Financial Management Test 1

Which one of the following is defined as a firm's short-term assets and its short-term liabilities? A. working capital B. debt C. investment capital D. net capital E. capital structure

A

Which one of the following is the financial statement that summarizes a firm's revenue and expenses over a period of time? A. income statement B. balance sheet C. statement of cash flows D. tax reconciliation statement E. market value report

A

Which of the following questions are addressed by financial managers? I. How should a product be marketed? II. Should customers be given 30 or 45 days to pay for their credit purchases? III. Should the firm borrow more money? IV. Should the firm acquire new equipment?

II, III, & IV

A business created as a distinct legal entity and treated as a legal "person" is called a: A. corporation. B. sole proprietorship. C. general partnership. D. limited partnership. E. unlimited liability company.

A

Which one of the following is the financial statement that shows the accounting value of a firm's equity as of a particular date? A. income statement B. creditor's statement C. balance sheet D. statement of cash flows E. dividend statement

C

A general partner: A. is personally responsible for all the partnership debts. B. has no say over a firm's daily operations. C. faces double taxation whereas a limited partner does not. D. has a maximum loss equal to his or her equity investment. E. receives a salary in lieu of a portion of the profits.

A

The higher the degree of financial leverage employed by a firm, the: A. higher the probability that the firm will encounter financial distress. B. lower the amount of debt incurred. C. less debt a firm has per dollar of total assets. D. higher the number of outstanding shares of stock. E. lower the balance in accounts payable.

A

The most acceptable method of evaluating the financial statements of a firm is to compare the firm's current: A. financial ratios to the firm's historical ratios. B. financial statements to the financial statements of similar firms operating in other countries. C. financial ratios to the average ratios of all firms located within the same geographic area. D. financial statements to those of larger firms in unrelated industries. E. financial statements to the projections that were created based on Tobin's Q.

A

Which of the following are included in current liabilities? I. note payable to a supplier in eight months II. amount due from a customer next month III. account payable to a supplier that is due next week IV. loan payable to the bank in fourteen months A. I and III only B. II and III only C. I, II, and III only D. I, III, and IV only E. I, II, III, and IV

A

A business owned by a solitary individual who has unlimited liability for its debt is called a: A. corporation. B. sole proprietorship. C. general partnership. D. limited partnership. E. limited liability company.

B

An increase in which of the following will increase the return on equity, all else constant? I. sales II. net income III. depreciation IV. total equity A. I only B. I and II only C. II and IV only D. II and III only E. I, II, and III only

B

The book value of a firm is: A. equivalent to the firm's market value provided that the firm has some fixed assets. B. based on historical cost. C. generally greater than the market value when fixed assets are included. D. more of a financial than an accounting valuation. E. adjusted to the market value whenever the market value exceeds the stated book value.

B

The price-sales ratio is especially useful when analyzing firms that have which one of the following? A. volatile market prices B. negative earnings C. positive PEG ratios D. a negative Tobin's Q E. increasing sales

B

Which of the following are current assets? I. patent II. inventory III. accounts payable IV. cash A. I and III only B. II and IV only C. I, II, and IV only D. I, II and IV only E. II, III, and IV only

B

Which of the following individuals have unlimited liability based on their ownership interest? I. general partner II. sole proprietor III. stockholder IV. limited partner A. II only B. I and II only C. II and IV only D. I, II, and III only E. I, II, and IV only

B

The common set of standards and procedures by which audited financial statements are prepared is known as the: A. matching principle. B. cash flow identity. C. Generally Accepted Accounting Principles. D. Financial Accounting Reporting Principles. E. Standard Accounting Value Guidelines.

C

Which one of the following accurately describes the three parts of the Du Pont identity? A. operating efficiency, equity multiplier, and profitability ratio B. financial leverage, operating efficiency, and profitability ratio C. equity multiplier, profit margin, and total asset turnover D. debt-equity ratio, capital intensity ratio, and profit margin E. return on assets, profit margin, and equity multiplier

C

Which one of the following statements concerning a sole proprietorship is correct? A. A sole proprietorship is designed to protect the personal assets of the owner. B. The profits of a sole proprietorship are subject to double taxation. C. The owner of a sole proprietorship is personally responsible for all of the company's debts. D. There are very few sole proprietorships remaining in the U.S. today. E. A sole proprietorship is structured the same as a limited liability company.

C

Which one of the following terms is defined as a conflict of interest between the corporate shareholders and the corporate managers? A. articles of incorporation B. corporate breakdown C. agency problem D. by laws E. legal liability

C

Why should financial managers strive to maximize the current value per share of the existing stock? A. doing so guarantees the company will grow in size at the maximum possible rate B. doing so increases employee salaries C. because they have been hired to represent the interests of the current shareholders D. because this will increase the current dividends per share E. because managers often receive shares of stock as part of their compensation

C

Which of the following accounts are included in working capital management? I. accounts payable II. accounts receivable III. fixed assets IV. inventory A. I and II only B. I and III only C. II and IV only D. I, II, and IV only E. II, III, and IV only

D

A stakeholder is: A. a person who owns shares of stock. B. any person who has voting rights based on stock ownership of a corporation. C. a person who initially founded a firm and currently has management control over that firm. D. a creditor to whom a firm currently owes money. correct E. any person or entity other than a stockholder or creditor who potentially has a claim on the cash flows of a firm.

E

Net working capital is defined as: A. total liabilities minus shareholders' equity. B. current liabilities minus shareholders' equity. C. fixed assets minus long-term liabilities. D. total assets minus total liabilities. E. current assets minus current liabilities.

E

Shareholders probably have the most interest in which one of the following sets of ratios? A. return on assets and profit margin B. long-term debt and times interest earned C. price-earnings and debt-equity D. market-to-book and times interest earned E. return on equity and price-earnings

E

Which of the following help convince managers to work in the best interest of the stockholders? Assume there are no golden parachutes. I. compensation based on the value of the stock II. stock option plans III. threat of a company takeover IV. threat of a proxy fight A. I and II only B. III and IV only C. I, II, and III only D. I, III, and IV only E. I, II, III, and IV

E

Which one of the following will increase the value of a firm's net working capital? A. using cash to pay a supplier B. depreciating an asset C. collecting an accounts receivable D. purchasing inventory on credit E. selling inventory at a profit

E

Which one of the following terms is defined as the mixture of a firm's debt and equity financing? A. working capital management B. cash management C. cost analysis D. capital budgeting E. capital structure

E.

The Du Pont identity can be used to help managers answer which of the following questions related to a firm's operations? I. How many sales dollars has the firm generated per each dollar of assets? II. How many dollars of assets has a firm acquired per each dollar in shareholders' equity? III. How much net profit is a firm generating per dollar of sales? IV. Does the firm have the ability to meet its debt obligations in a timely manner? A. I and III only B. II and IV only C. I, II, and III only D. II, III and IV only E. I, II, III, and IV

C

Noncash items refer to: A. accrued expenses. B. inventory items purchased using credit. C. the ownership of intangible assets such as patents. D. expenses which do not directly affect cash flows. E. sales which are made using store credit.

D

Which one of the following best states the primary goal of financial management? A. maximize current dividends per share B. maximize the current value per share C. increase cash flow and avoid financial distress D. minimize operational costs while maximizing firm efficiency E. maintain steady growth while increasing current profits

B

Which one of the following costs is most apt to be a fixed cost? A. production labor cost B. depreciation C. raw materials D. utilities E. sales commissions

B

Which one of the following is a capital budgeting decision? A. determining how many shares of stock to issue B. deciding whether or not to purchase a new machine for the production line C. deciding how to refinance a debt issue that is maturing D. determining how much inventory to keep on hand E. determining how much money should be kept in the checking account

B

Which one of the following is a working capital management decision? A. determining the amount of equipment needed to complete a job B. determining whether to pay cash for a purchase or use the credit offered by the supplier C. determining the amount of long-term debt required to complete a project D. determining the number of shares of stock to issue to fund an acquisition E. determining whether or not a project should be accepted

B

Which one of the following is included in a firm's market value but yet is excluded from the firm's accounting value? A. real estate investment B. good reputation of the company C. equipment owned by the firm D. money due from a customer E. an item held by the firm for future sale

B

A business formed by two or more individuals who each have unlimited liability for all of the firm's business debts is called a: A. corporation. B. sole proprietorship. C. general partnership. D. limited partnership. E. limited liability company.

C

A business partner whose potential financial loss in the partnership will not exceed his or her investment in that partnership is called a: A. generally partner. B. sole proprietor. C. limited partner D. corporate shareholder. E. zero partner.

C

Which one of the following accounts is the most liquid? A. inventory B. building C. accounts receivable D. equipment E. land

C

Which one of the following is a capital structure decision? A. determining which one of two projects to accept B. determining how to allocate investment funds to multiple projects C. determining the amount of funds needed to finance customer purchases of a new product D. determining how much debt should be assumed to fund a project E. determining how much inventory will be needed to support a project

D

Which one of the following is classified as an intangible fixed asset? A. accounts receivable B. production equipment C. building D. trademark E. inventory

D

Which one of the following terms is defined as the management of a firm's long-term investments? A. working capital management B. financial allocation C. agency cost analysis D. capital budgeting E. capital structure

D

Which one of these is most apt to be a fixed cost? A. raw materials B. manufacturing wages C. management bonuses D. office salaries E. shipping and freight

D