MGMT 310 Exam 1 Review (Ch. 1-4)

$50,159

A firm has a debt-equity ratio of .62, a total asset turnover of 1.24, and a net profit margin of 5.1 percent. The total equity is $489,600. What is the amount of the net income? A. $28,079 B. $19,197 C. $50,159 D. $40,451 E. $52,418

29.23%

A firm has a debt-total asset ratio of 61 percent and a return on total assets of 11.4 percent. What is the return on equity? A. 26.27% B. 29.23% C. 18.48% D. 10.95% E. 13.50%

Net Working Capital

A firm's ______ is the firm's mix of short-term assets and short-term liabilities.

is taxed similarly to a partnership.

A limited liability company: 1. can only have a single owner. 2. is comprised of limited partners only. 3. is taxed similarly to a partnership. 4. is taxed similarly to a C corporation. 5. generates totally tax-free income.

Limited

A partner in a firm knows that the maximum financial loss he or she will experience is the amount he or she invested in the firm. The partner is called a ______ partner. 1. general 2. sole 3. limited 4. corporate 5. zero

Limited partnership

Abigail, Blake and Camila plan to launch a business. Abigail will fund the venture but wants to limit her liability to her initial investment. She has no interest in the daily operations. Blake will contribute his full efforts on a daily basis but has limited funds to invest in the business. Camila will be involved as a consultant and manager and will also contribute funds. Blake and Camila are willing to accept liability for the firm's debts as they feel they have nothing to lose by doing so. All three individuals will share in the firm's profits and wish to minimize the initial costs of organizing the business. Which form of business entity should these individuals adopt? 1. Sole proprietorship 2. Joint stock company 3. Limited partnership 4. General partnership 5. Corporation

decrease; operating

According to the statement of cash flows, an increase in interest expense will ______ the cash flow from ______ activities. 1. decrease; operating 2. decrease; financing 3. increase; operating 4. increase; financing 5. Increase; investment

having the same fiscal year

All of the following issues represent problems encountered when comparing the financial statements of two separate entities except the issue of the companies: 1. being conglomerates with unrelated lines of business. 2. having geographically varying operations. 3. using differing accounting methods. 4. differing seasonal peaks. 5. having the same fiscal year.

$28,879.50

An equity owner of McKissick and Khan Consulting, LLC earned $145,000 in taxable income from the firm. Based on the tax table below, how much will the owner owe in income taxes? Ignore any standard or itemized deductions. Taxable Income (Tax Rate) 0 − 9,875 (10%) 9,875 − 40,125 (12%) 40,125 − 85,525 (22%) 85,525 − 163,300 (24%) 1. $14,274.00 2. $34,800.00 3. $28,879.50 4. $22,800.50 5. $30,450.00

2.12

Anytime Coffee has 160,000 shares of stock outstanding, sales of $1.94 million, net income of $126,400, a price-earnings ratio of 21.3, and a book value per share of $7.92. What is the market-to-book ratio? A.) 2.12 B.) 1.84 C.) 1.39 D.) 2.45 E.) 2.69

$33,763

Barnett Saddlery had beginning net fixed assets of $218,470 and ending net fixed assets of $209,411. During the year, assets with a book value of $6,943 were sold. Depreciation for the year was $42,822. What is the amount of net capital spending? 1. $33,763 2. $40,706 3. $58,218 4. $65,161 5. $67,408

$8,013.29

Barre Dance has sales of $30,600, costs of $15,350, addition to retained earnings of $4,221, dividends paid of $469, interest expense of $1,300, and a tax rate of 21 percent. What is the amount of the depreciation expense? 1. $4,820.13 2. $5,500.89 3. $8,013.29 4. $8,180.01 5. $9,500.00

11.26%

Brusewitz Drilling has annual sales of $96,700, a net profit margin of 7.45 percent, and a payout ratio of 40 percent. The firm has $11,500 of debt and owners' equity of $31,200. What is the internal growth rate for this firm assuming the payout ratio remains constant? A. 9.70% B. 13.87% C. 7.31% D. 7.49% E. 11.26%

$438,786

Callender Bikes has sales of $705,000, costs of $156,000, depreciation expense of $22,200, interest expense of $1,970, and an average tax rate of 21 percent. How much operating cash flow did the firm generate? 1. $433,104 2. $438,786 3. $411,337 4. $431,567 5. $428,653

free cash flow

Cash flow from assets is also known as the firm's: 1. capital structure. 2. equity structure. 3. hidden cash flow. 4. free cash flow. 5. historical cash flow.

Rent

Which one of the following is most likely to be a fixed cost? 1. Raw materials 2. Rent 3. Management bonuses 4. Manufacturing wages 5. Shipping and freight

dividend payments less net new equity raised

Cash flow to stockholders is defined as: 1. the total amount of interest and dividends paid during the past year. 2. the change in total equity over the past year. 3. cash flow from assets plus the cash flow to creditors. 4. operating cash flow minus the cash flow to creditors. 5. dividend payments less net new equity raised.

24.57 days

Castaneda Accounting has sales of $332,700, cost of goods sold of $221,800, inventory $13,700, accounts receivable of $22,400, and accounts payable of $11,900. How many days of sales are in receivables? A. 14.85 days B. 19.58 days C. 24.57 days D. 48.53 days E. 22.55 days

$46,319

Coria Monroy is currently operating at only 86 percent of fixed asset capacity. Fixed assets are $387,000. Current sales are $510,000 and are projected to grow to $664,000. What amount must be spent on new fixed assets to support this growth in sales? A. $0 B. $22,654 C. $46,319 D. $79,408 E. $93,608

36.95 days

Corner Supply has a current accounts receivable balance of $246,000. Credit sales for the year just ended were $2,430,000. How many days, on average, did it take for credit customers to pay off their accounts during this past year? A. 44.29 days B. 55.01 days C. 55.50 days D. 36.95 days E. 41.00 days

Determine how a corporation regulates itself.

Corporate bylaws: 1. must be amended should a firm decide to increase the number of shares authorized. 2. cannot be amended once adopted. 3. define the name by which the firm will operate. 4. describe the intended life and purpose of the organization. 5. determine how a corporation regulates itself.

0.85

Curtis and Company currently has annual sales of $52,600, net fixed assets of $38,900, and total assets of $56,300. The firm is currently operating at 79 percent of capacity. What is the capital intensity ratio at full capacity? A.) 1.18 B.) 1.10 C.) 0.96 D.) 0.91 E.) 0.85

utilizing its total assets more efficiently

Dominic's Custom Draperies has a fixed asset turnover rate of 1.13 and a total asset turnover rate of .94. Its competitor, Window Fashions, has a fixed asset turnover rate of 1.26 and a total asset turnover rate of .91. Both companies have similar operations. Based on this information, Dominic's must be _____ than Window Fashions. 1. utilizing its fixed assets more efficiently 2. utilizing its total assets more efficiently 3. generating net profit more efficiently 4. generating net profit less efficiently 5. utilizing greater financial leverage

occurred in the secondary market.

Eduardo sold 500 shares of Northcutt Corporation stock on the New York Stock Exchange. This transaction: 1. took place in the primary market. 2. occurred in a dealer market. 3. occurred in the secondary market. 4. involved a proxy. 5. was a private placement.

$4,088

Fang Packaging is an all-equity company with sales of $21,600, costs of $14,780, depreciation of $2,000, and taxes of $1,012. The dividend payout ratio is 12 percent. Sales are expected to increase by 22 percent next year. What is the pro forma addition to retained earnings assuming all costs vary proportionately with sales? A. $4,899 B. $3,745 C. $3,892 D. $4,011 E. $4,088

best represent the interests of the current owners of the firm.

Financial managers should strive to maximize the current value per share of the existing stock to: 1. ensure the company will grow in size at the maximum possible rate. 2. provide the greatest opportunity for employees to earn high salaries. 3. best represent the interests of the current owners of the firm. 4. increase the current dividends per share. 5. create the possibility of rewarding high-performing managers with shares of stock.

considers multiple options and scenarios

Financial planning: 1. focuses solely on the short-term outlook for a firm. 2. is a process that firms employ only when major changes to a firm's operations are anticipated. 3. is a process that firms undergo once every five years. 4. considers multiple options and scenarios. 5. provides minimal benefits for firms that are highly responsive to economic changes.

34.22%

Floral Fantasia has annual sales of $61,888, depreciation of $8,100, interest paid of $970, cost of goods sold of $29,400, taxes of $4,918, and dividends paid of $4,810. The firm has total assets of $105,300 and total debt of $51,600. The firm does not want any additional external equity financing and also wants to maintain a constant debt-equity ratio. What rate of growth can this firm maintain? A. 27.16% B. 12.27% C. 34.22% D. 13.27% E. 23.82%

$158,704

For the past year, Zhao Events had taxable income of $198,600, beginning common stock of $68,000, beginning retained earnings of $318,750, ending common stock of $71,500, ending retained earnings of $316,940, interest expense of $11,300, and a tax rate of 21 percent. What is the amount of dividends paid during the year? 1. $157,280 2. $159,935 3. $163,200 4. $153,555 5. $158,704

−$596

Foytlin Accessories has sales of $19,700, net income of $3,517, fixed assets of $18,282, current liabilities of $2,940, current assets of $3,018, long-term debt of $7,600, and equity of $10,760. Assets, costs, and current liabilities are proportional to sales. Long-term debt and equity are not. The company maintains a constant 50 percent dividend payout ratio. Next year's sales are projected to increase by 7 percent. What is the amount of external financing needed if the firm is currently operating at full capacity? A. −$596 B. −$141 C. $583 D. $912 E. −$482

22.20 days

Hello Robin! has accounts receivable of $4,511, inventory of $1,810, sales of $138,609, and cost of goods sold of $64,003. How many days does it take the firm to sell its inventory and collect the payment on the sale assuming that all sales are on credit? A. 11.88 days B. 22.20 days C. 16.23 days D. 14.50 days E. 18.67 days

3.84%

Hideaway Hotels has a net profit margin of 5.6 percent, a total asset turnover of 1.76, a total debt ratio of .2, and a dividend payout ratio of .7. What is the sustainable growth rate? A. 4.68% B. 3.84% C. 2.12% D. 3.49% E. 4.41%

$959

Kasturi Safe & Lock generated net income of $911, depreciation expense was $47, and dividends paid were $25. Accounts payables increased by $15, accounts receivables increased by $28, inventory decreased by $14, and net fixed assets decreased by $8. There was no interest expense. What was the net cash flow from operating activity? 1. $776 2. $865 3. $959 4. $922 5. $985

Their maximum loss cannot exceed the amount of their capital investment.

Limited partners benefit from which of the primary advantages? 1. They have the opportunity to earn tax-free income. 2. Their responsibility for the firm's debts is prorated based on their percentage of ownership. 3. They do not face any potential financial losses. 4. They have control over the administrative affairs of the partnership. 5. Their maximum loss cannot exceed the amount of their capital investment.

15.26%

Mashburn Roasters has sales of $807,200, total assets of $768,100, and a net profit margin of 6.68 percent. The firm has a total debt ratio of 54 percent. What is the return on equity? A. 13.09% B. 12.04% C. 11.03% D. 8.56% E. 15.26%

$447,325

Matsumoto Training has sales of $705,000, depreciation of $17,600, interest expense of $2,090, costs of $144,000, and a tax rate of 21 percent. What is the operating cash flow for the year? 1. $436,018 2. $418,899 3. $447,325 4. $434,409 5. $432,451

15.79%

McCarty's has annual sales of $40,934, depreciation of $3,100, interest paid of $750, cost of goods sold of $22,400, taxes of $3,084, and dividends paid of $4,060. The firm has total assets of $55,300 and total debt of $32,600. The firm wants to maintain a constant payout ratio but does not want to incur any additional external financing. What is the firm's maximum rate of growth? A. 15.79% B. 16.18% C. 11.49% D. 9.03% E. 13.97%

$1.20

Navarrete Incorporated has net income of $62,300, a tax rate of 21 percent, and a net profit margin of 6.7 percent. Total assets are $1,100,500 and current assets are $328,200. How many dollars of sales are being generated from every dollar of net fixed assets? A. $2.83 B. $1.37 C. $.84 D. $1.20 E. $1.23

is equal to zero if the decrease in the net fixed assets is equal to the depreciation expense

Net capital spending: 1. is equal to ending net fixed assets minus beginning net fixed assets. 2. is equal to zero if the decrease in the net fixed assets is equal to the depreciation expense. 3. reflects the net changes in total assets over a stated period of time. 4. is equivalent to the cash flow from assets minus the operating cash flow minus the change in net working capital. 5. is equal to the net change in the current accounts.

20.63 times

Powell's has net income for the most recent year of $24,650 and a combined federal and state tax rate of 24 percent. The firm paid $1,800 in total interest expense and deducted $2,900 in depreciation expense. What was the cash coverage ratio for the year? A. 20.48 times B. 11.48 times C. 19.39 times D. 20.63 times E. 13.69 times

47.52 days

Roessler Fine Dining has total assets of $310,100 and net fixed assets of $168,500. The average daily operating costs are $2,980. What is the value of the interval measure? A. 31.47 days B. 47.52 days C. 56.22 days D. 68.05 days E. 104.62 days

21.29%

Ruiz Events has net income of $3,450 and total equity of $8,600. The debt-equity ratio is .60 and the payout ratio is 30 percent. What is the internal growth rate? A. 14.47% B. 17.78% C. 21.29% D. 29.40% E. 33.33%

$300

Ryu and Fowler Attorneys has total assets of $4,900, fixed assets of $3,200, long-term debt of $2,900, and short-term debt of $1,400. What is the amount of net working capital? 1. −$100 2. $300 3. $600 4. $1,700 5. $1,800

$8,017.43

Stone Walls has a long-term debt ratio of .6 and a current ratio of 1.2. Current liabilities are $800, sales are $7,800, the net profit margin is 6.5 percent, and return on equity is 15.5 percent. What is the amount of the firm's net fixed assets? 1. $8,880.15 2. $8,017.43 3. $7,666.67 4. $5,848.15 5. $8,977.43

$5,676

Sweets by Lakshmi has sales of $56,000, net income of $3,360, retained earnings of $2,800, and a retention ratio of 80 percent. Assume the net profit margin and the payout ratio are constant and sales increase by 7 percent. What is the pro forma retained earnings? A. $2,240 B. $2,688 C. $2,876 D. $5,676 E. $5,488

Secondary, auction market

Symone sold shares of Naraghi Corporation stock to Aleena. The stock is listed on the NYSE. This trade occurred in which one of the following? 1. Primary, dealer market 2. Secondary, dealer market 3. Primary, auction market 4. Secondary, auction market 5. Secondary, OTC market

$253,649

Thakur Industries has sales of $465,000, interest paid of $2,450, costs of 150,000, and depreciation of $20,400. What is the operating cash flow if the tax rate is 21 percent? 1. $217,242 2. $227,406 3. $245,356 4. $247,806 5. $253,649

management greed and abuses

The Sarbanes-Oxley Act of 2002 is a governmental response to: 1. decreasing corporate profits. 2. the terrorist attacks on 9/11/2001. 3. the harm caused to stock markets by SARS, MERS, COVID-19, and other pandemics. 4. deregulation of the stock exchanges. 5. management greed and abuses.

$2,056,250

The Tumbler has current liabilities of $350,000, a quick ratio of 1.65, inventory turnover of 4.7, and a current ratio of 2.9. What is the cost of goods sold? A.$1,980,500 B.$1,760,750 C. $1,950,000 D. $2,056,250 E. $1,560,000

describe the purpose of the firm and set forth the number of shares of stock that can be issued

The articles of incorporation: 1. describe the purpose of the firm and set forth the number of shares of stock that can be issued. 2. are amended periodically especially prior to corporate elections. 3. explain how corporate directors are to be elected and the length of their terms. 4. set forth the procedures by which a firm regulates itself. 5. include only the corporation's name and intended life.

based on historical transactions

The book value of a firm is: 1. equivalent to the firm's market value minus its liabilities. 2. a financial, rather than an accounting, valuation. 3. generally greater than the market value when fixed assets are included. 4. based on historical transactions. 5. adjusted to the market value whenever the market value exceeds the stated book value.

I, II, III, and IV

The financial planning process includes: I. determining asset requirements. II. developing contingency plans. III. establishing priorities. IV. analyzing funding options. A.) I and III only B.) II and IV only C.) I, III, and IV only D.) I, II, and III only E.) I, II, III, and IV

consider the development of future technologies

The financial planning process is least apt to: 1. involve internal negotiations among divisions. 2. quantify senior manager's goals. 3. consider the development of future technologies. 4. reconcile a company's activities across divisions. 5. consider factors that currently provide a negative rate of growth.

the percentage of net income available to the firm to fund future growth

The plowback ratio is: 1. equal to net income divided by the change in total equity. 2. the percentage of net income available to the firm to fund future growth. 3. equal to one minus the retention ratio. 4. the change in retained earnings divided by the dividends paid. 5. the dollar increase in net income divided by the dollar increase in sales.

retention ratio

The portion of net income that a firm reinvests in itself is measured with the: 1. retention ratio. 2. dividend yield. 3. dividend payout ratio. 4. internal growth rate. 5. cash influx ratio.

DuPont identity

The relationship between the return on assets and the return on equity is identified by the: 1. net profit margin. 2. profitability determinant. 3. balance sheet multiplier. 4. DuPont identity. 5. debt-equity ratio.

maximum; excluding any external equity financing, while maintaining a constant debt-equity ratio

The sustainable growth rate of a firm is best described as the ______ growth rate achievable ______. 1. minimum; assuming a 100 percent retention ratio 2. minimum; if the firm maintains a constant equity multiplier 3. maximum; excluding external financing of any kind 4. maximum; excluding any external equity financing, while maintaining a constant debt-equity ratio 5. maximum; with unlimited debt financing

$93,500

Vasquez Pottery has shareholders' equity of $218,700. The firm owes a total of $141,000, only 40 percent of which is payable within the next 12 months. The firm has net fixed assets of $209,800. What is the amount of the net working capital? 1. $149,900 2. $93,500 3. $125,600 4. −$47,500 5. $56,500

A shareholder in a corporation sells shares of the company's stock when the price rises

Which of the following actions would be considered an agency problem? 1. An owner of a sole proprietorship takes company office supplies for personal use 2. Both partners in a general partnership close the office early one day to go skiing 3. A manager in a corporation buys shares of the company's stock when the price falls 4. A manager in a corporation makes online personal travel arrangements during work hours 5. A shareholder in a corporation sells shares of the company's stock when the price rises

Reward high performing employees with shares of stock

Which of the following actions would be most likely to decrease agency costs for the firm? 1. Increase employees' salaries to exceed the salaries paid by competitors 2. Pay all employees based on the amount of revenue generated by the firm 3. Prohibit employees from becoming shareholders of the firm 4. Pay bonuses to employees only if profits increase from one year to the next 5. Reward high performing employees with shares of stock

Expenses that do not consume cash

Which one of the following describes a noncash item? 1. Fixed expenses 2. Inventory items purchased using credit 3. Ownership of intangible assets such as patents 4. Expenses that do not consume cash 5. Sales that are made using store credit

Proxy

Which one of the following grants an individual the right to vote on behalf of a shareholder? 1. Proxy 2. Bylaws 3. Indenture agreement 4. Stock option 5. Stock audit

An invoice payable to a supplier in 45 days

Which one of the following is a current liability? 1. A loan payable to the bank in 4 years 2. An invoice payable to a supplier in 45 days 3. An amount due from a customer in 90 days 4. A note payable to a lender in 18 months 5. An amount due from a customer, which is already past due

Distributed profits may experience double taxation.

Which one of the following is a disadvantage of the corporate form of business? 1. Shareholders may experience limited liability. 2. Distributed profits may experience double taxation. 3. Raising capital may be more difficult than for other forms of business. 4. The firm may have unlimited life. 5. The firm may issue additional shares of stock.

Sale of a new share of stock from a corporation to an individual investor

Which one of the following is a primary market transaction? 1. Sale of currently outstanding stock by a dealer to an individual investor 2. Sale of a new share of stock from a corporation to an individual investor 3. Transfer of stock ownership from one shareholder to another shareholder 4. Gift of stock from one shareholder to a previous non-shareholder 5. Repurchase of stock by a corporation from a shareholder

Decrease in inventory

Which one of the following is a source of cash? 1. Increase in accounts receivable 2. Decrease in common stock 3. Increase in fixed assets 4. Decrease in accounts payable 5. Decrease in inventory

Interest expense

Which one of the following is an expense for accounting purposes, but is not an operating cash flow for financial purposes? 1. Interest expense 2. Taxes 3. Cost of goods sold 4. Labor costs 5. Administrative expenses

Balance sheet

Which one of the following is the financial statement that shows the accounting value of a firm's equity as of a particular date? 1. Income statement 2. Creditor's statement 3. Balance sheet 4. Statement of cash flows 5. Dividend statement

How much debt should the firm incur to fund a project?

Which one of the following questions involves a capital structure decision? 1. Which one of two project proposals should the firm implement? 2. How should the firm allocate its limited available funds among acceptable projects? 3. How much funding should be allocated to financing customer purchases of a new product? 4. How much debt should the firm incur to fund a project? 5. How much inventory will be needed to support a project?

How much inventory should the company keep on hand?

Which one of the following questions is a working capital management decision? 1. Should the company issue new shares of stock or borrow money? 2. Should the company refurbish its equipment or replace it? 3. How much inventory should the company keep on hand? 4. Should the company close one of its current stores? 5. How much money should the company borrow to buy a new building?

In which region of the country should a new product be launched?

Which one of the following questions is least likely to be addressed by financial managers? 1. In which region of the country should a new product be launched? 2. Should customers be given 30 or 45 days to pay for their credit purchases? 3. Should the firm pay off its debt early? 4. Should the firm acquire new equipment? 5. How much cash should the firm keep on hand?

The federal income tax is applied at a flat rate across all levels of taxable income.

Which one of the following statements concerning corporate income taxes is correct? 1. U.S. corporations are exempt from federal taxation. 2. Corporations pay no tax on their first $50,000 of income. 3. The federal income tax is applied at a flat rate across all levels of taxable income. 4. The marginal tax rate will always be lower than the average tax rate. 5. The first 25 percent of corporate income is exempt from taxation.

Net working capital may be a negative value

Which one of the following statements concerning net working capital is correct? 1. Net working capital increases when inventory is purchased with cash. 2. Net working capital may be a negative value. 3. Total assets must increase if net working capital increases. 4. Net working capital excludes inventory. 5. Net working capital is the amount of cash a firm currently has available for spending.

Paying dividends

Which one of the following would cause a cash outflow from a corporation? 1. Issuing new securities 2. Paying dividends 3. Taking out a loan from a bank 4. Receiving a tax refund from the government 5. Assigning common stock to employees

Capital intensity ratio

Which ratio identifies the amount of total assets a firm needs in order to generate $1 in sales? 1. Return on assets 2. Equity multiplier 3. Retention ratio 4. Capital intensity ratio 5. Current ratio

$18,840

With a sales level of $547,200 and fixed assets of $471,000, Esquivel's is operating at full capacity. The net profit margin is 5.4 percent. If sales are to increase by 4 percent, what is the required addition to fixed assets? A. $10,709 B. $14,680 C. $22,400 D. $16,760 E. $18,840

19.96%

Wood Recovery has sales of $397,000, total assets of $225,000, and total debt of $101,700 million. The net profit margin is 6.2 percent. What is the return on equity? A. 19.96% B. 5.99% C. 32.20% D. 1.32% E. 10.94%

$11,465

Yarratu Signs has sales of $84,300 net income of $16,860, total assets of $421,500, and total debt of $168,600. Assets and costs are proportional to sales. Debt and equity are not. No dividends or taxes are paid. Next year's sales are projected to be $90,201. What is the amount of the external financing needed? A. $29,505 B. $288,643 C. $11,465 D. $18,041 E. $180,402

−$1,908

Yu Distributors has total assets of $48,900, total debt of $21,750, long-term debt of $18,100, owners' equity of $27,150, dividends paid of $1,925, and net income of $5,500. Assume net working capital and all company costs increase directly with sales. Also assume the tax rate and the dividend payout ratio are constant and the company is currently operating at full capacity. What is the external financing need if sales increase by 4 percent? A.) −$1,908 B.) −$804 C.) −$397 D.) $1,201 E.) $1,344

$18,431

Zeng Graphics has taxable income of $48,900 and a tax rate of 21 percent. What is the change in retained earnings if the firm pays $20,200 in dividends for the year? 1. $18,942 2. $19,948 3. $19,374 4. $18,431 5. $18,574