Finance, Exam 1
A firm with a gross profit margin which meets industry standard and a net profit margin which is below industry standard must have excessive A) general and administrative expenses. B) cost of goods sold. C) dividend payments. D) principal payments.
A
If the only information you were given about Ryan Corporation, a large public company in business for many years, was that had a current ratio of 2.9, what could you determine from this? A) Nothing, you would also need Ryan Corporation's current ratios from the last few years and the current ratio's from the last few years of Ryan's competitors. B) You could determine that Ryan has a liquidity problem because Ryan's current ratio is greater than 2 which is the rule of thumb for the current ratio. C) Nothing, you would also need the current ratio's from the last few years of the S&P 500 Index. D) You could determine that Ryan has an activity problem because Ryan's current ratio is greater than 2 which is the rule of thumb for the current ratio.
A
Jennings, Inc. has a tax liability of $170,000 on pretax income of $500,000. What is the average tax rate for Jennings, Inc.? A) 34 percent B) 46 percent C) 25 percent D) 40 percent
A
Operating profits are defined as A) gross profits minus operating expenses. B) sales revenue minus cost of goods sold. C) earnings before depreciation and taxes. D) sales revenue minus depreciation expense.
A
) Cash flow and risk are the key determinants in share price. Increased cash flow results in ________, other things remaining the same. A) a lower share price B) a higher share price C) an unchanged share price D) an undetermined share price
B
One way often used to insure that management decisions are in the best interest of the stockholders is to A) threaten to fire managers who are seen as not performing adequately. B) remove management's perquisites. C) tie management compensation to the performance of the company's common stock price. D) tie management compensation to the level of earnings per share.
C
The Glass-Steagall Act A) allowed commercial and investment banks to engage in the same activities. B) created the Securities Exchange Commission. C) created the Federal Deposit Insurance program and separated the activities of commercial and investment banks. D) was intended to regulate the activities in the primary market.
C
The ________ indicates the percentage of each sales dollar remaining after the firm has paid for its goods. A) net profit margin B) operating profit margin C) gross profit margin D) earnings available to common shareholders
C
Making investment decisions includes all of the following EXCEPT A) inventory. B) fixed assets. C) accounts receivable. D) notes payable.
D
Which of the following is NOT a financial institution? A) A commercial bank. B) An insurance company. C) A pension fund. D) A newspaper publisher.
D
The stockholder's annual report must include A) a statement of cash flows. B) an income statement. C) a balance sheet. D) a statement of retained earnings. E) all of the above.
E
An increase in firm risk tends to result in a higher share price since the stockholder must be compensated for the greater risk.
False
Finance is concerned with the process institutions, markets, and instruments involved in the transfer of money among and between individuals, businesses and government.
True
Financial managers actively manage the financial affairs of many types of business-financial and non-financial, private and public, for-profit and not-for-profit.
True
In partnerships, owners have unlimited liability and may have to cover debts of other less financially sound partners.
True
Typically, higher coverage ratios are preferred, but too high a ratio may indicate under-utilization of fixed-payment obligations, which may result in unnecessarily low risk and return.
True
) Managerial finance A) involves tasks such as budgeting, financial forecasting, cash management, and funds procurement. B) involves the design and delivery of advice and financial products. C) recognizes funds on an accrual basis. D) devotes the majority of its attention to the collection and presentation of financial data.
A
Profit maximization as a goal is not ideal because it does NOT directly consider A) risk and cash flow. B) cash flow and stock price. C) risk and EPS. D) EPS and stock price.
A
The ________ has/have the ultimate responsibility in guiding corporate affairs and carrying out policies. A) board of directors B) chief executive officer C) stockholders D) creditors
A
The ________ market is where securities are initially issued and the ________ market is where pre-owned securities (not new issues) are traded. A) primary; secondary B) money; capital C) secondary; primary D) primary; money
A
The ________ measures the percentage of each sales dollar remaining after ALL expenses, including taxes, have been deducted. A) net profit margin B) operating profit margin C) gross profit margin D) earnings available to common shareholders
A
The ________ provides a financial summary of the firm's operating results during a specified period. A) income statement B) balance sheet C) statement of cash flows D) statement of retained earnings
A
The financial manager may be responsible for any of the following EXCEPT A) monitoring of quarterly tax payments. B) analyzing budget and performance reports. C) determining whether to accept or reject a capital asset acquisition. D) analyzing the effects of more debt on the firm's capital structure.
A
When home prices are falling we would expect A) high mortgage default rates. B) low mortgage default rates. C) unchanged mortgage default rates. D) a higher percentage of owner home equity.
A
A firm has just ended its calendar year making a sale in the amount of $200,000 of merchandise purchased during the year at a total cost of $150,500. Although the firm paid in full for the merchandise during the year, it has yet to collect at year end from the customer. The possible problem this firm may face is A) low profitability. B) lack of cash flow. C) inability to receive credit. D) high leverage.
B
A major weakness of a partnership is A) limited liability. B) difficulty liquidating or transferring ownership. C) access to capital markets. D) low organizational costs.
B
Corporation A owns 15 percent of the stock of corporation B. Corporation B pays corporation A $100,000 in dividends in 2002. Corporation A must pay tax on A) $100,000 of ordinary income. B) $ 30,000 of ordinary income. C) $ 70,000 of ordinary income. D) $ 70,000 of capital gain.
B
Earnings available to common shareholders are defined as net profits A) after taxes. B) after taxes minus preferred dividends. C) after taxes minus common dividends. D) before taxes.
B
Financial service A) is concerned with the duties of the financial manager. B) involves the design and delivery of advice and financial products. C) provides guidelines for the efficient operation of the business. D) handles accounting activities related to data processing.
B
Johnson, Inc. has just ended the calendar year making a sale in the amount of $10,000 of merchandise purchased during the year at a total cost of $7,000. Although the firm paid in full for the merchandise during the year, it has yet to collect at year end from the customer. The net profit and cash flow from this sale for the year are A) $3,000 and $10,000, respectively. B) $3,000 and -$7,000, respectively. C) $7,000 and -$3,000, respectively. D) $3,000 and $7,000, respectively.
B
Most money market transactions are made in A) common stock. B) marketable securities. C) stocks and bonds. D) preferred stock.
B
One of the most influential documents issued by a publicly-held corporation is the A) letter to stockholders. B) annual report. C) cash flow statement. D) income statement.
B
The Federal Deposit Insurance Corporation (FDIC) A) guarantees individuals will not lose any money held at a bank that fails. B) guarantees individuals will not lose any money, up to a specified amount, held at a bank that fails. C) guarantees individuals will not lose any money held at any type of financial institution that fails. D) guarantees individuals will not lose any money, up to a specified amount, held at any type of financial institution that fails.
B
The ________ of a business firm is measured by its ability to satisfy its short-term obligations as they come due. A) activity B) liquidity C) debt D) profitability
B
The ________ represents a summary statement of the firm's financial position at a given point in time. A) income statement B) balance sheet C) statement of cash flows D) statement of retained earnings
B
The analyst should be careful when evaluating a ratio analysis that A) pre-audited statements are used. B) the dates of the financial statements being compared are the same time. C) neither A nor B. D) both A and B.
B
________ analysis involves the comparison of different firms' financial ratios at the same point in time. A) Time-series B) Cross-sectional C) Marginal D) Quantitative
B
________ evidence of the existence of a problem or outstanding management performance is provided by ratio analysis. A) Conclusive B) Inconclusive C) Complete D) Definitive
B
A competitive market that allocates funds to their most productive use is called a(n) A) liquid market. B) middleman's market. C) efficient market. D) investor's market.
C
A firm with a total asset turnover lower than industry standard may have A) excessive debt. B) excessive cost of goods sold. C) insufficient sales. D) insufficient fixed assets.
C
A more recent issue that is causing major problems in the business community is A) the privatization of ownership. B) short-term versus long-term financial goals of management. C) ethical problems. D) environmental concerns.
C
Accounting practices and procedures used to prepare financial statements are called A) SEC. B) FASB. C) GAAP. D) IRB.
C
All of the following are examples of fixed assets EXCEPT A) automobiles. B) buildings. C) marketable securities. D) equipment.
C
In a corporation, the members of the board of directors are elected by the A) chief executive officer. B) creditors. C) stockholders. D) employees.
C
In an efficient market if a company announced sales of a new product are lower than expected, what would you expect to happen to the stock price? A) It would not change. B) It would increase. C) It would decrease. D) It would move it the same direction as the market in general.
C
Long-term debt instruments used by both government and business are known as A) stocks. B) bills. C) bonds. D) equities
C
The ________ is useful in evaluating credit and collection policies. A) average payment period B) current ratio C) average collection period D) current asset turnover
C
The ________ measures the return on owners' (both preferred and common stockholders) investment in the firm. A) net profit margin B) price/earnings ratio C) return on equity D) return on total assets
C
The accountant recognizes revenues and expenses on A) a cash basis. B) a revenue basis. C) an accrual basis. D) an expense basis.
C
The major securities traded in the capital markets are A) commercial paper and Treasury bills. B) Treasury bills and certificates of deposit. C) stocks and bonds. D) bonds and commercial paper.
C
The part of finance concerned with design and delivery of advice and financial products to individuals, business, and government is called A) Managerial Finance. B) Financial Manager. C) Financial Services. D) none of the above.
C
The primary concern of creditors when assessing the strength of a firm is the firm's A) profitability. B) leverage. C) short-term liquidity. D) share price.
C
________ are especially interested in the average payment period, since it provides them with a sense of the bill-paying patterns of the firm. A) Customers B) Stockholders C) Lenders and suppliers D) Borrowers and buyers
C
ABC Corp. extends credit terms of 45 days to its customers. Its credit collection would likely be considered poor if its average collection period was A) 30 days. B) 36 days. C) 47 days. D) 57 days.
D
As the risk of a stock investment increases, investors' A) return will increase. B) return will decrease. C) required rate of return will decrease. D) required rate of return will increase.
D
In planning and managing the requirements of the firm, the financial manager is concerned with A) the mix and type of assets, but not the type of financing utilized. B) the type of financing utilized, but not the mix and type of assets. C) the acquisition of fixed assets, allowing someone else to plan the level of current assets required. D) the mix and type of assets, the type of financing utilized, and analysis in order to monitor the financial condition.
D
Managing the firm's assets includes all of the following EXCEPT A) inventory. B) fixed assets. C) accounts receivable. D) notes payable.
D
The ________ is a measure of liquidity which excludes ________, generally the least liquid asset. A) current ratio; accounts receivable B) quick ratio; accounts receivable C) current ratio; inventory D) quick ratio; inventory
D
The ________ ratio may indicate that the firm will not be able to meet interest obligations due on outstanding debt. A) debt B) net profit margin C) return on total assets D) times interest earned
D
The dividend exclusion for corporations receiving dividends from another corporation has resulted in A) a lower cost of equity for the corporation paying the dividend. B) a higher relative cost of bond-financing for the corporation paying the dividend. C) stock investments being relatively less attractive, relative to bond investments made by one corporation in another corporation. D) stock investments being relatively more attractive relative to bond investments made by one corporation in another corporation.
D
The financial manager is interested in the cash inflows and outflows of the firm, rather than the accounting data, in order to ensure A) profitability. B) the ability to pay dividends. C) the ability to acquire new assets. D) solvency.
D
The implementation of a pro-active ethics program is expected to result in A) a positive corporate image and increased respect, but is not expected to affect cash flows. B) an increased share price resulting from a decrease in risk, but is not expected to affect cash flows. C) a positive corporate image and increased respect, but is not expected to affect share price. D) a positive corporate image and increased respect, a reduction in risk, and enhanced cash flow resulting in an increase in share price.
D
Wealth maximization as the goal of the firm implies enhancing the wealth of A) the Board of Directors. B) the firm's employees. C) the federal government. D) the firm's stockholders
D
Which of the following legal forms of organization's income is NOT taxed under individual income tax rate? A) Sole proprietorships. B) Partnerships. C) Limited partnership. D) Corporation.
D
Which of the following provide savers with a secure place to invest funds and offer both individuals and companies loans to finance investments? A) Investment Banks B) Securities Exchanges C) Mutual Funds D) Commercial Banks
D
All dividend income received by one corporation from an investment in the common and preferred stock of another corporation is excluded from taxation.
False
Earnings per share represent the dollar amount earned and distributed to shareholders
False
Financial analysis and planning is concerned with analyzing the mix of assets and liabilities.
False
Money markets are markets for long term funds such as bonds and equity
False
Primary and secondary markets are markets for short-term and long-term securities, respectively.
False
Securitization made it harder for banks to lend money because they could not pass the risk on to other investors
False
Sub-prime mortgages are mortgage loans made to borrowers the high incomes and better than average credit histories.
False
The Glass-Steagall Act was imposed to allow commercial and investment banks to combine and work together
False
The average payment period can be calculated as accounts payable divided by average sales per day
False
The lower the fixed-payment coverage ratio, the lower is the firm's financial leverage.
False
The money market is a financial relationship created by a number of institutions and arrangements that allows suppliers and demanders of long-term funds to make transactions.
False
The president or chief executive officer is elected by the firm's stockholders and has ultimate authority to guide corporate affairs and make general policy.
False
The sole proprietor has unlimited liability; his or her total investment in the business, but not his or her personal assets, can be taken to satisfy creditors.
False
The statement of cash flows provides insight into the firm's assets and liabilities and reconciles them with changes in its cash and marketable securities during the period of concern.
False
When considering each financial decision alternative or possible action in terms of its impact on the share price of the firm's stock, financial managers should accept only those actions that are expected to increase the firm's profitability.
False
) Generally-accepted accounting principles are authorized by the Financial Accounting Standards Board (FASB).
True
A financial institution is an intermediary that channels the savings of individuals, businesses, and governments into loans or investments.
True
Dividends received by a corporation on an investment in the common and preferred stock of another corporation (where ownership in the dividend paying corporation is less than 20%) is subject to 70 percent exclusion for tax purposes
True
Net fixed assets represent the difference between gross fixed assets and the total expense recorded for the depreciation over then entire lives of the firm's fixed assets.
True
Publicly-owned corporations are required by the Securities and Exchange Commission (SEC) and individual state securities commissions to provide their stockholders with an annual stockholders' report.
True
The average age of inventory is viewed as the average length of time inventory is held by the firm or as the average number of days' sales in inventory.
True
The corporate controller typically handles the accounting activities, such as tax management, data processing, and cost and financial accounting
True
The financial manager must look beyond financial statements to obtain insight into developing or existing problems since the accrual accounting data do not fully describe the circumstances of a firm.
True
The goal of ethics is to motivate business and market participants to adhere to both the letter and the spirit of laws and regulations in all aspects of business and professional practice.
True
The income statement is a financial summary of the firm's operating results during a specified period while the balance sheet is a summary statement of the firm's financial position at a given point in time.
True
The likelihood that managers may place personal goals ahead of corporate goals is called the agency problem.
True
The wealth of corporate owners is measured by the share price of the stock.
True
The financial manager places primary emphasis on cash flows, the inflow and outflow of cash.
true