MGMT 350 Ferris State University Browers
If total liabilities of a company equal $16,000 and total stockholders' equity equals $9,000, then total assets equal $7,000. Group of answer choices
FALSE
A mixed cost has either fixed and variable components, but not both
False
A net profit results from having more revenues than liabilities
False
A threat is a potential event with a low probability, and it has a low impact.
False
According to Josh Eling, the 5 "C"s of credit are Capital, Capacity, Character, Cash Flow, and Credit Report.
False
An assumption made by break-even analysis is that total revenues are constant.
False
An income statement with revenues of $6,000 and expenses of $8,000 would show a net profit of $2,000.
False
An increase in fixed costs will decrease the contribution margin.
False
An increase in the number of units sold will decrease the break-even point.
False
As the level of output activity increases, fixed costs per unit remains constant.
False
Capital budgeting decisions involve a minimum time horizon of five years.
False
Capital budgeting is only a concern of finance and accounting personnel.
False
Capital budgeting relates to planning for the best selection and financing of short-term investment proposals.
False
Companies that spend more cash on operating activities than they generate do not need to find ways to finance these operating cash shortfalls.
False
Contribution margin and gross margin mean the same thing.
False
Contribution margin is equal to fixed costs minus variable costs.
False
Contribution margin is equal to sales revenue less gross margin.
False
Contribution margin represents the amount available to cover variable expenses and then provide company profits.
False
Enterprise Value (EV) is less comprehensive than Market Capitalization.
False
Executive salaries are typically considered variable costs.
False
Financial leverage is beneficial when company assets earns less than the cost of debt.
False
Financial statements are periodic reports published by the company for the purpose of providing information to internal users. External users get their information from other company documentation.
False
If volume increases, all costs will increase.
False
In most capital budgeting decisions the emphasis is on reported earnings rather than cash flows.
False
In the management of cash, the primary concern is profitability.
False
Increased job positions is a synergy that occurs after a merger has taken place.
False
Incremental budgeting is a fixed budget that remains relatively unaltered.
False
Liabilities are usually listed in order of magnitude, from smallest dollar amount to largest dollar amount.
False
Lower profit margins resulting from increased competition would mean a lower need for external funds.
False
Mergers are more common than acquisitions.
False
Most companies use the contribution approach in preparing financial statements for external reporting purposes.
False
On a CVP graph for a profitable company, the line representing total expenses is steeper than the line representing total revenue.
False
On a graph that represents cost behavior for a profitable company, the total expense line will be steeper than the total revenue line.
False
Operating cash flows generally include cash transactions for the purchase and sale of investments and productive long-term assets.
False
ROE is measured by dividing net income by average number of shares outstanding.
False
ROE--return on equity--is measured by dividing net income by averagenumber of shares outstanding.
False
Return on assets will always be greater than or equal to return on equity.
False
Return on assets will generally equal return on common equity except when the company has no long-term debt.
False
Return on equity (ROE) is measured by dividing net income by average number of stockholders' shares outstanding.
False
Return on equity is the return stockholders have received during the past year.
False
Subjective beliefs and judgments are usually eliminated from financial forecasts.
False
The Cash Flow Statement is a report on the financial position of the business.
False
The balance sheet shows the financial position of a business during a given period of time.
False
The contribution margin is equal to price per unit minus total costs per unit.
False
The formula for total asset turnover is: Total asset turnover= total assets ÷ stockholders equity
False
The formula for total asset turnover is: Total asset turnover = Total assets ÷ Total stockholders' equity.
False
The lower the current ratio, the more liquid the company appears.
False
The most frequently quoted measure of earnings performance is the stockholders' equity ratio.
False
The three major items on an income statement are revenue, expenses, and liabilities.
False
The traditional income statement format used for financial reporting is called the contribution margin format.
False
The valuation process begins with an economic analysis.
False
Venture Capitalists provide an easy and risk-free option to traditional corporate financing.
False
Wayans Company has a contribution margin ratio of 60%. This means that its variable costs are 60% of sales.
False
Working capital is computed as current liabilities minus current assets.
False
A Horizontal Merger involves companies who are in direct competition with each other.
True
A budget is the plan, stated in financial terms, of how an organization expects to carry out its activities and meet its goals.
True
A common way to transfer risk is to purchase insurance.
True
A cost that is considered variable for one activity base may be considered fixed for a different activity base.
True
A firm's cash borrowing needs can be reduced if its inventory turnover rate can be increased.
True
All cash transactions reported in the statement of cash flows are classified as (1) operating activities, (2) investing activities, or (3) financing activities.
True
All other things the same, those who hold the company's debt (i.e., its creditors) would like a low debt-to-equity ratio to provide a buffer of protection.
True
All things being equal, the less debt that a firm has, the more likely it is to be highly valued in the marketplace.
True
As the contribution margin rises, the breakeven point goes down.
True
Benchmarks are required to evaluate a company's performance
True
Budgets are used to plan and to control operations.
True
Capital budgeting deals with the valuation of real assets.
True
Cash flows from investing activities would involve the purchase or sale of plant and equipment.
True
Contribution margin is defined as sales revenue less variable costs.
True
Cost-volume-profit (CVP) analysis is more complicated for organizations with multiple products because typically each product has a different contribution margin ratio.
True
Enterprise Value (EV) is calculated in part by adding a corporation's market capitalization, preferred stock, and outstanding debt.
True
Financial leverage is positive if the interest rate on debt is lower than the return on total assets.
True
Financial statements show the financial health of a business and the results of operations
True
Financial statements show the financial health of a business and the results of operations.
True
Forecasting is a method to determine the accuracy of where you are so you determine that you are on course with your budget.
True
Forecasting techniques can involve qualitative, quantitative, or both methods.
True
If a company reports revenues of $17,000 and expenses of $12,000, then net income equals $5,000.
True
If a company's return on assets is substantially higher than its cost of borrowing, then the common stockholders would normally want the company to have a relatively high debt/equity ratio.
True
If material cost is purely variable, and the materials cost at the 500-unit activity level is $70 per unit, then total materials at the 700-unit activity should be $49,000.
True
In an accrual accounting system, the amount of revenue a company recognizes on the income statement differs from the amount of cash collected from customers
True
In order to perform cost-volume-profit analysis, a company must be able to separate its costs into their fixed and variable components.
True
Liquidity refers to how quickly an asset can be converted into cash
True
Liquidity refers to how quickly an asset can be converted into cash.
True
Managers of a company do not understand the behavior of its costs, they are likely to make poor decisions about the company's operations.
True
Motivations for capital budgeting investments may include replacement, expansion, or modernization.
True
Net Worth Book Value is useful because it draws information from both the Income Statement and Balance Sheet by using Net Profit to estimate Goodwill.
True
On a CVP graph for a profitable company, the total revenue line will be steeper than the total cost line.
True
One way to compute the total contribution margin is to add total fixed expenses to net operating income.
True
Sales projections are often the most difficult part of the budgeting process because it involves a considerable amount of subjectivity.
True
The Patton Risk Model provides the techniques to avoid, reduce, retain, or transfer when considering risk management solutions.
True
The balance sheet shows the financial position of a business on a certain date.
True
The contribution margin ratio is the contribution margin per unit divided by the selling price per unit.
True
The contribution margin ratio measures the effect on the total contribution margin of a given change in total sales.
True
The contribution-margin ratio is calculated as unit contribution margin divided by the selling price per unit.
True
The current asset turnover ratio helps the analyst spot efficiency gains from improved accounts receivable and inventory management.
True
The primary objective of financial reporting is to provide useful information for internal users in making decisions.
True
The sales budget is usually prepared before the production budget.
True
The trend in ratios is usually more useful than looking at a single year's ratio.
True
The trend in ratios is usually more useful that looking at a single years ratio
True
Total assets must always equal total liabilities plus total owners' equity.
True
When calculating return on assets, the numerator is net income
True
Working capital is the excess of current assets over current liabilities.
True
if material costs is purely variable, and the materials cost at the 500 unit activity level is $70 per unit, then total materials at the 700 unit activity should be 49,000
True
the contribution margin represents the amount available to contribute toward covering fixed expenses and towards profits for the period
True
A lower price for the firm's product will reduce the firm's breakeven point.
false
An income statement with revenues of $6,000 and expenses of $8,000 would show a net profit of $2,000.
false
At the break even point, variable expenses and fixed expenses are equal
false
Buying inventory in large lots to take advantage of quantity discounts can be responsible for a high inventory turnover ratio.
false
Capital budgeting is only a concern of finance and accounting personnel.
false
Most companies use the contribution approach in preparing financial statements for external reporting purposes.
false
The balance sheet shows the financial position of a business during a given period of time.
false
The lower the current ratio, the more liquid the company appears.
false
a fixed cost will stay constant per unit basis as the volume increases
false
an increase in fixed cost will decrease the contribution margin
false
an increase in the number of units sold will decrease the break even point
false
if volume increases, all costs will increase
false
An income statement shows the results of business operations for a period of time, for example, three months.
true
Financial analysis typically involves some form of comparison, such as changes in the same item over time.
true
Financial leverage is positive if the interest rate on debt is lower than the return on total assets.
true
If a company is to succeed over the long-term, a positive cash flow from operating activities is necessary.
true
The two primary budgeting methods are traditional (historical) and zero-based.
true
When calculating return on assets, the numerator is net income.
true
financial leverage is positive if the interest rate on debt is lower than the return on total assets
true
managers of a company do not understand the behavior of its costs, they are likely to make poor decisions about the company's operations
true
the contribution margin ratio is calculated as a unit contribution margin divided by the selling price per unit
true