Fin 200, 2nd yr.
1. Maximization of share holder wealth is a concept in which:
a. optionally increasing the long term value of the firm is emphasized
b. profits are maximized on a quarterly basis
c. increased earnings is of primary importance
d. virtually all earnings are paid as dividends to common stock holders.
2. Regarding risk levels financial managers should:
a. evaluate investor's desire for risk
b. pursue higher risk projects because they increase value.
c. focus primarily on market fluctuations
d. Avoid higher risk projects because they destroy value.
3. One of the major disadvantages
a. low operating costs
b. that there s unlimited liability to the owner.
c. low organizational costs.
d. the simplicity of decision making
4.Which account represents the cumulative earnings of the firm since its formation, minus dividends paid?
a. accumulated depreciation
b. paid -in capital
c. retained earnings
d. common stock
5. The statement of cash flows does NOT include which of the following sections?
a. cash flows from financing activities
b. cash flows from operating activities
c. cash flows from investing activities
d. cash flows form sales activities
6. An increase in investments in long-term securities will:
a. decrease cash flow financing activities
b. increase cash flow investing activities
c. increase cash flow from financing activities
d. decrease cash flow from investing activities
7.In examining the liquidity ratios, the primary emphasis is the firm's
a. ability to earn an adequate return
b. ability to effectively
8. Which of the following is not considered to be a profitability ratio?
a. return on assets (investment)
b. profit margin
c. return on equity
d. times interest earned
9. For a given level of profit ability as measured by profit margin, the firm's return on equity will. a. decrease as its time-interest earned ration decreases.
b. increase as its debt to assets ratio decreases
c. increase as its debt-to assets ratio increases
d. decrease as its current ratio increases
Marni company Balance Sheet As of Dec. 31, 2007
Assets
c=50,000
act. rec. 100,00
Inv
10. fixed asset turn-over ratio is
a. 0.1x
b. 3.1x
c. 2x.
d. 1.5x.
11. debt to asset ratio is
a. 48%
b. 58%
c. 25%
d. 33%
TEW Company Income Statement, Income Statement
12. Inventory turnover ratio is
a. 0.1x
b.10x.
c. 2,7x
d. 8x.
13. The need for an increase or decrease in short-term borrowing can be predicted by
a. an income statement
b. ratio analysis
c. a cash budget
d. trend analysis
14. The percent-of-sales method f financial forecasting
a. provides a mouth -to-mouth breakdown of data
b. is more detailed than a cash budge approach
c. assumes that balance sheet accounts maintain a constant relationship to sales
d. requires more time that a cash budget approach
15. In financial statements, the number of units shown in cost of goods sold as compared to the number of the units actually produced.
a. can be either higher or lower
b. is high
c. is the same
d. is lower
16. The pro forma income statement is important to the overall process of constructing pro forma statements because it allows us to determine a value for:
a. change in retained earnings
b. gross profit
c. interest expense
d. prepaid expenses
17. A firm utilizing LIFO inventory accounting would in calculating gross profits, assume that
a. all sales were from current production
b. all sales were from beginning inventory
c. sales were from current production until current production was depleted, and then use sales from beginning inventory
d. all sales were for cash
18. a firm has beginning inventory of 300 units at a cost of $11 each. Production during the period was 650 units at $12 each. If sales were 700 units, what is the cost of goods sold (assume FIFO)?
a.$9,000
b.$8.000
c.$7,700
d.$8,100
19 The concept of operating lever age involves the use of _____ to magnify returns at high levels of operation.
a. fixed costs
b. variable costs
c. marginal costs
d. semi-variable costs
20. When a firm employs no debt
a. it has a financial leverage of one
b. it has a financial leverage of zero
c. its operating leverage is equal to its financial leverage
d. it will not be profitable
21. Firms with a high degree of operating leverage are
a. easily capable of surviving large changes in sales volume
b. usually trading off lower levels of risk for higher profits
c. significantly affected by changes in interest rates
d. trading off higher fixed costs for lower per-unit variable costs
22. if TechCor has fixed costs of $80,000, variable costs of $1.20/unit, sales price/unit of $6, and depreciation expense of $25,000, what is their cash break-even in units
a. 9,167
b. 11,458
c. 21,875
d. 45,833
23. The break-even point can be calculated as
a. variable costs divided by contribution margin
b. total costs divided by contribution margin
c. variable cost times contribution margin
d. fixed cost divided by contribution margin
24. In break-even analysis, the contribute. margin is def
25. A conservatively financed firm would
a. use long-term financing for all fixed assets and short -term financing for all ther assets.
b. finance a portion of permanent assets and short-term assets with short-term debt.
c. use equity to finance fixed assets, long-term debt to finance permanent assets, and short-
d. use long-term financing for permanent current assets and fixed assets and a portion of the short-term fluctuating assets and use short term financing for all other short-term assets
26. During tight money periods
a. long-term rates are higher than short-term rates
b. short-term rtes are higher than long-term rates
c. short-term rates are equal to long-term rates
d. the relationship between short and long-term rates remains unchanged
27. when the yield curve is upward sloping, generally a financial manager should
a. utilize long-term financing
b. utilize short-term financing
c. wait for future financing
d. lease
28. which of the following combinations of asset structures and fin
29. which of the follow combinations of asset structures and financing patterns is likely to create the most volatile earnings.?
30. Which of the following is not a condition under which a prudent manager would accept some risk in financing.
a. predictable cash flow patterns
b. inventory is stable
c, price of inventory is stable
d. easy access to capita markets
31. in managing cash and marketable securities, what should be the manager’s primary concern?
a. maximization of profit
b. maximization of liquid assets
c, liquidity and safety
d. acceptable return on investment
32. How would electronic funds transfer affect the use of float?
a. increase its use somewhat
b. decrease its use somewhat
c. have no effect on its use
d. virtually eliminate its use
33. Float takes place because
a. a firm is early in paying its bills
b. the level of cash on the firms bonds is equal to the level of cash in the bank
c.a customer writes "hot" checks
d. a long exists between writing a check and cle
35. When developing a credit score in report many variables would be considered. Which of the following best represents the major factors Dun& Bradstreet would examine?
a. the age of the management team, the dollar amount of sales, net profits and long term debt.
b. the age of the company, the number of employees, the level of current assets
c. the companies cash balances return on equality, and its average tax rates
d. the financial statements, satisfactory or slow payment experiences, negative public records 9suits, liens, judgments, bankruptcies.
36. the most subjective and also significant segment of the 5 c's of credit for giving final approval is:
a. capacity b. collateral c. conditions d. character
37. which of the following is not a method for lenders to control pledged inventory?
a. blanket inventory liens b. trust receipts c. factoring d. ware housing
38 What is generally the largest source of short-term credit small firms?
a. bank loans b. commercial paper c. trade credit d
39. Which of the following is not a true statement about commercial paper.
a. finance paper is sold directly to the lender by the finance company
b. finance paper is also referred to as direct paper
c. industrial companies, utility firms or finance companies too small to sell direct paper sell dealer paper
d. dealer paper is sold directly to the lender by a finance company
40. which method of controlling pledged inventory provides the greatest degree of security to the lender?
a. blanket inventory liens
b. overall inventory liens
c. warehousing
d. trust receipts
41. trade credit may be used to finance a major part of the firms working capital when
a. the firm extends less liberal credit terms then the supplier
b. the firm extends more liberal credit terms than the supplier
c, neither the firm nor the supplier extends credit
d. the firms and the supplier both extend the same credit
42. General rent-alls officers arrange a $50,000 loan. The company is required to maintain a minimum
43. An annuity may be defined as a. a payment at a fixed interest rate b. a series f payments of unequal amount c. a series of consecutive payments of equal amounts d. a series fo yearly payments.
44. In determining the future value of a single amount, one measure
a. the future value of periodic payment at a given interest rate.
b. the present value of an amount discounted at a given interest rate
c. the present value of periodic payments at a given interest rate
d. the future value of a amount allowed to grow at a given interest rate.
45. As the discount rate becomes higher and higher the present value of in flows approaches
a. minus infinity b, 0 c. plus infinity d. need more information
46. John Doeber borrowed $125,000 to buy a house. His loan cost was 11% and he promised to repay the loan in15 equal annual payments. how much are the payments
a. 9,250 b. 3,633 c. 13.113 d. 17,383
47. If you were to put $1,00 in the bank @ 6% interest each year for the next ten years,
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