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1) What is the primary goal of financial management? A.

Customer Question

1) What is the primary goal of financial management?
     A.

Increased earnings
     B.

Maximizing shareholder wealth
     C.

Maximizing cash flow
     D.

Minimizing risk of the firm


2) One of the major disadvantages of a sole proprietorship is
     A.

that there is unlimited liability to the owner.
     B.

low organizational costs.
     C.

the simplicity of decision making.
     D.

low operating costs.


3) Corporate governance is the
     A.

relationship and exercise of oversight by the board of directors of the company.
     B.

operation of a company by the chief executive officer (CEO) and other senior executives on the management team.
     C.

relationship between the chief financial officer and institutional investors.
     D.

governance of the company by the board of directors with a focus on social responsibility.


4) Which of the following is an inflow of cash?
     A.

funds spent in normal business operations
     B.

the sale of the firm's bonds
     C.

the purchase of a new factory
     D.

the retirement of the firm's bonds


5) Which of the following is not a primary source of capital to the firm?
     A.

assets
     B.

preferred stock
     C.

common stock
     D.

bonds


6) Which account represents the cumulative earnings of the firm since its formation, minus dividends paid?
     A.

Paid-in capital
     B.

Retained earnings
     C.

Common stock
     D.

Accumulated depreciation

7) In examining the liquidity ratios, the primary emphasis is the firm's
     A.

ability to effectively employ its resources.
     B.

ability to pay short-term obligations on time.
     C.

overall debt position.
     D.

ability to earn an adequate return.


8) A quick ratio that is much smaller than the current ratio reflects
     A.

a small portion of current assets is in inventory.
     B.

that the firm will have a high inventory turnover.
     C.

a large portion of current assets is in inventory.
     D.

that the firm will have a high return on assets.


9) The most rigorous test of a firm's ability to pay its short-term obligations is its
     A.

current ratio.
     B.

quick ratio.
     C.

debt-to-assets ratio.
     D.

times-interest-earned ratio.


Refer to the figure above. Megaframe's current ratio is
     A.

1.9:1
     B.

1.625:1
     C.

1.5:1
     D.

3.2:1


11)   Refer to the figure above. The firm's inventory turnover ratio is
     A.

10x.
     B.

8x.
     C.

2.7x.
     D.

0.1x.


12) A firm's long term assets = $75,000, total assets = $200,000, inventory = $25,000 and current liabilities = $50,000.
     A.

current ratio = 0.5; quick ratio = 1.5
     B.

current ratio = 1.0; quick ratio = 2.0
     C.

current ratio = 1.5; quick ratio = 2.0
     D.

current ratio = 2.5; quick ratio = 2.0


13) The need for an increase or decrease in short-term borrowing can be predicted by
     A.

ratio analysis.
     B.

trend analysis.
     C.

a cash budget.
     D.

an income statement.


14) In financial statements, the number of units shown in cost of goods sold as compared to the number of the units actually produced
     A.

is higher.
     B.

is lower.
     C.

is the same.
     D.

can be either higher or lower.


15) In order to estimate production requirements, we
     A.

add beginning inventory to projected sales in units and subtract desired ending inventory.
     B.

add projected sales in units to desired ending inventory and subtract beginning inventory.
     C.

add beginning inventory to desired ending inventory and divide by two.
     D.

add beginning inventory to desired ending inventory and subtract projected sales in units.

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) The key initial element in developing pro forma statements is
     A.

a cash budget.
     B.

an income statement.
     C.

a sales forecast.
     D.

a collections schedule.

19) The concept of operating leverage 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) Firms with a high degree of operating leverage are
     A.

easily capable of surviving large changes in sales volume
     B.

trading off higher fixed costs for lower per-unit variable costs.
     C.

usually trading off lower levels of risk for higher profits.
     D.

significantly affected by changes in interest rates.


21) Under which of the following conditions could the overuse of financial leverage be detrimental to the firm?
     A.

Stable industry
     B.

Low interest cost compared to return on assets
     C.

Cyclical demand for the firm's products.
     D.

Upswing of business cycle.

22) The break-even point can be calculated as
     A.

variable costs divided by contribution margin.
     B.

fixed cost divided by contribution margin.
     C.

total costs divided by contribution margin.
     D.

variable cost times contribution margin.


23) A firm's break-even point will rise if
     A.

fixed costs decrease
     B.

variable cost per unit rises
     C.

contribution margins increase
     D.

price per unit rises


24) If a firm has a price of $4.00, variable cost per unit of $2.50 and a breakeven point of 20,000 units, fixed costs are equal to:
     A.

$13,333
     B.

$50,000
     C.

$10,000
     D.

$30,000

25) When the yield curve is upward sloping, generally a financial manager should:
     A.

utilize long-term financing
     B.

lease
     C.

utilize short-term financing
     D.

wait for future financing


26) The theory of the term structure of interest rates which suggests that long-term rates are determined by the average of short-term rates expected over the time that a long-term bond is outstanding is the
     A.

expectations hypothesis.
     B.

market average rate theory.
     C.

segmentation theory.
     D.

liquidity premium theory.


27) Normally, permanent current assets should be financed by
     A.

long-term funds.
     B.

internally generated funds.
     C.

short-term funds.
     D.

borrowed funds

) Which of the following combinations of asset structures and financing patterns is likely to create the least volatile earnings?
     A.

Illiquid assets and heavy short-term borrowing
     B.

Liquid assets and heavy short-term borrowing
     C.

Illiquid assets and heavy long-term borrowing
     D.

Liquid assets and heavy long-term borrowing


29) 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.

Easy access to capital markets
     C.

Inventory is highly perishable
     D.

Price of inventory is stable


30) An aggressive, risk-oriented firm will likely
     A.

borrow long-term and carry low levels of liquidity.
     B.

borrow short-term and carry high levels of liquidity.
     C.

borrow short-term and carry low levels of liquidity.
     D.

borrow long-term and carry high levels of liquidity

31) The system whereby funds are moved between computer terminals without use of checks is
     A.

electronic funds transfer.
     B.

magnetic character recognition.
     C.

float.
     D.

a lock-box system.


32) How would electronic funds transfer affect the use of "float"?
     A.

Have no effect on its use
     B.

Decrease its use somewhat
     C.

Increase its use somewhat
     D.

Virtually eliminate its use


33) The difference between the amount of cash on the firm's books and the amount credited to it by the bank is
     A.

float.
     B.

interest revenue.
     C.

an overdraft.
     D.

extended disbursement.

34) Which of the following is not a valid quantitative measure for accounts receivable collection policies?
     A.

ratio of bad debts to credit sales
     B.

aging of accounts receivables
     C.

average collection period
     D.

ratio of debt to equity


35) Variables important to credit scoring models include
     A.

all of these variables apply.
     B.

negative public records.
     C.

age of company in years.
     D.

facility ownership.


36) When developing a credit scoring report, many variables would be considered. Which of the following best represent the major factors Dun & Bradstreet would examine?
     A.

The company's cash balances, return on equity, and its average tax rates.
     B.

The age of the company, the number of employees, the level of current assets.
     C.

The age of the management team, the dollar amount of sales, net profits, and long-term debt.
     D.

The financial statements, satisfactory or slow payment experiences, negative public records (suits, liens, judgments, bankruptcies).

37) Commercial paper that is sold without going through a broker or dealer is known as
     A.

term paper.
     B.

dealer paper.
     C.

direct paper.
     D.

book-entry transactions.


38) What is generally the largest source of short-term credit small firms?
     A.

Trade credit
     B.

Commercial paper
     C.

Bank loans
     D.

Installment loans


39) Compensating balances
     A.

are used to reward new accounts.
     B.

are created by having a sweep account.
     C.

are used by banks as a substitute for charging service fees.
     D.

generate returns to customers from interest bearing accounts.

40) Trade credit may be used to finance a major part of the firm's working capital when
     A.

neither the firm nor the supplier extends credit.
     B.

the firm extends more liberal credit terms than the supplier.
     C.

the firm extends less liberal credit terms than the supplier.
     D.

the firm and the supplier both extend the same credit terms.


41) General Rent-All's officers arrange a $50,000 loan. The company is required to maintain a minimum checking account balance of 10% of the outstanding loan. This practice is called
     A.

a balloon payment.
     B.

a compensating balance.
     C.

an installment loan.
     D.

a discounted loan.


42) From the banker's point of view, short-term bank credit is an excellent way of financing
     A.

seasonal bulges in inventory and receivables.
     B.

permanent working capital needs.
     C.

fixed assets.
     D.

repayment of long-term debt.

43) As the compounding rate becomes lower and lower, the future value of inflows approaches
     A.

need more information
     B.

0
     C.

infinity
     D.

the present value of the inflows


44) Increasing the number of periods will increase all of the following except
     A.

the future value of an annuity.
     B.

the present value of an annuity.
     C.

the future value of $1.
     D.

the present value of $1.


45) As the interest rate increases, the present value of an amount to be received at the end of a fixed period
     A.

Not enough information to tell
     B.

increases
     C.

remains the same
     D.

decreases

46) Mr. Blochirt is creating a college investment fund for his daughter. He will put in $850 per year for the next 15 years and expects to earn an 8% annual rate of return. How much money will his daughter have when she starts college?
     A.

$23,079
     B.

$11,250
     C.

$24,003
     D.

$12,263


47) Ali Shah sets aside 2,000 each year for 5 years. He then withdraws the funds on an equal annual basis for the next 4 years. If Ali wishes to determine the amount of the annuity to be withdrawn each year, he should use the following two tables in this order:
     A.

future value of an annuity of $1; future value of a $1
     B.

present value of an annuity of $1; future value of an annuity of $1
     C.

future value of an annuity of $1; present value of a $1
     D.

future value of an annuity of $1; present value of an annuity of $1


48) John Doeber borrowed $125,000 to buy a house. His loan cost was 11% and he promised to repay the loan in 15 equal annual payments. How much are the annual payments?
     A.

$17,383
     B.

$3,633
     C.

$13,113
     D.

$9,250
Submitted: 5 years ago.
Category: Homework

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