1) Insider trading occurs when
D. someone has information not available to the public which they use to profit from trading in stocks.
2) Regarding risk levels, financial managers should
C. avoid higher risk projects because they destroy value
3) One of the major disadvantages of a sole proprietorship is
D. that there is unlimited liability to the owner.
4) Which of the following would represent a use of funds and, indirectly, a reduction in cash balances?
D. an increase in inventories
5) Which account represents the cumulative earnings of the firm since its formation, minus dividends paid?
A. Retained earnings
6) An increase in investments in long-term securities will:
D. increase cash flow from investing activities.
7) If a firm has both interest expense and lease payments,
D. times interest earned will be smaller than fixed charge coverage.
8) The most rigorous test of a firm's ability to pay its short-term obligations is its
B. quick ratio.
9) For a given level of profitability as measured by profit margin, the firm's return on equity will
D. increase as its debt-to assets ratio increases.
13) The need for an increase or decrease in short-term borrowing can be predicted by
B. trend analysis.
14) In financial statements, the number of units shown in cost of goods sold as compared to the number of the units actually produced
C. can be either higher or lower.
15) In order to estimate production requirements, we
B. add projected sales in units to desired ending inventory and subtract beginning inventory.
16) In developing the pro forma income statement we follow four important steps:
1) compute other expenses,
2) determine a production schedule,
3) establish a sales projection,
4) determine profit by completing the actual pro forma statement.
What is the correct order for these four steps?
17) The difference between total receipts and total payments is referred to as
D. net cash flow.
18) A firm utilizing LIFO inventory accounting would, in calculating gross profits, assume that
B. all sales were from beginning inventory.
19) Under which of the following conditions could the overuse of financial leverage be detrimental to the firm?
C. Low interest cost compared to return on assets
20) The concept of operating leverage involves the use of __________ to magnify returns at high levels of operation.
A. variable costs
21) Financial leverage deals with:
A. the relationship of debt and equity in the capital structure.
22) The break-even point can be calculated as
C. fixed cost divided by contribution margin.
23) In break-even analysis, the contribution margin is defined as
C. fixed cost minus variable cost.
24) 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?
25) Normally, permanent current assets should be financed by
C. internally generated funds.
26) During tight money periods
A. short-term rates are higher than long-term rates.
27) A conservatively financed firm would
B. use equity to finance fixed assets, long-term debt to finance permanent assets, and short-term debt to finance fluctuating current assets.
28) Risk exposure due to heavy short-term borrowing can be compensated for by
C. carrying more receivables to increase cash flow.
29) Which of the following combinations of asset structures and financing patterns is likely to create the most volatile earnings?
C. Liquid assets and heavy short-term borrowing
30) Which of the following is not a condition under which a prudent manager would accept some risk in financing?
D. Inventory is highly perishable
31) The difference between the amount of cash on the firm's books and the amount credited to it by the bank is
C. an overdraft.
32) "Float" takes place because
B. a lag exists between writing a check and clearing it through the banking system.
33) The system whereby funds are moved between computer terminals without use of checks is
34) Variables important to credit scoring models include
A. all of these variables apply.
35) The most subjective and also significant segment of the 5 C's of credit for giving final approval is
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?
B. The financial statements, satisfactory or slow payment experiences, negative public records (suits, liens, judgments, bankruptcies).
37) Compensating balances
C. are used by banks as a substitute for charging service fees.
38) Commercial paper that is sold without going through a broker or dealer is known as
A. term paper.
39) Large firms tend to be
B. firms with high levels of profitability.
40) From the banker's point of view, short-term bank credit is an excellent way of financing
D. permanent working capital needs.
41) 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 receivables and increased bank loans
42) Trade credit may be used to finance a major part of the firm's working capital when
A. the firm extends more liberal credit terms than the supplier.
43) As the discount rate becomes higher and higher, the present value of inflows approaches
A. minus infinity
44) Increasing the number of periods will increase all of the following except
C. the future 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
46) 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?
47) If you invest $8,000 at 12% interest, how much will you have in 7 years?
48) The future value of a $1000 investment today at 8 percent annual interest compounded semiannually for 5 years is