MGMT 350 - Final Exam Practice
A fixed cost will stay constant on a per unit basis as the volume increases.
False
A lower price for the firm's product will reduce the firm's breakeven point.
False
A net profit results from having more revenues than liabilities.
False
According to Josh Eling, the 5 "C"s of credit are Capital, Capacity, Character, Cash Flow, and Credit Report.
False
According to Reeves, Nokia employed an appropriate strategy to compete with the Apple iPhone.
False
According to the Course Materials, budgeting is a form of "financial radar".
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
Buying inventory in large lots to take advantage of quantity discounts can be responsible for a high inventory turnover ratio.
False
Capital budgeting decisions involve a minimum time horizon of five years.
False
Contribution margin and gross margin mean the same thing.
False
Contribution margin is equal to sales revenue less gross margin.
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 total liabilities of a company equal $16,000 and total stockholders' equity equals $9,000, then total assets equal $7,000.
False
If volume increases, all costs will increase.
False
In business, a budget is a method for putting a limit on spending.
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
One way to reduce the risk of lung cancer is to purchase life insurance.
False
ROE--return on equity--is measured by dividing net income by average number of shares outstanding.
False
Return on assets will always be greater than or equal to return on equity.
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 lower the current ratio, the more liquid the company appears.
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 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
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
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
Contribution margin is defined as sales revenue less variable costs.
True
Enterprise Value (EV) is calculated in part by adding a corporation's market capitalization, preferred stock, and outstanding debt.
True
Every valuation method has its limitations.
True
Executive salaries are typically considered variable costs.
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 reports revenues of $17,000 and expenses of $12,000, then net income equals $5,000. Group of answer choices
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
Market Capitalization is the total dollar market value of all the company's outstanding shares.
True
Profitability ratios attempt to assess the company's ability to generate earnings.
True
Return on assets and return on equity are both profitability ratios.
True
Sales projections are often the most difficult part of the budgeting process because it involves a considerable amount of subjectivity.
True
The cash generating process for a firm is continuous, even though cash flow can be sporadic.
True
The contribution-margin ratio is calculated as unit contribution margin divided by the selling price per unit.
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
Total assets must always equal total liabilities plus total owners' equity.
True
Uncertainty can be more dangerous than risk. If you don't know the risk, you will have difficulty finding solutions.
True
Variable costing separates the variable costs from fixed costs and therefore makes it easier to identify and assign control over costs.
True
