How can we help?

You can also find more resources in our Help Center.

Financial Management Exam 1

STUDY
PLAY
Lester's BBQ has $121,000 in current assets and $109,000 in current liabilities. These values as referred to as the firm's:
working capital
Will and Bill both enjoy sunshine, water, and surfboards. Thus, the two friends decided to create a business together renting surfboards, paddle boats, and inflatable devices in California. Will and Bill will equally share in the decision making and in the profits or losses. Which type of business did they create if they both have full personal liability for the firm's debts?
General partnership
Todd and Cathy created a firm that is a separate legal entity and will share ownership of that firm on a 50/50 basis. Which type of entity did they create if they have no personal liability for the firm's debts?
Corporation
The federal government has a tax claim on the cash flows of The Window Store. This claim is defined as a claim by one of the firm's:
Stakeholders
The daily financial operations of a firm are primarily controlled by managing the:
working capital
A sole proprietorship:
has its profits taxed as personal income.
Which one of the following functions should be assigned to the treasurer rather than the controller?
cash management
Which one of the following statements correctly applies to a sole proprietorship?
Obtaining additional equity is dependent on the owner's personal finances.
A corporation:
is a legal entity separate from its owners.
The primary goal of financial management is to maximize which one of the following for a corporation?
Market value of existing stock
The Sarbanes-Oxley Act of 2002 has
made officers of publicly traded firms personally responsible for the firm's financial statements.
Which one of the following best describes the primary intent of the Sarbanes-Oxley Act of 2002?
Increase protection against corporate fraud
Which one of the following is most apt to create a situation where an agency conflict could arise?
Separating management from ownership
Which one of the following transactions occurred in the primary market?
South Wind Products sold 1,000 shares of newly issued stock to Mike.
Ted currently owns 100 shares of a publicly traded stock which he would like to sell. Which one of the following provides the most efficient means for Ted to sell his shares?
Secondary market transaction
Net working capital is defined as:
current assets minus current liabilities
The financial statement that summarizes a firm's accounting value as of a particular date is called the:
balance sheet
Which one of the following terms is defined as the total tax paid divided by the total taxable income?
Average tax rate
Which one of the following is the tax rate that applies to the next dollar of taxable income that a firm earns?
Marginal tax rate
Operating cash flow is defined as:
the cash that a firm generates from its normal business activities.
Which one of the following has nearly the same meaning as free cash flow?
Cash flow from assets
Which one of the following is an intangible fixed asset?
Copyright
Delivery trucks are classified as:
tangible fixed assets.
Over the past year, a firm decreased its current assets and increased its current liabilities. As a result, the firm's net working capital:
had to decrease.
Which one of the following is an equity account?
Paid in surplus
Depreciation does which one of the following for a profitable firm?
Lowers taxes
The matching principle states that
the costs of producing an item should be recorded when the sale of that item is recorded as revenue.
Which one of the following will increase cash flow from assets but not affect the operating cash flow?
Sale of a fixed asset
Net capital spending is equal to:
ending net fixed assets minus beginning net fixed assets plus depreciation.
The accounting statement which measures the revenues, expenses, and net income of a firm over a period of time is called the:
income statement
Financial Statement analysis
provides useful information that can serve as a basis for forecasting future performance
If a firm has a 100 percent dividend payout ratio, then the internal growth rate of the firm is:
zero percent
New Century Products is a company that was founded last year. While the outlook for the company is positive, it currently has negative earnings. If you wanted to measure the progress of this firm, which one of the following ratios would probably be best to monitor given the firm's current situation?
Price-sales ratio
All else constant, which one of the following will decrease if a firm increases its net income?
Price-earnings ratio
You would like to borrow money three years from now to build a new building. In preparation for applying for that loan, you are in the process of developing target ratios for your firm. Which set of ratios represents the best target mix considering that you want to obtain outside financing in the relatively near future?
Cash coverage ratio = 2.6; debt-equity ratio = 0.3
Which one of the following will increase the profit margin of a firm, all else constant?
Decrease in the tax rate
Kelso's Pharmacy generates $2 in sales for every $1 the firm has invested in total assets. Which one of the following ratios would reflect this relationship?
Total asset turnover
Blooming Gardens has an inventory turnover of 16. This means the firm:
sells its inventory an average of 16 times each year.
The equity multiplier is equal to:
one plus the debt-equity ratio.
Fred is the owner of a local feed store. Which one of the following ratios should he compute if he wants to know how long the store can pay its bills given the amount of cash the store currently has?
cash ratio
A common-size balance sheet helps financial managers determine:
if changes are occurring in a firm's mix of assets.
Builder's Outlet just hired a new chief financial officer. To get a feel for the company, she wants to compare the firm's sales and costs over the past 3 years determine if any trends are present and also determine where the firm might need to make changes. Which one of the following statements will best suit her purposes?
Common-size income statement
Which one of the following is the abbreviation for the U.S. government coding system that classifies a firm by its specific type of business operations?
SIC
The ratios that are based on financial statement values and used for comparison purposes are called:
financial ratios.
Common-size financial statements present all balance sheet account values as a percentage of:
total assets
Which one of the following actions is indicative of a restrictive short-term financial policy?
Minimizing the cash balances held by the firm
Which one of the following is most indicative of a flexible short-term financial policy?
High ratio of current assets to sales
An increase in the accounts receivable period will do which one of the following?
Lengthen the cash cycle
Which one of the following activities is most apt to reduce the inventory period?
Replacing slow-moving items with faster-selling products
Which one of the following firms is most apt to have the shortest inventory period?
Delicatessen
Which one of the following industries is most apt to have the shortest operating cycle?
Local restaurant
The cash cycle is equal to which one of the following?
Accounts receivable period minus the accounts payable period plus the inventory period
Which one of the following activities is a source of cash?
Decreasing accounts receivable
The operating cycle is equal to which one of the following?
Accounts receivable period plus the inventory period
By definition, an inventory loan is which one of the following types of loan?
Secured short-term loan
Which one of the following best describes a line of credit?
Short-term prearranged bank loan that can be either committed or noncommitted
Refer to section 16.5.
Moore & Moore has just finished projecting its expected cash receipts and expenditures for next year. What is this projection called?
Operating projection
Cash budget
Which one of the following is directly related to increases in a firm's current assets?
Carrying costs