Question 1
1.
Which of the following legal forms of organization is most expensive to organize?
Answer
A.
Sole proprietorships.
B.
Partnerships.
C.
Corporations
D.
Limited partnership.
1 points
Question 2
1.
Which of the following legal forms of organization’s income is NOT taxed under individual income tax rate?
Answer
A.
Sole proprietorships.
B.
Partnerships.
C.
Limited partnership.
D.
Corporation.
1 points
Question 3
1.
About 75 percent of all business firms are
Answer
A.
sole proprietorships.
B.
partnerships.
C.
corporations.
D.
S-corporations.
1 points
Question 4
1.
All of the following are key strengths of a corporation EXCEPT
Answer
A.
access to capital markets.
B.
limited liability.
C.
C) low organization costs.
D.
readily transferable ownership.
1 points
Question 5
1.
The primary goal of the financial manager is
Answer
A.
minimizing risk.
B.
maximizing profit.
C.
C) maximizing wealth.
D.
minimizing return.
1 points
Question 6
1.
Corporate owner’s receive realizable return through
Answer
A.
earnings per share and cash dividends.
B.
increase in share price and cash dividends.
C.
increase in share price and earnings per share.
D.
profit and earnings per share
1 points
Question 7
1.
Profit maximization as a goal is not ideal because it does NOT directly consider
Answer
A.
risk and cash flow.
B.
cash flow and stock price.
C.
risk and EPS.
D.
EPS and stock price.
1 points
Question 8
1.
Cash flow and risk are the key determinants in share price. Increased cash flow results in ________, other things remaining the same.
Answer
A.
a lower share price
B.
B) a higher share price
C.
an unchanged share price
D.
an undetermined share price
1 points
Question 9
1.
Financial managers evaluating decision alternatives or potential actions must consider
Answer
A.
only risk.
B.
only return.
C.
both risk and return.
D.
risk, return, and the impact on share price.
1 points
Question 10
1.
As the risk of a stock investment increases, investors’
Answer
A.
return will increase.
B.
return will decrease.
C.
required rate of return will decrease.
D.
required rate of return will increase.
1 points
Question 11
1.
All of the following as considered stakeholders EXCEPT
Answer
A.
consumers
B.
suppliers
C.
employees
D.
competitors
1 points
Question 12
1.
The key participants in financial transactions are individuals, businesses, and governments. Individuals are net ________ of funds, and businesses are net ________ of funds.
Answer
A.
demanders; suppliers
B.
users; providers
C.
suppliers; demanders
D.
purchasers; sellers
1 points
Question 13
1.
Government usually
Answer
A.
is a net supplier of funds.
B.
is a net demander of funds.
C.
borrows funds directly from financial institutions.
D.
maintains permanent deposits with financial institutions.
1 points
Question 14
1.
Firms that require funds from external sources can obtain them from
Answer
A.
private placement.
B.
financial institutions.
C.
financial markets.
D.
all of the above.
1 points
Question 15
1.
Most businesses raise money by selling their securities in a
Answer
A.
public offering.
B.
private placement.
C.
direct placement.
D.
stock exchange.
1 points
Question 16
1.
Which of the following assist companies in raising capital, advise firms on major transactions such as mergers or financial restructuring, and engage in trading and market making activities?
Answer
A.
Investment Banks
B.
Securities Exchanges
C.
Mutual Funds
D.
Commercial Banks
1 points
Question 17
1.
The ________ market is where securities are initially issued and the ________ market is where pre-owned securities (not new issues) are traded.
Answer
A.
primary; secondary
B.
money; capital
C.
secondary; primary
D.
primary; money
1 points
Question 18
1.
The over-the-counter (OTC) market is
Answer
A.
the New York Stock Exchange.
B.
an organized stock exchange.
C.
a place where securities are bought and sold.
D.
an intangible market for unlisted securities.
1 points
Question 19
1.
Trading is carried out on the floor of the New York Stock Exchange by
Answer
A.
the negotiation process.
B.
the auction process.
C.
a telecommunications network.
D.
investment bankers.
1 points
Question 20
1.
All of the following are functions of security exchanges EXCEPT
Answer
A.
allocating scarce capital.
B.
aiding in new financing.
C.
creating continuous markets.
D.
holding demand deposits.
1 points
Question 21
1.
Securities exchanges create efficient markets that do all of the following EXCEPT
Answer
A.
ensure a market in which the price reflects the true value of the security.
B.
allocate funds to the most productive uses.
C.
control the supply and demand for securities through price.
D.
allow the price to be determined by supply and demand of securities.
1 points
Question 22
1.
A competitive market that allocates funds to their most productive use is called a(n)
Answer
A.
liquid market.
B.
middleman’s market.
C.
efficient market.
D.
investor’s market.
1 points
Question 23
1.
The ________ is created by a financial relationship between suppliers and demanders of short-term funds.
Answer
A.
stock market
B.
capital market
C.
financial market
D.
money market
1 points
Question 24
1.
Long-term debt instruments used by both government and business are known as
Answer
A.
stocks.
B.
bills.
C.
bonds.
D.
equities.
1 points
Question 25
1.
The process of pooling mortgages or other types of loans and selling the claims or securities against that pool in the secondary market is called
Answer
A.
refinancing
B.
securitization
C.
private placement
D.
pooling
1 points
Question 26
1.
The primary risk of mortgage-backed securities is
Answer
A.
that the prices of housing will go down.
B.
that the prices of housing will increase.
C.
that the government will not be able to meet the guarantees on the cash flows.
D.
that homeowners may not be able to, or choose not to, repay their loans.
1 points
Question 27
1.
Corporation A owns 15 percent of the stock of corporation B. Corporation B pays corporation A $100,000 in dividends in 2002. Corporation A must pay tax on
Answer
A.
$100,000 of ordinary income.
B.
$ 30,000 of ordinary income.
C.
$ 70,000 of ordinary income.
D.
$ 70,000 of capital gain.
1 points
Question 28
1.
One of the most influential documents issued by a publicly-held corporation is the
Answer
A.
letter to stockholders.
B.
annual report.
C.
cash flow statement.
D.
income statement.
1 points
Question 29
1.
The rule-setting body, which authorizes generally accepted accounting principles is
Answer
A.
GAAP.
B.
FASB.
C.
SEC.
D.
Federal Reserve System.
1 points
Question 30
1.
The stockholder’s annual report must include
Answer
A.
a statement of cash flows.
B.
an income statement.
C.
a balance sheet
D.
a statement of retained earnings
E.
all of the above
1 points
Question 31
1.
Total assets less net fixed assets equals
Answer
A.
gross assets.
B.
current assets.
C.
depreciation.
D.
liabilities and equity.
1 points
Question 32
1.
The ________ provides a financial summary of the firm’s operating results during a specified period.
Answer
A.
income statement
B.
balance sheet
C.
statement of cash flows
D.
statement of retained earnings
1 points
Question 33
1.
Gross profits are defined as
Answer
A.
operating profits minus depreciation.
B.
operating profits minus cost of goods sold.
C.
sales revenue minus operating expenses.
D.
sales revenue minus cost of goods sold.
1 points
Question 34
1.
Operating profits are defined as
Answer
A.
gross profits minus operating expenses.
B.
sales revenue minus cost of goods sold.
C.
earnings before depreciation and taxes.
D.
sales revenue minus depreciation expense.
1 points
Question 35
1.
Net profits after taxes are defined as
Answer
A.
gross profits minus operating expenses.
B.
sales revenue minus cost of goods sold.
C.
EBIT minus interest.
D.
EBIT minus interest and taxes.
1 points
Question 36
1.
Earnings available to common shareholders are defined as net profits
Answer
A.
after taxes.
B.
after taxes minus preferred dividends.
C.
after taxes minus common dividends.
D.
before taxes
1 points
Question 37
1.
Earnings available to common shareholders are defined as net profits
Answer
A.
after taxes.
B.
after taxes minus preferred dividends.
C.
after taxes minus common dividends.
D.
before taxes.
1 points
Question 38
1.
All of the following are examples of current assets EXCEPT
Answer
A.
accounts receivable.
B.
cash.
C.
accruals.
D.
inventory.
1 points
Question 39
1.
All of the following are examples of fixed assets EXCEPT
Answer
A.
automobiles.
B.
buildings.
C.
marketable securities.
D.
equipment.
1 points
Question 40
1.
All of the following are examples of current liabilities EXCEPT
Answer
A.
accounts receivable.
B.
accounts payable.
C.
accruals.
D.
notes payable.
1 points
Question 41
1.
Firm ABC had operating profits of $100,000, taxes of $17,000, interest expense of $34,000 and preferred dividends of $5,000. What was the firm’s net profit after taxes?
Answer
A.
$66,000
B.
$49,000
C.
$44,000
D.
$83,000
2 points
Question 42
1.
Candy Corporation had pretax profits of $1.2 million, an average tax rate of 34 percent, and it paid preferred stock dividends of $50,000. There were 100,000 shares outstanding and no interest expense. What were Candy Corporation’s earnings per share?
Answer
A.
$3.91
B.
$4.52
C.
$7.42
D.
$7.59
2 points
Question 43
1.
A firm had year end 2004 and 2005 retained earnings balances of $670,000 and $560,000, respectively. The firm paid $10,000 in dividends in 2005. The firm’s net profit after taxes in 2002 was
Answer
A.
-$100,000.
B.
-$110,000.
C.
$100,000.
D.
$110,000.
2 points
Question 44
1.
A corporation had year end 2004 and 2005 retained earnings balances of $320,000 and $400,000, respectively. The firm reported net profits after taxes of $100,000 in 2005. The firm paid dividends in 2005 of
Answer
A.
$0.
B.
$20,000.
C.
$80,000.
D.
$100,000.
2 points
Question 45
1.
The 2002 Sarbanes-Oxley Act was designed to
Answer
A.
limit the compensation that could be paid to corporate CEOs.
B.
eliminate the many disclosure and conflict of interest problems of corporations.
C.
provide uniform international accounting standards.
D.
two of the above.
1 points
Question 46
1.
The ________ summarizes the firm’s funds flow over a given period of time.
Answer
A.
income statement
B.
balance sheet
C.
statement of cash flows
D.
statement of retained earnings
1 points
Question 47
1.
FASB Standard No. 52 mandates that U.S. based companies must translate their foreign-currency-denominated assets and liabilities into dollars using the
Answer
A.
historical rate.
B.
current rate.
C.
average rate.
D.
none of the above.
1 points
Question 48
1.
When preparing a statement of cash flows, retained earnings adjustments are required so that which of the following are separated on the statement?
Answer
A.
Revenue and cost.
B.
Assets and liabilities.
C.
Depreciation and purchases.
D.
Net profits and dividends.
1 points
Question 49
1.
The ________ ratio may indicate the firm is experiencing stockouts and lost sales.
Answer
A.
average payment period
B.
inventory turnover
C.
average collection period
D.
quick
1 points
Question 50
1.
The ________ ratio may indicate poor collections procedures or a lax credit policy.
Answer
A.
average payment period
B.
inventory turnover
C.
average collection period
D.
quick
1 points
Question 51
1.
ABC Corp. extends credit terms of 45 days to its customers. Its credit collection would likely be considered poor if its average collection period was
Answer
A.
30 days.
B.
36 days.
C.
47 days.
D.
57 days.
1 points
Question 52
1.
Which of the following ratios is difficult for creditors of a firm to analyze because the data are usually not available in published financial statements?
Answer
A.
Financial leverage.
B.
Average payment period.
C.
Quick ratio.
D.
Average age of inventory.
1 points
Question 53
1.
________ are especially interested in the average payment period, since it provides them with a sense of the bill-paying patterns of the firm.
Answer
A.
Customers
B.
Stockholders
C.
Lenders and suppliers
D.
Borrowers and buyers
1 points
Question 54
1.
A firm has a current ratio of 1; in order to improve its liquidity ratios, this firm might
Answer
A.
improve its collection practices, thereby increasing cash and increasing its current and quick ratios.
B.
improve its collection practices and pay accounts payable, thereby decreasing current liabilities and increasing the current and quick ratios.
C.
decrease current liabilities by utilizing more long-term debt, thereby increasing the current and quick ratios.
D.
increase inventory, thereby increasing current assets and the current and quick ratios.
1 points
Question 55
1.
As a firm’s cash flows become more predictable,
Answer
A.
the current ratio should expand.
B.
the return on equity should increase.
C.
current liabilities should decrease.
D.
current assets should decrease.
1 points
Question 56
1.
If the inventory turnover is divided into 365, it becomes a measure of
Answer
A.
sales efficiency.
B.
the average age of the inventory.
C.
sales turnover.
D.
the average collection period.
1 points
Question 57
1.
The ________ is useful in evaluating credit and collection policies.
Answer
A.
average payment period
B.
current ratio
C.
average collection period
D.
current asset turnover
1 points
Question 58
1.
The two categories of ratios that should be utilized to assess a firm’s true liquidity are the
Answer
A.
current and quick ratios.
B.
liquidity and profitability ratios.
C.
liquidity and debt ratios.
D.
liquidity and activity ratios.
1 points
Question 59
1.
A firm with a total asset turnover that is lower than industry standard but with a current ratio which meets industry standard must have excessive
Answer
A.
fixed assets.
B.
inventory.
C.
accounts receivable.
D.
debt.
1 points
Question 60
1.
A firm with a total asset turnover lower than industry standard may have
Answer
A.
excessive debt.
B.
excessive cost of goods sold.
C.
insufficient sales.
D.
insufficient fixed assets.
1 points
Question 61
1.
Allocation of the historic costs of fixed assets against the annual revenue they generate is called
Answer
A.
net profits.
B.
gross profits.
C.
depreciation.
D.
amortization.
1 points
Question 62
1.
The Modified Accelerated Cost Recovery System (MACRS) is a depreciation method used for ________ purposes.
Answer
A.
tax
B.
financial reporting
C.
managerial
D.
cost accounting
1 points
Question 63
1.
A corporation
Answer
A.
must use the same depreciation method for tax and financial reporting purposes.
B.
must use different depreciation methods for tax and financial reporting purposes.
C.
may use different depreciation methods for tax and financial reporting purposes.
D.
must use different (than for tax purposes), but strictly mandated, depreciation methods for financial reporting purposes.
1 points
Question 64
1.
The depreciable value of an asset, under MACRS, is
Answer
A.
the original cost (purchase price) only.
B.
the original cost minus salvage value.
C.
the original cost plus installation.
D.
the original cost plus installation costs, minus salvage value.
1 points
Question 65
1.
The depreciable life of an asset is of concern to the financial manager. In general,
Answer
A.
a longer depreciable life is preferred, because it will result in a faster receipt of cash flows.
B.
a shorter depreciable life is preferred, because it will result in a faster receipt of cash flows.
C.
a shorter depreciable life is preferred, because management can then purchase new assets, as the old assets are written off.
D.
a longer depreciable life is preferred, because management can postpone purchasing new assets, since the old assets still have a useful life.
1 points
Question 66
1.
A firm’s operating cash flow (OCF) is defined as
Answer
A.
gross profit minus operating expenses.
B.
gross profit minus depreciation.
C.
EBIT times one minus the tax rate plus depreciation.
D.
EBIT plus depreciation.
1 points
Question 67
1.
All of the following are non-cash charges EXCEPT
Answer
A.
depreciation.
B.
accruals.
C.
depletion.
D.
amortization.
1 points
Question 68
1.
Which of the following is a source of cash flows?
Answer
A.
Cost of goods sold.
B.
Depreciation.
C.
Interest expense.
D.
Taxes.
1 points
Question 69
1.
________ is an expense that is a legal obligation of the firm.
Answer
A.
Labor expense
B.
Interest expense
C.
Salaries expense
D.
Rent expense
1 points
Question 70
1.
The future value of $100 received today and deposited at 6 percent for four years is
Answer
A.
$126.
B.
$ 79.
C.
$124.
D.
$116.
1 points
Question 71
1.
The present value of $200 to be received 10 years from today, assuming an opportunity cost of 10 percent, is
Answer
A.
$ 50.
B.
$200.
C.
$518.
D.
$ 77.
1 points
Question 72
1.
If you expect to retire in 30 years, are currently comfortable living on $50,000 per year and expect inflation to average 3% over the next 30 years, what amount of annual income will you need to live at the same comfort level in 30 years?
Answer
A.
$121,363
B.
$95,000
C.
$20,599
D.
$51,500
1 points
Question 73
1.
The present value of a $25,000 perpetuity at a 14 percent discount rate is
Answer
A.
$178,571.
B.
$285,000.
C.
$350,000.
D.
$219,298.
1 points
Question 74
1.
Bill plans to fund his individual retirement account (IRA) with the maximum contribution of $2,000 at the end of each year for the next 20 years. If Bill can earn 12 percent on his contributions, how much will he have at the end of the twentieth year?
Answer
$19,292
$14,938
$40,000
$144,104
1 points
Question 75
1.
Ashley is planning to attend college when she graduates from high school 7 years from now. She anticipates that she will need $10,000 at the beginning of each college year to pay for tuition and fees, and have some spending money. Ashley has made an arrangement with her father to do the household chores if her dad deposits $3,500 at the end of each year for the next 7 years in a bank account paying 8 percent interest. Will there be enough money in the account for Ashley to pay for her college expenses? Assume the rate of interest stays at 8 percent during the college years. You need to calculate the additional money Ashley will need to pay for college
Answer
7 points
Question 76
1.
Find the present value of the following stream of cash flows, assuming that the firm’s opportunity cost is 14 percent.
Year Amount
Year 1 $10,000
Year 2 $35,000
Year 3 $24,000
Answer
3 points
Question 77
1.
Given the financial data for New Electronic World, Inc. (NEW), compute the following measures of cash flows for the NEW for the year ended December 31, 2010
CalcualteOperating Cash Flow. (Note the same data will be used for the following question)
For the Year Ended December 31
2009 2010
Depreciation 3,000
EBIT 30,000
Interest Expenses 3,000
Taxes 8,000
Cash 21,000 24,000
Accounts Receivable 39,000 45,000
Inventory 27,000 30,000
Net Fixed Assets 22,000 24,000
Accounts Payable 25,000 30,000
Notes Payable 50,000 40,000
Accruals 1,000 2,000
Answer
4 points
Question 78
1.
Given the financial data for New Electronic World, Inc. (NEW), compute the following measures of cash flows for the NEW for the year ended December 31, 2010
Calculate Free Cash Flow. (you will need the operating cash flow from the previous question)
For the Year Ended December 31
2009 2010
Depreciation 3,000
EBIT 30,000
Interest Expenses 3,000
Taxes 8,000
Cash 21,000 24,000
Accounts Receivable 39,000 45,000
Inventory 27,000 30,000
Net Fixed Assets 22,000 24,000
Accounts Payable 25,000 30,000
Notes Payable 50,000 40,000
Accruals 1,000 2,000
Answer
5 points
Question 79
1.
Jeanne has just graduated from high school and has received an award for $5,000. She would like to deposit the money in an interest earning account until she graduates from college (i.e., four years from now). In her search for the highest interest earning account, she has narrowed the list down to the following two accounts: 1) bank A pays 9 percent interest compounded annually, and 2) bank B pays 8 percent interest compounded semi-annually. How much will Jeanne have upon graduation from college?The answer to this question is the better offer.
