Finance Midterm

A firm that wants to know if it has enough cash to meet its bills would be most likely to use which kind of​ ratio? A. liquidity B. leverage C. profitability D. efficiency

A

All of the following forms of business organizations provide limited liability to all owners EXCEPT A. limited partnership. B. corporation. C. Sminus−type corporation. D. limited time availability

A

The appropriate measure for risk according to the capital asset pricing model is A. beta. B. alpha. C. the standard deviation of a​ firm's cash flows. D. the standard deviation of a​ firm's stock returns.

A

Which of the following goals of the firm are synonymous​ (equivalent) to the maximization of shareholder​ wealth? A. maximization of the total market value of the​ firm's common stock B. profit maximization C. risk minimization D. none of the above

A

Which of the following is NOT true for a limited​ partnership? A. It has limited liability for its owners. B. Only the name of general partners can appear in the name of the firm. C. One general partner must exist who has unlimited liability. D. Limited partners may sell their interest in the company.

A

​Siskiyou, Inc. has total current assets of​ $1,200,000; total current liabilities of​ $500,000; and longminus−term assets of​ $800,000. How much is the​ firm's Total Liabilities​ & Equity? A. $2,000,000 B. $2,500,000 C. ​$1,800,000 D. ​$1,300,000

A

A company borrows​ $10,000 and puts the money into its checking account. This transaction will increase the​ company's current ratio if prior to the transaction the​ company's current ratio was A. greater than one. B. less than one. C. equal to one. D. greater than or less than​ one, but not equal to one.

B

For a retailer with inventory to​ sell, the acidminus−test ratio will be A. greater than the current​ ratio, thus providing a more stringent measure of liquidity. B. less than the current​ ratio, thus providing a more stringent measure of liquidity. C. unimportant because it​ doesn't include inventory. D. greater than the current​ ratio, thus providing a less stringent measure of liquidity.

B

Rural Hydroponics has total equity of​ $560,000; sales of​ $2,250,000; current assets of​ $700,000; and total liabilities of​ $435,000. What is Rural​ Hydroponics' total asset​ turnover? A. 5.51 B. 2.26 C. 4.02 D. 3.21

B

The A corporation has an operating profit margin of​ 20%, operating expenses of​ $500,000, and financing costs of​ $15,000. Therefore, A. the​ corporation's gross profit margin is less than​ 20%. B. the​ corporation's gross profit margin is greater than​ 20%. C. the​ corporation's net profit margin is greater than​ 20%. D. the​ corporation's gross profit margin is equal to​ 20% because gross profit is not affected by operating expenses or financing costs

B

The increase in​ owners' equity for a given period is equal to A. gross profit minus distributions to shareholders. B. net income minus dividends. .C. positive net cash flow minus dividends. .D.sales minus dividends.

B

Which of the following accounts belongs in the liability section of a balance​ sheet? A. interest expense B. accounts payable C. preferred stock D. accumulated depreciation

B

All of the following are income statement items EXCEPT A. cost of goods sold. B. interest expense. C. accrued expenses. D. depreciation expense.

C

All of the following measure liquidity EXCEPT A. current ratio. B. inventory turnover. C. operating return on assets. D. acidminus−test ratio.

C

Assume that a firm issues a sixminus−month note to purchase inventory. Which of the following is true if the current ratio before the purchase is​ 1.0? A. The​ firm's current ratio must decrease. B. The​ firm's current ratio will increase. C. The​ firm's quick ratio might decrease. D. The​ firm's quick ratio will stay the same.

C

How can investors reduce the risk associated with an investment portfolio without having to accept a lower expected​ return? A. Increase the amount of money invested in the portfolio. B. Purchase stocks that have exceptionally high standard deviations. C. Purchase a variety of​ securities; i.e., diversify. D. Wait until the stock market rises.

C

If you were to use the standard deviation as a measure of investment​ risk, which of the following has historically been the highest risk​ investment? A. U.S. Treasury bills B. common stock of large firms C. common stock of small firms D. longminus−term government bonds

C

Suppose XYZ Corporation is traded on the New York Stock Exchange.​ XYZ's closing price on Monday is​ $20 per share. After the market closes on​ Monday, XYZ makes a surprise announcement that it has obtained a major new customer.​ XYZ's stock will likely A. remain at​ $20 per share because in efficient markets the price already reflects all information. B. open below​ $20 because the surprise announcement creates more uncertainty. C. open above​ $20 because the positive news will result in a higher valuation even though the stock has not yet traded. D. open at​ $20 per share on Tuesday and then increase as more investors read the announcement in the Wall Street Journal.

C

The category of securities with the highest historical risk premium is A. small company corporate bonds. B. large company stocks. C. small company stocks. D. government bonds

C

The five basic principles of finance include all of the following EXCEPT A. Risk requires a reward. B. Money has a time value. C. Incremental profits determine value. D. Cash flow is what matters.

C

Two companies have identical assets and operating activities. Which of the follow statements is​ true? A. The company with more debt will have lower operating income due to interest expense. B. Both companies have the same net income. C. The company with more debt will have lower net income due to interest expense. D. The company with more debt will have higher operating income due to leverage.

C

What information does a​ firm's statement of cash flows provide to the viewing​ public? A. a report of investments made and their cost for a specific period of time B. an itemization of all of a​ firm's assets,​ liabilities, and equity for a defined period of time C. a report documenting a​ firm's cash inflows and cash outflows from​ operating, financing, and investing activities for a defined period of time D. a report of revenues and expenses for a defined period of time

C

Which of the following forms of business organizations provide limited liability to all its​ owners? A. general partnership B. limited partnership C. corporation D. both B and C

C

Which of the following ratios would be the most useful to assess the risk associated with a firm being able to pay off its shortminus−term line of​ credit? A. the operating profit margin B. return on equity C.the acid test ratio D. the fixed asset turnover

C

Which of the following types of risk is​ diversifiable? A. market risk B. systematic risk C. ​unsystematic, or company−unique risk D. betagenic, or ecocentric risk

C

You are considering buying some stock in Continental Grain. Which of the following are examples of nonminus−diversifiable ​risks? I. Risk resulting from a general decline in the stock market. II. Risk resulting from a possible increase in income taxes. III. Risk resulting from an explosion in a grain elevator owned by Continental. IV. Risk resulting from a pending lawsuit against Continental. A. ​II, III, and IV B. I only C. I and II D. III and IV

C

​Siskiyou, Inc. has total current assets of​ $1,200,000; total current liabilities of​ $500,000; longminus−term assets of​ $800,000; and longminus−term debt of​ $600,000. How much is the​ firm's total​ equity? A. $800,000 B.​$1,200,000 C.$900,000 D.$2,000,000

C

Changes in the general​ economy, like changes in interest rates or tax​ laws, represent what type of​ risk? A. unsystematic risk B. diversifiable risk C. companyminus−unique risk D. market risk

D

Investors want a return that satisfies the following​ expectation(s): A. An additional return for taking on risk B. A return for delaying consumption C. An additional return for accepting dividends rather than capital gains D. Both A and B.

D

John invested​ $1,000 in a risky investment and Bill invested​ $1,000 in a less risky investment. One year​ later, Bill's investment is worth​ $1,030. Which of the following statements is MOST​ correct? A. If​ John's investment is worth more than​ $1,030, then Bill was irrational to invest in the less risky investment. B. ​John's investment must be worth more than​ $1,030 because of the riskminus−return trademinus−​off, given that​ John's investment was more risky. C. If​ John's investment is worth less than​ $1,030, then John was irrational to invest in the risky project. D. The worth of​ John's investment cannot be determined with the information given.

D

The acidminus−test ratio of a firm would be unaffected by which of the​ following? A. Additional inventory is purchased for cash. B. Equipment is​ purchased, financed by a longminus−term debt issue. C. Large accounts receivable balances are collected. D. Several shortminus−term loans are consolidated and paid off using longminus−term debt.

D

The current ratio of a firm would be decreased by which of the​ following? A. Equipment is​ purchased, financed by a longminus−term debt issue. B. Inventories are sold for cash. C. Land held for investment is sold for cash. D. Inventories are sold on a longminus−term credit basis.

D

Which of the following categories of owners have unlimited​ liability? A. general partners in a limited partnership B. sole proprietors C. shareholders of a corporation D. both A and B

D

Which of the following statements about Generally Accepted Accounting Principles​ (GAAP) is NOT​ true? A. GAAP is​ complex, providing more than 150​ "pronouncements" as to how to account for different types of transactions. B. GAAP sets out the​ standards, conventions, and rules that accountants must follow when preparing audited financial statements. C. GAAP is a set of ruleminus−based accounting standards established by the Financial Accounting Standards Board​ (FASB). D.All of the statements above are true.

D

A company with negative net income will also have negative operating cash flow. True False

False

Each financial decision made by a corporate manager can be evaluated by its direct impact on the​ corporation's stock price. True False

False

Earnings available to common shareholders is equal to a​ corporation's positive net cash flow over a given​ period, typically one year. True False

False

Proper diversification generally results in the elimination of risk. True. False

False

The goal of most financial managers is to reduce the amount of longminus−term debt to​ zero, thus maximizing shareholder wealth. True False

False

The more debt a company uses to finance its​ assets, the lower will be its operating income due to higher interest expense. True False

False

The portfolio beta is simply the sum of the betas of the individual stocks in the portfolio. True False

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. True False

False

A corporate treasurer is typically responsible for cash​ management, credit​ management, and raising capital. True False

True

Borrowing more money will always increase a​ company's return on equity because the company is using financial​ leverage, but it also adds to the riskiness of the company. True False

False

Changes in depreciation expense do not affect operating income because depreciation is a nonminus−cash expense. True False

False

Commonminus−sized balance sheets show each account as a percentage of total sales to help analysts in comparing companies of difference sizes. True False

False

Commonminus−sized income statements are used to compare companies that have the same amount of revenues. True False

False

Corporate managers should accept investment projects that maximize profits in the short run because of the time value of money. True False

False

Financial ratios are useful for evaluating performance but should not be used for making financial projections. True False

False

Financial ratios cannot be used to evaluate the creation of shareholder wealth because they are based on accounting numbers that reflect historical cost and not current market values. True False

False

Generally Accepted Accounting Principles​ (GAAP) is a set of principleminus−based accounting standards established by the Financial Accounting Standards Board​ (FASB) True False

False

How managers choose to finance the business does not affect the rate of return to shareholders because the rate of return is based on how the company uses the assets it​ has, not whether or not they paid for the assets with debt or equity. True False

False

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. True False

False

It is commonly accepted that the industry average for a ratio is the ideal goal for a financial manager to achieve. True False

False

Negative historical returns are not possible during periods of high volatility​ (high standard deviations of​ returns) due to the riskminus−return trademinus−off. True False

False

One problem with maximization of shareholder wealth as a goal is that it ignores risk taken by the​ firm's financial decisions. True False

False

Operating return on assets​ (OROA) is equal to operating profit margin times fixed assets turnover. True False

False

Portfolio performance is determined mainly by stock selection and market​ timing, with less emphasis on asset allocation. True False

False

Profits represent money that can be​ spent, and as​ such, form the basis for determining the value of financial decisions. True False

False

Ratios of almost all companies are easily comparable because all public companies prepare their financial reports based upon generally accepted accounting principles. True False

False

Seasonality is introduced into financial ratios by averaging monthly account​ balances, and thus it is recommended that ending account balances be used. True False

False

Shareholder selection committees select potential board of director nominees ensuring that board members will monitor management sufficiently to protect shareholder interests. True False

False

The balance sheet equation is Total Assets​ = Total Revenues minus− Total Liabilities. True False

False

The beta of a Tminus−bill is one. True Fals

False

The current ratio and the acid test ratio both measure financial leverage. True False

False

Total asset turnover is equal to accounts receivable turnover plus inventory turnover plus fixed asset turnover. True False

False

Trend analysis is the forecasting of the​ firm's financial ratios for a future time period by using its own ratios from previous periods. True False

False

Lower asset turnover ratios are generally indicative of more efficient asset management. True False

False`

A limited liability company​ (LLC) is taxed like a partnership but provides limited liability for its​ owners, similar to a corporation. True False

True

A security with a beta of one has a required rate of return equal to the overall market rate of return. True False

True

An allminus−stock portfolio is more risky than a portfolio consisting of all bonds. True False

True

Common stockholders may use financial ratios to monitor manager actions to help lessen agency problems. True False

True

Determining how a firm should raise money to fund its longminus−term investments is referred to as capital structure decisions. True False

True

Financial management deals with the maintenance and creation of economic value or wealth. True False

True

Financial ratios are used by managers inside the company and by​ lenders, creditminus−rating ​agencies, and investors outside of the company. True False

True

Financial ratios that are higher than industry averages may indicate problems that are as detrimental to the firm as ratios that are too low. True False

True

In a sole​ proprietorship, the owner is personally responsible without limitation for the liabilities incurred. True False

True

In the United​ States, financial statements are prepared following the Financial Accounting Standards​ Board's generally accepted accounting principles​ (GAAP). True False

True

International Financial Reporting Standards​ (IFRS) is a set of principleminus−based accounting standards that were established by the International Accounting Standards Board​ (IASB). True False

True

In​ general, the required rate of return is a function of​ (1) the time value of​ money, (2) the risk of an​ asset, and​ (3) the​ investor's attitude toward risk. True Fals

True

It is important to evaluate a corporate​ manager's financial decision by measuring the effect the decision should have on the​ corporation's stock price if everything else were held constant. True False

True

One weakness of the times interest earned ratio is that it includes only the annual interest expense as a finance expense and ignores other financing items such as lease payments that must be paid. True False

True

Operating profits or EBIT is used to measure a​ firm's profits on assets because it does not include the​ firm's cost of debt financing. True False

True

Operating return on assets is equal to the operating profit margin times total asset turnover. True False

True

Profitsminus−tominus−Sales relationships are defined as profit margins. True False

True

Ratio analysis enhances our understanding of three basic attributes of​ performance: liquidity,​ profitability, and the ability to create shareholder value. True False

True

Ratios that examine profit relative to investment are useful in evaluating the overall effectiveness of the​ firm's management. True False

True

Shareholder wealth maximization means maximizing the price of the existing common stock. True False

True

Shareholders react to poor investment or dividend decisions by causing the total value of the​ firm's stock to​ fall, and they react to good decisions by bidding the price of the stock up. True False

True

Small company stocks have historically had higher average annual returns than large company​ stocks, and also a higher risk premium. True False

True

Stocks that plot above the security market line are underpriced because their expected returns exceed their riskminus−adjusted required returns. True False

True

The T−bill return is used in the CAPM model as the riskminus−free rate. True False

True

The balance sheet reflects the accounting​ equation: Assets​ = Liabilities​ + Owners' Equity. True False

True

The chief financial officer​ (CFO) is responsible for overseeing financial​ planning, corporate strategic​ planning, and controlling the​ firm's cash flow. True False

True

The corporation is a legal entity separate from its​ owners; thus it is possible for the corporation to continue even upon the death of one or more shareholders. True False

True

The owners of a corporation enjoy limited liability. True False

True

The root cause of agency problems is conflicts of interest. True False

True

The statement of cash flow explains the changes that took place in the​ firm's cash balance over the period of interest. True False

True

Unique security risk can be eliminated from an​ investor's portfolio through diversification. True False

True

An inventory turnover ratio of 7.2 compared to an industry average of 5.1 is likely to indicate that A. the​ firm's products are in inventory for fewer days before they are sold than is average for the industry. B. the firm is managing its inventory inefficiently. C. the firm has higher sales than the industry average. D. the firm is selling a product mix that includes more high margin items.

A

​(Evaluating liquidity​) Aylward Inc. currently has ​$2 comma 145 comma 0002,145,000 in current assets and ​$858 comma 000858,000 in current liabilities. The​ company's managers want to increase the​ firm's inventory, which will be financed by a​ short-term note with the bank. What level of inventories can the firm carry without its current ratio falling below 2.02.0​? The cost of the additional inventory financed with the​ short-term note is

429000

All of the following statements about balance sheets are true EXCEPT A. balance sheets show average asset balances over a one−year period. B.Assets minus− Liabilities​ = Shareholders' Equity. C.a balance sheet reports a​ company's financial position at a specific point in time. D. assets are reported at historical cost

A

All of the following will improve a​ firm's liquidity position EXCEPT A. increase the average collection period. B. increase inventory turnover. C. increase longminus−term debt and invest the money in marketable securities. D. increase accounts receivable turnover.

A

Assume that you went to Las Vegas and hit the jackpot for​ $5 million. Further assume that you were offered a choice to receive the​ $5 million​ today, or receive it in two years. According to one of the principles of​ finance, which would you​ take? A. the​ $5 million today because it would be worth more than if you would receive it in two years B. You would be indifferent as to when you would receive the​ $5 million. C. the​ $5 million in two years because it would be worth more than if you would receive it today D. the​ $5 million in two years because you would be afraid of spending it all right away

A

Beginning with an investment in one​ company's securities, as we add securities of other companies to our​ portfolio, which type of risk​ declines? A. unsystematic risk B. systematic risk C. nonminus−diversifiable risk D. market risk

A

Capital budgeting is concerned with A. what longminus−term investments a firm should undertake. B. planning sales of a​ corporation's equity capital. C. whether a​ company's assets should be financed with debt or equity. D. managing a​ firm's cash budgeting procedures.

A

Cash and credit management are typically the responsibility of the A. treasurer. B. controller. C. vice president of production and operations. D. chief executive​ officer, or CEO.

A

Determining the best way to raise money to fund a​ firm's longminus−term investments is called A. the capital structure decision. B. the capital budgeting decision. C. the portfolio decision. D. the money flow processing decision.

A

Joe, a riskminus−averse ​investor, is trying to choose between investment A and investment B. If investment A is riskier than investment B and Joe selects investment A​ anyway, then A. the expected return for investment A will be higher than the expected return for investment B. B. the expected return for investment A will be higher than the actual return for investment B. C. the actual return for investment A will be higher than the actual return for investment B. D. the actual return for investment A will be higher than the expected return for investment B.

A

What financial statement explains the changes that took place in the​ firm's cash balance over a​ period? A.statement of cash flow B. income statement C. reconciliation of free cash flow D. balance sheet

A

What is diversifying among different kinds of assets known​ as? A. asset allocation B. portfolio funding C. capital asset classification D. multiminus−diversification

A

Which of the following accounts does NOT belong on the asset side of a balance​ sheet? A. accruals .B. accumulated depreciation C. cash D. accounts receivable

A

As the required rate of return of an investment​ decreases, the market price of the investment decreases. True False

False

An income statement may be represented as​ follows: A.Sales− Expenses​ = Retained Earnings. B. Sales − Expenses​ = Profits. C. Sales − Liabilities​ = Profits. D. Revenues − Liabilities​ = Net Income

B

An investor is considering two equally risky investments. Investment A is expected to return​ $1,000 per year for the next 5 years. Investment B is expected to return​ $6,000 at the end of 5 years. Which of the following statements is MOST correct if both investments A and B have the same​ cost? A. A risk averse investor will select investment B because it is expected to provide the most cash​ ($6,000 >​ $5,000). B. The investor may select investment A or investment B depending on the opportunity cost of money. C. A risk averse investor will select investment A because it provides cash earlier than investment B. D. The investor will select investment A only if the cost is less than​ $1,000.

B

A​ stock's beta is a measure of its A. diversifiable risk. B. systematic risk. C. unsystematic risk. D. company−unique risk.

B

Baker Corp. is required by a debt agreement to maintain a current ratio of at least​ 2.5, and​ Baker's current ratio now is 3. Baker wants to purchase additional inventory for its upcoming Christmas​ season, and will pay for the inventory with shortminus−term debt. How much inventory can Baker purchase without violating its debt agreement if their total current assets equal​ $15 million? A. ​$6.00 million B. ​$1.67 million C. ​$4.50 million D. ​$0.50 million

B

Commonminus−sized income statements A. compare companies with the same level of total sales. B. assist in the comparison of companies of different sizes. C. compare companies with the same level of net income. D. show each income statement account as a percentage of total assets.

B

Company A has a higher days sales outstanding ratio than Company B.​ Therefore, A. Company A has a higher percentage of cash to credit sales than Company B. B. other things being​ equal, Company B has a cash flow advantage over Company A. C. Company A must be collecting its accounts receivable faster than Company​ B, on average. D. Company A sells more on credit than Company B.

B

Examples of uses of cash include A.selling machinery. B.paying cash dividends to stockholders. C.borrowing an additional amount using a secured loan. D.all of the above

B

Portfolio risk is typically measured by​ ________ while the risk of a single investment is measured by​ ________. A. ​beta; slope of the characteristic line B. ​beta; standard deviation C. standard​ deviation; beta D. security market​ line; standard deviation

B

RBW Corp. has cash of​ $48,000; shortminus−term notes payable of​ $35,000, accounts receivable of​ $100,000; accounts payable of​ $120,000; inventories of​ $200,000; and accruals of​ $90,000. What is​ RBW's current​ ratio? A. 0.64 B. 1.42 C. 1.57 D. 2.71

B

Rogue Industries reported the following items for the current​ year: Sales​ = $3,000,000; Cost of Goods Sold​ = $1,500,000; Depreciation Expense​ = $170,000; Administrative Expenses​ = $150,000; Interest Expense​ = $30,000; Marketing Expenses​ = $80,000; and Taxes​ = $300,000.​ Rogue's gross profit is equal to A.​$770,000. B.​$1,500,000. C.​$1,100,000. D.​$1,070,000.

B

Rogue Industries reported the following items for the current​ year: Sales​ = $3,000,000; Cost of Goods Sold​ = $1,500,000; Depreciation Expense​ = $170,000; Administrative Expenses​ = $150,000; Interest Expense​ = $30,000; Marketing Expenses​ = $80,000; and Taxes​ = $300,000.​ Rogue's net profit margin is equal to A. ​36.67%. B. 25.67%. C. 50.00%. D. 35.67%.

B

Surf and Spray Inc. has a beta equal to 1.8 and a required return of​ 15% based on the CAPM. If the riskminus−free rate of return is​ 4.2%, the expected return on the market portfolio is A. ​13.4%. B. ​10.2%. C. ​21%. D. ​19.2%.

B

The acidminus−test ratio of a firm would be unaffected by which of the​ following? A. Inventories are sold on a shortminus−term credit basis. B. Accounts payable are reduced by obtaining a shortminus−term loan. C. Common stock is sold and the money is invested in marketable securities. D. Inventories are sold for cash.

B

The current ratio of a firm would be increased by which of the​ following? A. Inventories are sold for cash. B. Land held for investment is sold for cash. C. Inventories are sold on a credit basis. D. Equipment is​ purchased, financed by a longminus−term debt issue.

B

Which of the following accounts does NOT belong in the equity section of a balance​ sheet? A. preferred stock B. longminus−term debt C. retained earnings D. paidminus−inminus−surplus

B

Which of the following forms of business organization has the greatest ability to attract new​ capital? A. limited partnership B. corporation C. general partnership D. sole proprietorship

B

Which of the following is the most important goal that a corporation should strive​ for? A. maximize revenue B. maximize shareholder wealth C. maximize current profits D. maximize market share

B

​Bill's Bike Shop has a return on assets of​ 12%. Anton's assets​ = $100 while​ Anton's owner's equity​ = $40 and its debt equals​ $60. What is​ Bill's return on​ equity? A. ​20% B. ​30% C. ​18% D. 12%

B

A corporate treasurer is typically responsible for each of the following duties EXCEPT A. credit management. B. cash management. C. cost accounting. D. capital expenditures.

C

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 A. this​ project's expected profits are higher than any other projects the corporation has available. B. the cost of the project is less than the present value of​ $100,000 per year for 10 years. C.the present value of the​ project's cash inflows exceeds the present value of the​ project's cash outflows. D. the cost of the project is less than​ $1,000,000.

C

A typical measure for the riskminus−free rate of return is the A. shortminus−term AAAminus−rated bond rate. B. moneyminus−market rate. C. U.S. Treasury bill rate. D. prime lending rate.

C

The goal of the firm should be A. maximization of profits​ (net income per​ share). B. maximization of market share. C. maximization of shareholder wealth. D. maximization of sales.

C

The three basic types of issues addressed by the study of finance are A. capital structure​ decisions, working capital​ management, and sustained profitability. B. capital​ budgeting, working capital​ management, and investment analysis. C. capital​ budgeting, capital structure​ decisions, and working capital management. D. capital​ budgeting, investment​ analysis, and cash management.

C

The true owners of the corporation are the A. preferred stockholders. B. holders of debt issues of the firm. C. common stockholders. D. board of directors of the firm.

C

TransSystems Inc. has a total equity of​ $560,000; sales of​ $2,250,000; total assets of​ $995,000; and current liabilities of​ $310,000. What is TransSystems​ Inc.'s debt​ ratio? A. ​31.2% B. 55.4% C. ​43.7% D. 66.7%

C

WPM, Inc. has current assets of​ $8,000,000, current liabilities of​ $4,000,000, inventory of​ $1,320,000, and sales of​ $12,000,000. What is the acid test​ ratio? A. 0.1 B. 0.22 C. 1.67 D. 2.0

C

Wendy purchased 800 shares of Genetics Stock at​ $3 per share on​ 1/1/12. Wendy sold the shares on​ 12/31/12 for​ $3.45. Genetics stock has a beta of​ 1.9, the riskminus−free rate of return is​ 4%, and the market risk premium is​ 9%. Wendy's holding period return is A. ​16.5%. B. 17.6%. C. ​15.0%. D. ​21.1%.

C

When comparing inventory turnover​ ratios, other things being​ equal, A. higher inventory turnover results from old or obsolete inventory increasing the inventory balance on the balance sheet. B. a lower inventory turnover is preferred in order to keep inventory costs low. C. a higher inventory turnover is preferred to improve liquidity. D. higher inventory turnover results from an increase in the selling price of the product.

C

Which of the following accounts does NOT belong on the asset side of a balance​ sheet? A. marketable securities B. cash C. common stock D. accounts receivable

C

Which of the following categories of owners enjoy limited​ liability? A. all partners in a limited partnership B. in a​ partnership, only the general partners C. common shareholders of a corporation D. only B and C above

C

Which of the following forms of business organization limits the liability of​ owners? A. two person partnership B. general partnership C. corporation Your answer is correct.D. sole proprietorship

C

Which of the following statements best represents the​ "Agency Problem"? A. Managers might attempt to benefit themselves in terms of salary and perquisites at the expense of shareholders. B. The agency problem results from the separation of management and the ownership of the firm. C. The agency problem may interfere with the implementation of maximizing shareholder wealth. D. all of the above

D

All of the following contributed to recent financial crises EXCEPT A. Excessive risk taking due to underestimation of risk. B. Focusing on the short run. C. Focusing on earnings instead of cash flow. D. Relying on the efficiency of financial markets.

D

California Retailing Inc. has sales of​ $4,000,000; the​ firm's cost of goods sold is​ $2,500,000; and its total operating expenses are​ $600,000. What is California​ Retailing's EBIT? A. ​$850,000 B. ​$875,000 C. ​$1,300,000 D. ​$900,000

D

Denver Systems has total assets of​ $1,000,000; common equity of​ $400,000; a gross profit of​ $800,000; total operating expenses of​ $620,000; interest expense of​ $20,000; income taxes of​ $74,000; and preferred dividends of​ $30,000. What is Denver​ Systems' return on​ equity? A. ​7.5% B. ​21.5% C. 20.0% D. ​14.0%

D

In terms of the costs to organize​ each, which of the following sequences is​ correct, moving from highest to lowest​ cost? A. sole​ proprietorship, general​ partnership, limited​ partnership, corporation B. general​ partnership, sole​ proprietorship, limited​ partnership, corporation C. sole​ proprietorship, general​ partnership, corporation, limited partnership D. corporation, limited​ partnership, general​ partnership, sole proprietorship

D

Jones, Inc. has a current ratio equal to 1.40. Which of the following transactions will increase the​ company's current​ ratio? A. The company pays back​ $50,000 of its longminus−term debt. B. The company sells​ $1 million of inventory on credit. C. The company collects​ $500,000 of its accounts receivable. D. The company writes a​ $30,000 check to pay off some existing accounts payable.

D

SNL has sales of​ $2,250,000; a gross profit of​ $825,000; total operating costs of​ $620,000; income taxes of​ $74,800; total assets of​ $995,000; and interest expense of​ $18,000. What is​ SNL's timesminus−interestminus−earned ​ratio? A. 8.1 B. 1.3 C. 45.8 D. 11.4

D

Stock A has a beta of 1.2 and a standard deviation of returns of​ 14%. Stock B has a beta of 1.8 and a standard deviation of returns of​ 18%. If the riskminus−free rate of return increases and the market risk premium remains​ constant, then A. the required returns on stocks A and B will not change. B. the required return on stock A will increase more than the required return on stock B. C. the required return on stock B will increase more than the required return on stock A. D. the required returns on stocks A and B will both increase by the same amount.

D

The financial manager most directly responsible for producing the​ company's financial statements and directing its cost accounting functions is the A. treasurer. B. vice presidentminus−financier. C. chief financial officer. D. controller.

D

The​ "perfect storm" of factors that contributed to the economic crisis of 2007 include A. agency​ costs, inefficient​ markets, and perfect capital markets. B. increases in the minimum wage​ rate, unchecked illegal​ immigration, and state government deficits. C. financial​ deregulation, unchecked commodity​ prices, floating currency exchange rates. D. poorly chosen mortgage​ loans, falling housing​ prices, and a contracting economy.

D

Universal​ Financial, Inc. has total current assets of​ $1,200,000; longminus−term debt of​ $600,000; total current liabilities of​ $500,000; and longminus−term assets of​ $800,000. How much is the​ firm's net working​ capital? A. ​$600,000 B.​$900,000 C.​$1,000,000 D.​$700,000

D

Which of the following are characteristics of a limited​ partnership? A. Limited partners may not participate in the management of the limited partnership. B. General partners have unlimited liability. C. There must be one or more general partners. D. all of the above

D

Which of the following is true if a firm wishes to collect its accounts faster by imposing stricter credit terms on its​ customers? A. The​ firm's sales might decrease. B. The​ firm's average collection period is likely to fall. C. The​ firm's accounts receivable turnover might rise. D. all of the above

D

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? A. balance sheet B. sources and uses of funds statement C. statement of cash flows D. income statement

D

A rational investor will always prefer an investment with a lower standard deviation of​ returns, because such investments are less risky. True False

False

An investor with a required return of​ 8% for stock A will purchase stock A if the expected return for stock A is less than or equal to​ 8%. True False

False

Another name for an​ asset's expected rate of return is holdingminus−period return. True False

False

A balance sheet is a statement of the financial position of the firm on a given​ date, including its asset​ holdings, liabilities, and equity. True False

True

A high debt ratio can be favorable because higher leverage may result in a higher return on equity. True False

True