FINC311: Exam 1 - Connect Multiple choice

Jamie earned $14 in interest on her savings account last year. She has decided to leave the $14 in her account so that she can earn interest on the $14 this year. The interest earned on last year's interest earnings is called: A. interest on interest. B. complex interest. C. simple interest. D. discounted interest.

A. interest on interest.

The equity multiplier is equal to: A. one plus the debt-equity ratio. B. one plus the total asset turnover. C. total debt divided by total equity. D. total equity divided by total assets.

A. one plus the debt-equity ratio.

Net working capital increases when: A. Fixed assets are purchased for cash. B. Inventory is purchased on credit. C. Inventory is sold at cost. D. A credit customer pays for his or her purchase. E. Inventory is sold at a profit.

E. Inventory is sold at a profit.

Current Assets include which of the following: Inventory Equipment Cash Accounts Payable Accounts receivable

Inventory Cash Accounts receivable

A Common-sized balance sheet is the percentage of:

Total Assets

Net working capital includes: A. A land purchase B. An invoice from a supplier. C. Non-cash expenses. D. Fixed asset depreciation. E. The balance due on a 15-year mortgage.

B. An invoice from a supplier.

The Wood Shop generates $.97 in sales for every $1 invested in total assets. Which one of the following ratios would reflect this relationship? A. Return on assets B. Total asset turnover C. Equity multiplier D. Profit Margin

B. Total asset turnover

All else held constant, the book value of owners' equity will decrease when: A. the market value of inventory increases. B. dividends exceed net income for a period. C. cash is used to pay an accounts payable. D. a long-term debt is repaid.

B. dividends exceed net income for a period.

A negative cash flow to stockholders indicates a firm: A. paid dividends that exceeded the amount of the net new equity. B. received more from selling stock than it paid out to shareholders. C. repurchased more shares than it sold. D. had a positive cash flow to creditors.

B. received more from selling stock than it paid out to shareholders.

Shareholders' equity is best defined as: A. positive net working capital. B. the residual value of a firm. C. the net liquidity of a firm. D. cash inflows minus cash outflows.

B. the residual value of a firm

Builder's Outlet just hired a new chief financial officer. To get a feel for the company, she wants to compare the firm's sales and costs over the past three years to determine if any trends are present and also determine where the firm might need to make changes. Which one of the following statements will best suit her purposes? A. Income statement B. Balance sheet C. Common-size income statement D. Common-size balance sheet

C. Common-size income statement

Tressler Industries opted to repurchase 5,000 shares of stock last year in lieu of paying a dividend. The cash flow statement for last year must have which one of the following assuming that no new shares were issued? A. Positive operating cash flow B. Negative cash flow from assets C. Positive cash flow to stockholders D. Negative operating cash flow

C. Positive cash flow to stockholders

Over the past year, a firm decreased its current assets and increased its current liabilities. As a result, the firm's net working capital: A. remained constant. B. had to increase. C. had to decrease. D. could have either increased, decreased, or remained constant.

C. had to decrease.

A common-size balance sheet helps financial managers determine: A.which customers are paying on a timely basis. B. if costs are increasing faster or slower than sales. C. if changes are occurring in a firm's mix of assets. D. if a firm is generating more or less sales per dollar of assets than in prior years.

C. if changes are occurring in a firm's mix of assets.

A negative cash flow to stockholders indicates a firm: A. had a net loss for the year. B. had a positive cash flow to creditors. C. received more from selling stock than it paid out to shareholders. D. repurchased more shares than it sold.

C. received more from selling stock than it paid out to shareholders.

The matching principle states that: A. costs should be recorded on the income statement whenever those costs can be reliably determined. B. costs should be recorded when paid. C. the costs of producing an item should be recorded when the sale of that item is recorded as revenue. D.sales should be recorded when the payment for that sale is received.

C. the costs of producing an item should be recorded when the sale of that item is recorded as revenue.

During the past year, Yard Services paid $36,800 in interest along with $2,000 in dividends. The company issued $3,000 of stock and $16,000 of new debt. The company reduced the balance due on its old debt by $18,400. What is the amount of the cash flow to creditors?

Cash flow to creditors = $36,800 − 16,000 + 18,400 = $39,200

Which one of the following will increase the profit margin of a firm, all else held constant? A. Increase in interest paid B. Increase in fixed costs C. Increase in depreciation expense D. Decrease in the tax rate

D. Decrease in the tax rate

All else held constant, which one of the following will decrease if a firm increases its net income? A. Return on assets B. Profit margin C. Return on equity D. Price-earnings ratio

D. Price-earnings ratio

Net working capital decreases when: A. a new 3-year loan is obtained with the proceeds used to purchase inventory. B. a credit customer pays his or her bill in full. C. depreciation increases. D. a dividend is paid to current shareholders.

D. a dividend is paid to current shareholders.

If a firm has an inventory turnover of 15, the firm: A. sells its entire inventory every 15 days. B. stocks its inventory only once every 15 days. C. delivers inventory to its customers every 15 days. D. sells its entire inventory an average of 15 times each year.

D. sells its entire inventory an average of 15 times each year.

Leon is the owner of a corner store. Which ratio should he compute if he wants to know how long the store can pay its bills given its current level of cash and accounts receivable? Assume all receivables are collectible when due.

Quick ratio **Your minusing inventory so you dont need it

A Common-sized Income Statement is percentage of:

Sales