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Major Disadvantages Of A Sole Proprietorship

Customer Question
1) One of the major...

1) One of the major disadvantages of a sole proprietorship is
A. low operating costs.
B. the simplicity of decision making.
C. that there is unlimited liability to the owner.
D. low organizational costs.

2) Corporate governance is the
A. governance of the company by the board of directors with a focus on social responsibility.
B. relationship between the chief financial officer and institutional investors.
C. relationship and exercise of oversight by the board of directors of the company.
D. operation of a company by the chief executive officer (CEO) and other senior executives on the management team.

3) Maximization of shareholder wealth is a concept in which
A. optimally 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 stockholders.

4) Which of the following would represent a use of funds and, indirectly, a reduction in cash balances?
A. the sale of new bonds by the firm
B. a decrease in marketable securities
C. an increase in inventories
D. an increase in accounts payable

5) Which of the following is an inflow of cash?
A. the retirement of the firm's bonds
B. the purchase of a new factory
C. funds spent in normal business operations
D. the sale of the firm's bonds

6) An increase in investments in long-term securities will:
A. decrease cash flow from financing activities.
B. decrease cash flow from investing activities.
C. increase cash flow from investing activities.
D. increase cash flow from financing activities.

7) The most rigorous test of a firm's ability to pay its short-term obligations is its
A. times-interest-earned ratio.
B. quick ratio.
C. current ratio.
D. debt-to-assets ratio.

8) A quick ratio that is much smaller than the current ratio reflects
A. that the firm will have a high return on assets.
B. a large portion of current assets is in inventory.
C. a small portion of current assets is in inventory.
D. that the firm will have a high inventory turnover.

9) In examining the liquidity ratios, the primary emphasis is the firm's
A. ability to earn an adequate return.
B. ability to pay short-term obligations on time.
C. ability to effectively employ its resources.
D. overall debt position.

13) In general, the larger the portion of a firm's sales that are on credit, the
A. more the firm can buy raw materials on credit.
B. more rapidly credit sales will be paid off.
C. lower will be the firm's need to borrow.
D. higher will be the firm's need to borrow.

14) In the percent-of-sales method, an increase in dividends
A. more information is needed.
B. has no effect on required new funds.
C. will increase required new funds.
D. will decrease required new funds.

15) The percent-of-sales method of financial forecasting
A. provides a month-to-month breakdown of data.
B. assumes that balance sheet accounts maintain a constant relationship to sales.
C. is more detailed than a cash budget approach.
D. requires more time than a cash budget approach.

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. prepaid expenses.
B. interest expense.
C. change in retained earnings.
D. gross profit.

17) The key initial element in developing pro forma statements is
A. a collections schedule.
B. a sales forecast.
C. a cash budget.
D. an income statement.

18) The difference between total receipts and total payments is referred to as
A. cash balance.
B. net cash flow.
C. cumulative cash flow.
D. beginning cash flow.

19) Firms with a high degree of operating leverage are
A. trading off higher fixed costs for lower per-unit variable costs.
B. significantly affected by changes in interest rates.
C. easily capable of surviving large changes in sales volume
D. usually trading off lower levels of risk for higher profits.

20) The concept of operating leverage involves the use of __________ to magnify returns at high levels of operation.
A. semi-variable costs
B. fixed costs
C. variable costs
D. marginal costs

21) The degree of operating leverage is computed as
A. percent change in operating income divided by percent change in volume.
B. percent change in operating profit divided by percent change in net income.
C. percent change in volume divided by percent change in operating profit.
D. percent change in EPS divided by percent change in operating income.

22) The break-even point can be calculated as
A. fixed cost divided by contribution margin.
B. variable costs divided by contribution margin.
C. total costs divided by contribution margin.
D. variable cost times contribution margin.

23) 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 breakeven in units?
A. 45,833
B. 9,167
C. 11,458
D. 21,875

24) In break-even analysis, the contribution margin is defined as
A. fixed cost minus variable cost.
B. price minus variable cost.
C. price minus fixed cost.
D. variable cost minus fixed cost.

25) When the yield curve is upward sloping, generally a financial manager should:
A. lease
B. utilize long-term financing
C. utilize short-term financing
D. wait for future financing

26) During tight money periods
A. the relationship between short and long-term rates remains unchanged.
B. long-term rates are higher than short-term rates.
C. short-term rates are higher than long-term rates.
D. short-term rates are equal to long-term rates.

27) Normally, permanent current assets should be financed by
A. internally generated funds.
B. long-term funds.
C. short-term funds.
D. borrowed funds.

28) Which of the following is not a condition under which a prudent manager would accept some risk in financing?
A. Easy access to capital markets
B. Predictable cash-flow patterns
C. Inventory is highly perishable
D. Price of inventory is stable

29) Risk exposure due to heavy short-term borrowing can be compensated for by
A. carrying more receivables to increase cash flow.
B. carrying highly liquid assets.
C. carrying illiquid assets.
D. carrying longer term, more profitable current assets.

30) Which of the following combinations of asset structures and financing patterns is likely to create the most volatile earnings?
A. Liquid assets and heavy short-term borrowing
B. Illiquid assets and heavy short-term borrowing
C. Illiquid assets and heavy long-term borrowing
D. Liquid assets and heavy long-term borrowing

31) "Float" takes place because
A. a customer writes "hot" checks.
B. a firm is early in paying its bills.
C. the level of cash on the firm's books is equal to the level of cash in the bank.
D. a lag exists between writing a check and clearing it through the banking system.

32) 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. extended disbursement.
D. an overdraft.

33) Which of the following is not a valid reason for holding cash?
A. to provide a compensating balance for a bank
B. to earn the highest return possible
C. to satisfy emergency needs for funds
D. to meet transaction requirements

34) Variables important to credit scoring models include
A. all of these variables apply.
B. negative public records.
C. facility ownership.
D. age of company in years.

35) 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 financial statements, satisfactory or slow payment experiences, negative public records (suits, liens, judgments, bankruptcies).
D. The age of the management team, the dollar amount of sales, net profits, and long-term debt.

36) Dun & Bradstreet is known for providing
A. consumer credit reports to credit card companies.
B. credit scoring reports that rank a company's payment habits relative to its peer group.
C. cash management systems to corporate treasurers.
D. interest rate information to cash managers.

37) Compensating balances
A. are used to reward new accounts.
B. are created by having a sweep account.
C. generate returns to customers from interest bearing accounts.
D. are used by banks as a substitute for charging service fees.

38) Large firms tend to be
A. firms with low levels of inventory turnover and accounts receivable turnover.
B. net suppliers of trade credit.
C. firms with high levels of profitability.
D. net users of trade credit.

39) Commercial paper that is sold without going through a broker or dealer is known as
A. term paper.
B. dealer paper.
C. book-entry transactions.
D. direct paper.

40) A large manufacturing firm has been selling on a 3/10, net 30 basis. The firm changes its credit terms to 2/20, net 90. What change might be expected on the balance sheets of its customers?
A. Increased payables and increased bank loans
B. Increased receivables and increased bank loans
C. Increased payables and decreased bank loans
D. Decreased receivables and increased bank loans

41) 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 and the supplier both extend the same credit terms.
D. the firm extends less liberal credit terms than the supplier.

42) 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. a discounted loan.
D. an instalment loan.

43) In determining the future value of a single amount, one measures
A. the present value of periodic payments at a given interest rate.
B. the future value of an amount allowed to grow at a given interest rate.
C. the present value of an amount discounted at a given interest rate.
D. the future value of periodic payments at a given interest rate.

44) An annuity may be defined as
A. a series of consecutive payments of equal amounts.
B. a series of yearly payments.
C. a series of payments of unequal amount.
D. a payment at a fixed interest rate.

45) As the discount rate becomes higher and higher, the present value of inflows approaches
A. need more information
B. plus infinity
C. minus infinity
D. 0

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. $24,003
C. $12,263
D. $11,250

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

48) The future value of a $1000 investment today at 8 percent annual interest compounded semiannually for 5 years is
A. $1,555
B. $1,520
C. $1,480
D. $1,469

Submitted: 8 years ago.Category: Finance
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7/27/2009
Financial Professional: Milan Vaishnav, Financial Advisor replied 8 years ago
Milan Vaishnav
Milan Vaishnav, Financial Advisor
Category: Finance
Satisfied Customers: 972
Experience: Technical Analyst in Financial Markets -- Experience of more than 10 years in consulting
Verified

Dear Friend,

I am giving the correct answers below:

One of the major disadvantages of a sole proprietorship is

C. that there is unlimited liability to the owner.

2) Corporate governance is the

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

3) Maximization of shareholder wealth is a concept in which

A. optimally increasing the long-term value of the firm is emphasized.

4) Which of the following would represent a use of funds and, indirectly, a reduction in cash balances?

C. an increase in inventories

5) Which of the following is an inflow of cash?

D. the sale of the firm's bonds

6) An increase in investments in long-term securities will: <

B. decrease cash flow from investing activities.

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

C. current ratio.

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

A. that the firm will have a high return on assets

9) In examining the liquidity ratios, the primary emphasis is the firm's

B. ability to pay short-term obligations on time

13) In general, the larger the portion of a firm's sales that are on credit, the

D. higher will be the firm's need to borrow

14) In the percent-of-sales method, an increase in dividends

A. more information is needed.

15) The percent-of-sales method of financial forecasting

A. provides a month-to-month breakdown of data.

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:

D. gross profit

17) The key initial element in developing pro forma statements is

B. a sales forecast

18) The difference between total receipts and total payments is referred to as

B. net cash flow

19) Firms with a high degree of operating leverage are

B. significantly affected by changes in interest rates

20) The concept of operating leverage involves the use of __________ to magnify returns at high levels of operation.

B. fixed costs

C. variable costs

21) The degree of operating leverage is computed as

B. percent change in operating profit divided by percent change in net income

22) The break-even point can be calculated as

C. total costs divided by contribution margin

23) 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 breakeven in units?

D. 21,875

24) In break-even analysis, the contribution margin is defined as

B. price minus variable cost

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

D. wait for future financing

26) During tight money periods

C. short-term rates are higher than long-term rates. <

27) Normally, permanent current assets should be financed by

A. internally generated funds.

28) Which of the following is not a condition under which a prudent manager would accept some risk in financing?

A. Easy access to capital markets

B. Predictable cash-flow patterns

29) Risk exposure due to heavy short-term borrowing can be compensated for by

B. carrying highly liquid assets.

30) Which of the following combinations of asset structures and financing patterns is likely to create the most volatile earnings?

A. Liquid assets and heavy short-term borrowing

31) "Float" takes place because

A. a customer writes "hot" checks.

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

A. float

33) Which of the following is not a valid reason for holding cash?

B. to earn the highest return possible

34) Variables important to credit scoring models include

A. all of these variables apply

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

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

36) Dun & Bradstreet is known for providing

B. credit scoring reports that rank a company's payment habits relative to its peer group

37) Compensating balances

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

38) Large firms tend to be <

B. net suppliers of trade credit

39) Commercial paper that is sold without going through a broker or dealer is known as

D. direct paper

40) A large manufacturing firm has been selling on a 3/10, net 30 basis. The firm changes its credit terms to 2/20, net 90. What change might be expected on the balance sheets of its customers?

D. Decreased receivables and increased bank loans

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

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

42) 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

C. a discounted loan

43) In determining the future value of a single amount, one measures

B. the future value of an amount allowed to grow at a given interest rate.

44) An annuity may be defined as

B. a series of yearly payments.

45) As the discount rate becomes higher and higher, the present value of inflows approaches

D. 0

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?

B. $24,003

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:

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

48) The future value of a $1000 investment today at 8 percent annual interest compounded semiannually for 5 years is

D. $1,469

I hope the above helps...

Regards,

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Milan Vaishnav
Milan Vaishnav
Milan Vaishnav, Financial Advisor
Category: Finance
Satisfied Customers: 972
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