1) Managerial finance
a. devotes the majority of its attention to the collection and presentation of financial
b. involves tasks such as budgeting, financial forecasting, cash management, and funds
c. involves the design and delivery of advice and financial products.
d. recognizes funds on an accrual basis.
2) Financial service
a. is concerned with the duties of the financial manager.
b. involves the design and delivery of advice and financial products.
c. handles accounting activities related to data processing.
d. provides guidelines for the efficient operation of the business.
3) A major weakness of a partnership is
a. difficulty liquidating or transferring ownership.
b. limited liability.
c. access to capital markets.
d. low organizational costs.
4) The primary economic principle used in managerial finance is
a. the crowding out effect.
b. the liquidity trap.
c. supply and demand.
d. marginal analysis.
5) Johnson, Inc. has just ended the calendar year making a sale in the amount of
$10,000 of merchandise purchased during the year at a total cost of $7,000. Although
the firm paid in full for the merchandise during the year, it has yet to collect
at year end from the customer. The net profit and cash flow from this sale for the year
a. $7,000 and -$3,000, respectively.
b. $3,000 and -$7,000, respectively.
c. $3,000 and $7,000, respectively.
d. $3,000 and $10,000, respectively.
6) By concentrating on cash flows within the firm the financial manager should be able
a. control expenses.
b. avoid insolvency.
c. prepare tax returns.
d. speak authoritatively to stockholders.
7) A firm has just ended its calendar year making a sale in the amount of $200,000 of
merchandise purchased during the year at a total cost of $150,500. Although the
firm paid in full for the merchandise during the year, it has yet to collect at year end
from the customer. The possible problem this firm may face is
a. high leverage.
b. low profitability.
c. lack of cash flow.
d. inability to receive credit.
8) Included in the primary activities of the financial manager are
a. financial analysis and planning.
b. making financing decisions.
c. analyzing and planning cash flows.
d. making investment decisions.
e. all of the above
9) The financial manager may be responsible for any of the following EXCEPT
a. analyzing the effects of more debt on the firm’s capital structure.
b. determining whether to accept or reject a capital asset acquisition.
c. analyzing budget and performance reports.
d. monitoring of quarterly tax payments.
10) Managing the firm’s assets includes all of the following EXCEPT
a. notes payable.
b. accounts receivable.
c. fixed assets.
11) The primary goal of the financial manager is
a. maximizing profit.
b. minimizing return.
c. minimizing risk.
d. maximizing wealth.
12) The wealth of the owners of a corporation is represented by
a. share value.
c. earnings per share.
d. cash flow.
13) All of the following are functions of security exchanges EXCEPT
a. aiding in new financing.
b. holding demand deposits.
c. allocating scarce capital.
d. creating continuous markets.
14) The major securities traded in the capital markets are
a. commercial paper and Treasury bills.
b. bonds and commercial paper.
c. Treasury bills and certificates of deposit.
d. stocks and bonds.
15) The average tax rate of a corporation with ordinary income of $105,000 and a tax liability
of $24,200 is
a. 15 percent.
b. 46 percent.
c. 23 percent.
d. 34 percent.
16) The statement of retained earnings reports all of the following EXCEPT
b. net profits after taxes.
c. preferred stock dividends.
d. common stock dividends.
17) Paid-in-capital in excess of par represents the amount of proceeds
a. from the original sale of stock.
b. at the current market value of common stock.
c. in excess of the par value from the original sale of common stock.
d. at the current book value of common stock.
18) The primary concern of creditors when assessing the strength of a firm is the firm’s
c. short-term liquidity.
d. share price.
19) ________ is where the firm’s ratio values are compared to those of a key competitor or
group of competitors, primarily to identify areas for improvement.
a. Combined analysis
c. Time-series analysis
d. None of the above
20) Cross-sectional ratio analysis is used to
a. reflect the symptoms of a possible problem.
b. correct expected problems in operations.
c. isolate the causes of problems.
d. provide conclusive evidence of the existence of a problem.
21) The ________ ratios are primarily measures of return.
22) The two categories of ratios that should be utilized to assess a fi rm’s true liquidity are
a. liquidity and profitability ratios.
b. current and quick ratios.
c. liquidity and activity ratios.
d. liquidity and debt ratios.
23) The ________ measures the percentage of each sales dollar remaining after ALL expenses,
including taxes, have been deducted.
a. operating profit margin
b. earnings available to common shareholders
c. gross profit margin
d. net profit margin
24) All of the following are outflows of cash EXCEPT
a. a decrease in notes payable.
b. a decrease in accounts receivable.
c. an increase in accounts receivable.
d. an increase in inventory.
25) NICO Corporation had net fixed assets of $2,000,000 at the end of 2006 and
$1,800,000 at the end of 2005. In addition, the firm had a depreciation expense of
$200,000 during 2006 and $180,000 during 2005. Using this information, NICO’s
net fixed asset investment for 2006 was