considering the risks associated with a specific project b. is not as widely used in practice as payback and discounted payback c. is less commonly used in business than the profitability index method of analysis d. rule for project acceptance must be modified when comparing projects of varying sizes e. cannot be relied upon when deciding between two mutually exclusive projects

a. provides the means for considering the risks associated with a specific project

Which one of these is a cash outflow from a corporation? a. tax payment b. sale of an asset c. profit retained by the firm d. sale of common stock e. issuance of debt

a. tax payment

A firm has common stock of $95, paid-in surplus of $320, total liabilities of $435, current assets of $440, and net fixed assets of $650. What is the amount of the shareholders' equity? a. 850 b. 655 c. 555 d. 1090 e. 215

b. 655

Which one of the following business types is best suited to raising large amounts of capital? a. limited partnerships b. corporation c. limited liability company d. general partnership e. sole propietorship

b. corporation

Noncash items refer to: a. the credit sales of a firm b. expenses charged against revenues that do not directly affect cash flows c. all accounts on the balance sheet other than cash on hand d. the costs incurred for the purchase of tangible fixed assets e. the accounts payable of a firm

b. expenses charged against revenues that do not directly affect cash flow

Payback is frequently used to analyze independent projects because: a. all relevant cash flows are included in the analysis b. it is easy and quick to calculate c. it produces better decisions than those made using either NPV or IRR D. it is the most desirable of all the available analytical methods from a financial perspective e. it considers the time value of money

b. it is easy and quick to calculate

Stock options granted to a corporation's managers are primarily designed to: a. replace promotions b. reduce agency costs c. replace salary increases d. increase current profits e. reward long term employment

b. reduce agency costs

One advantage of a partnership is the: a. limited liability protection for all the partners b. relatively low formation cost c. limited life of the entity d. personal liability for all of the firm's debts e. ease of transferring full ownership

b. relatively low formation cost

Maud'Dib Intergalactic has a new project available on Arrakis. The cost of the project is $38,500 and it will provide cash flows of $21,800, $27,800, and $27,700 over each of the next three years, respectively. Any cash earned in Arrakis is "blocked" and must be reinvested in the country for one year at an interest of 3 percent. The project has a required return of 9 percent. What is the project's NPV? a. $38,454.68 b. $41,950.56 c. $22,721.86 d. $34,218.64 e. $26,288.19

c. $22,721.86

Jupiter Explorers has $9,000 in sales. The profit margin is 5 percent. There are 6,300 shares of stock outstanding, with a price of $1.80 per share. What is the company's price-earnings ratio? a. 15.30 times b. 12.86 times c. 25.20 times d. 31.75 times e. 12.60 times

c. 25.20 times

Which one of these accounts is included in net working capital? a. copyright b. long-term debt c. inventory d. manufacturing equipment e. common stock

c. inventory

Which one of the following is a liquidity ratio? a. total debt ratio b. EV multiple c. quick ratio d. times interest earned ratio e. cash coverage ratio

c. quick ratio

GIven the corporate form of business organization, ownership: a. is controlled by the corporate officers b. must be granted with equal rights assigned to each and every shareholder c. transfers are unlimited d. must be held by non-management owners e. can only be transferred with the approval of the board of directors

c. transfers are unlimited

The discounted payback period of a project will decrease whenever the: a. time period of the project is increased b. costs of the fixed assets utilized in the project increase c. discount rate applied to the project is increased d. amount of each cash inflow is increased e. initial cash outlay of the project is increased

d. amount of each cash inflow is increased

Turner's Inc. has a price-earnings ratio of 16. Alfred's Co. has a price-earnings ratio of 19. Thus, you can state with certainty that one share of stock in Alfred's: a. represents a larger percentage of firm ownership than does one share of Turner's stock b. sells at a lower price per share than one share of Turner's c. has a higher market price than one share of stock in Turner's d. has a higher market price per dollar of earnings than does one share of Turner's e. earns a greater profit per share than does on ehsare of Turner's stock

d. has a higher market price per dollar of earnings than does one share of Turner's

An asset that can be quickly converted into cash without significant loss in value is referred to as being: a. fixed b. tangible c. intangible d. liquid e. marketable

d. liquid

All else constant, the net present value of a typical investment project increases when: a. the initial cost of a project increases b. all cash inflows occur during the last year instead of periodically throughout the project's life c. the discount rate increases d. the required rate of return decreases e. each cash inflow is delayed by one year

d. the required rate of return decreases

The basic regulatory framework for the public trading of securities in the United States was provided by the: a. Sarbanes-Oxley Act in 2002 b. New York Stock Exchange when it was founded c. Securities Exchange Act of 1934 d. Federal Reserves Bank e. Securities Act of 1933 and the Securities Act of 1934

e. Securities Act of 1933 and the Securities Exchange Act of 1934

From a cash flow position, which one of the following ratios best measures a firm's ability to pay the interest on its debts? a. quick ratio b. cash ratio c. interval measure d. times interest earned ratio e. cash coverage ratio

e. cash coverage ratio

The internal rate of return tends to be: a. used primarily to differentiate between mutually exclusive projects b. ignored by most financial managers c. extremely accurate even when cash flow estimates are faulty d. utilized in project analysis only when multiple net present values apply e. easier for managers to comprehend than the net present value

e. easier for managers to comprehend than the net present value

Members of the board of directors are selected by: a. the firm's Chief executive Officer b. the largest five shareholders c. company management d. the firm's managers and employees e. shareholder voting

e. shareholder voting

The debt-equity ratio is measured: a. total assets minus total debt, divided by total equity b. total equity divided by total debt c. long-term debt divided by total equity d. total equity divided by long-term debt e. total debt divided by total equity

e. total debt divided by total equity