Ans Doc230Y

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1) Regarding risk levels, financial managers should
A. evaluate investor’s desire for risk
B. avoid higher risk projects because they destroy value
C. focus primarily on market fluctuations
D. pursue higher risk projects because they increase value
2) One of the major disadvantages of a sole proprietorship is
A. low operating costs.
B. the simplicity of decision making.
C. low organizational costs.
D. that there is unlimited liability to the owner.
3) Insider trading occurs when
A. any stock transactions occur in violation of the Federal Trade Commissions restrictions on monopolies.
B. corporate officers buy stock in their company.
C. lawyers, investment bankers, and others buy common stock in companies represented by their firms.
D. someone has information not available to the public which they use to profit from trading in stocks.
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 accounts payable
D. an increase in inventories
5) Which of the following is not a primary source of capital to the firm?
A. preferred stock
B. common stock
C. assets
D. bonds
6) An increase in investments in long-term securities will:
A. increase cash flow from financing activities.
B. decrease cash flow from investing activities.
C. increase cash flow from investing activities.
D. decrease cash flow from financing activities.
7) In examining the liquidity ratios, the primary emphasis is the firm’s
A. ability to pay short-term obligations on time.
B. overall debt position.
C. ability to effectively employ its resources.
D. ability to earn an adequate return.
8) For a given level of profitability as measured by profit margin, the firm’s return on equity will
A. increase as its debt-to assets ratio increases.
B. decrease as its current ratio increases.
C. increase as its debt-to-assets ratio decreases.
D. decrease as its times-interest-earned ratio decreases.
9) If a firm has both interest expense and lease payments,
A. times interest earned will be the same as fixed charge coverage.
B. times interest earned will be greater than fixed charge coverage.
C. times interest earned will be smaller than fixed charge coverage.
D. fixed charge coverage cannot be computed.
Refer to the figure above. The firm’s inventory turnover ratio is
A. 2.7x.
B. 8x.
C. 10x.
D. 0.1x.
11) Refer to the figure above. Megaframe’s current ratio is
A. 1.5:1
B. 1.625:1
C. 1.9:1
D. 3.2:1
12) Refer to the figure above. The firm’s fixed asset turnover ratio is
A. 2x.
B. 1.5x.
C. 3.1x.
D. 0.1x.
13) 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 the same.
B. is lower.
C. is higher.
D. can be either higher or lower.
14) In general, the larger the portion of a firm’s sales that are on credit, the
A. more rapidly credit sales will be paid off.
B. higher will be the firm’s need to borrow.
C. lower will be the firm’s need to borrow.
D. more the firm can buy raw materials on credit.
15) In the percent-of-sales method, an increase in dividends
A. has no effect on required new funds.
B. will decrease required new funds.
C. will increase required new funds.
D. more information is needed.
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. interest expense.
B. gross profit.
C. change in retained earnings.
D. prepaid expenses.
17) 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. $7,700
B. $8,000
C. $9,000
D. $8,100
18) 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?
A. 2,1,3,4
B. 3,2,4,1
C. 1,2,3,4
D. 3,2,1,4
19) Firms with a high degree of operating leverage are
A. significantly affected by changes in interest rates.
B. usually trading off lower levels of risk for higher profits.
C. trading off higher fixed costs for lower per-unit variable costs.
D. easily capable of surviving large changes in sales volume
20) When a firm employs no debt
A. its operating leverage is equal to its financial leverage.
B. it has a financial leverage of zero.
C. it will not be profitable.
D. it has a financial leverage of one.
21) The degree of operating leverage is computed as
A. percent change in EPS divided by percent change in operating income.
B. percent change in volume divided by percent change in operating profit.
C. percent change in operating income divided by percent change in volume.
D. percent change in operating profit divided by percent change in net income.
22) 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. $30,000
B. $10,000
C. $50,000
D. $13,333
23) A firm’s break-even point will rise if
A. price per unit rises
B. contribution margins increase
C. variable cost per unit rises
D. fixed costs decrease
24) Refer to the figure above. This firm’s break-even point is
A. 7,142 units
B. 14,634 units
C. 18,000 units
D. 4,800 units
25) Normally, permanent current assets should be financed by
A. borrowed funds.
B. short-term funds.
C. internally generated funds.
D. long-term funds.
26) During tight money periods
A. short-term rates are equal to long-term rates.
B. short-term rates are higher than long-term rates.
C. the relationship between short and long-term rates remains unchanged.
D. long-term rates are higher than short-term rates.
27) Kuznets Rental Center requires $1,000,000 in financing over the next two years. Kuznets can borrow long-term at 9 percent interest per year for two years. Alternatively, Kuznets can borrow short-term and pay 7 percent interest in the first year. Then, Kuznets projects paying 10 percent interest in the second year. Assuming Kuznets pays off the accrued interest at the end of each year, which of the following statements is true?
A. Kuznets will probably pay more under the short-term financing plan.
B. Kuznets will definitely end up paying less under the long-term financing plan.
C. Kuznets will probably pay less under the short-term financing plan.
D. Kuznets will definitely end up paying more under the long-term financing plan.
28) Which of the following combinations of asset structures and financing patterns is likely to create the least volatile earnings?
A. Liquid assets and heavy long-term borrowing
B. Illiquid assets and heavy long-term borrowing
C. Liquid assets and heavy short-term borrowing
D. Illiquid assets and heavy short-term borrowing
29) An aggressive working capital policy would have which of following characteristics?
A. A high ratio of short-term debt to long-term sources of funds.
B. A low ratio of short-term debt to fixed assets.
C. A short average collection period.
D. A high ratio of long-term debt to fixed 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 long-term borrowing
B. Illiquid assets and heavy long-term borrowing
C. Liquid assets and heavy short-term borrowing
D. Illiquid assets and heavy short-term borrowing
31) The system whereby funds are moved between computer terminals without use of checks is
A. a lock-box system.
B. float.
C. magnetic character recognition.
D. electronic funds transfer.
32) “Float” takes place because
A. a lag exists between writing a check and clearing it through the banking system.
B. the level of cash on the firm’s books is equal to the level of cash in the bank.
C. a customer writes “hot” checks.
D. a firm is early in paying its bills.
33) In managing cash and marketable securities, what should be the manager’s primary concern?
A. Acceptable return on investment
B. Maximization of liquid assets
C. Liquidity and safety
D. Maximization of profit
34) Which of the following is not a valid quantitative measure for accounts receivable collection policies?
A. ratio of debt to equity
B. aging of accounts receivables
C. average collection period
D. ratio of bad debts to credit sales
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 financial statements, satisfactory or slow payment experiences, negative public records (suits, liens, judgments, bankruptcies).
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 company’s cash balances, return on equity, and its average tax rates.
36) Variables important to credit scoring models include
A. facility ownership.
B. negative public records.
C. age of company in years.
D. all of these variables apply.
37) Which of the following is not a method for lenders to control pledged inventory?
A. Warehousing
B. Trust receipts
C. Blanket inventory liens
D. Factoring
38) Large firms tend to be
A. firms with high levels of profitability.
B. net suppliers of trade credit.
C. net users of trade credit.
D. firms with low levels of inventory turnover and accounts receivable turnover.
39) Compensating balances
A. generate returns to customers from interest bearing accounts.
B. are created by having a sweep account.
C. are used by banks as a substitute for charging service fees.
D. are used to reward new accounts.
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 decreased bank loans
B. Increased receivables and increased bank loans
C. Decreased receivables and increased bank loans
D. Increased payables and increased bank loans
41) Firms exposed to the risk of interest rate changes may reduce that risk by
A. hedging in the commodities market.
B. hedging in the financial futures market.
C. obtaining a Eurodollar loan.
D. pledging or factoring accounts receivable.
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 discounted loan.
B. a compensating balance.
C. an installment loan.
D. a balloon payment.
43) Increasing the number of periods will increase all of the following except
A. the future value of $1.
B. the present value of $1.
C. the present value of an annuity.
D. the future value of an annuity.
44) In determining the future value of a single amount, one measures
A. the future value of an amount allowed to grow at a given interest rate.
B. the present value of an amount discounted at a given interest rate.
C. the future value of periodic payments at a given interest rate.
D. the present value of periodic payments at a given interest rate.
45) As the discount rate becomes higher and higher, the present value of inflows approaches
A. plus infinity
B. minus infinity
C. 0
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 in 15 equal annual payments. How much are the annual payments?
A. $13,113
B. $9,250
C. $3,633
D. $17,383
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; present value of a $1
B. future value of an annuity of $1; present value of an annuity of $1
C. present value of an annuity of $1; future value of an annuity of $1
D. future value of an annuity of $1; future value of a $1
48) 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. $12,263
B. $23,079
C. $24,003
D. $11,250