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30 terms

Finance 301 Wool Practice Test

STUDY
PLAY
1 Which of the following is true about Asset Diversification?
A It is necessary to invest in at least 500 assets to achieve significant risk reduction
B It is a way of selecting the highest growth stocks in a portfolio
C It involves allocating 100% of investments in the same industry
D It is a method of calculating expected return on an asset
E It is used to reduce exposure to firm-specific risk
E
It is used to reduce exposure to firm-specific risk
2 Which of the following is a tool of finance?
A Present Value Concept
B Benchmarking Analysis
C Cost-Benefit Analysis
D Supply Chain Modeling
E Foreign Direct Investment
A
Present Value Concept
3 Which of these statements concerning the Principles of Finance is true?
A There is an inverse relationship between risk and return
B Investors prefer less risk to more risk
C A dollar tomorrow is worth more than a dollar today
D Markets are inefficient and new information is slowly reflected in the marketplace
E Stock prices are not random, but follow a predictable pattern based on Profitability Ratios
B Investors prefer less risk to more risk
4 Which of the following is common element of a financial crises
A A Democrat is usually in the White House
B Financial crises occur only about once every 25 years
C The Federal Government is seldom involved in a financial crisis
D Financial crises usually result from excessive investment in an area of the economy or markets
E Financing is virtually impossible to obtain leading up to the crisis
D Financial crises usually result from excessive investment in an area of the economy or markets
5 Which of the following statements regarding the cash flow statement is true?
A Primary Sourse of Cash is Operating Activities; Primary Use of Cash is Investing Activities
B Financing Activities do not have an impact on the Cash Flow Statement
C A typical company has a positive cash flow from Investing Activities.
D Purchases of PP&E can be either an Operating or Financing Activity, based on the size of the purchase
E Depreciation is classified as a cash flow from Financing Activities.
A Primary Sourse of Cash is Operating Activities; Primary Use of Cash is Investing Activities
6 Which of the following statements about stockholders and stakeholders is true?
A Stockholders' interests are protected by contracts
B The federal government is a corporate stakeholder
C Stockholders have a claim on the firm's cash flows prior to debt holders and suppliers
D Danny Devito (in 'Other People's Money') exposes the stakeholder philosophy
E Stakeholders have a residual claim on the cash flows of a corporation
B The federal government is a corporate stakeholder
7 Which of the following is true about the different organizational forms?
A Partnerships and Sole Proprietorships profits are double taxed
B It is easy to raise large amounts of money in a partnership.
C Corporations are the most complex form of business organization to start up
D The liability of the owner is limited in a sole proprietorship
E Transferring ownership is most difficult for a corporation
C Corporations are the most complex form of business organization to start up
8 Which of the following is true regarding corporate governance?
A Management had a high level of stock ownership in the 1980s
B In the 1980s CEOs were more likely to be fired than before
C CEO's accountability for their performance declined in the 1990s
D Japanese companies have fewer takeovers compared to the United States
E Hostile takeovers dominated the 1990s
D Japanese companies have fewer takeovers compared to the United States
9 Which of the following is true regarding financial statements?
A Operating profit equals sales minus cost of goods sold.
B The Balance Sheet measures the growth in assets over a period of time.
C Shareholders' equity is found on the income statement
D Assets PLUS Liabilities EQUALS Shareholder Equity
E The Cash Flow Statement shows how the cash balance changed from one period to the next
E The Cash Flow Statement shows how the cash balance changed from one period to the next
10 Disney's stock price increased from $40 to $48 last year, and the company paid a $2 dividend.
What was the stock return on Disney?
A 10.0%
B 15.0%
C 20.0%
D 25.0%
E 30.0%
D 25.0%
11 Which statement is the most accurate reflection of the agency problem?
A Management pursues strategies that maximize shareholder value
B The objectives of shareholders and management are aligned
C Management allocates corporate resources in a way that benefits stockholders
D Management does not have an ownership stake in the company
E The management has stock options in the company.
D Management does not have an ownership stake in the company
12 Management's overall performance is best gauged by
A Profitability ratios
B Liquidity Ratios
C Leverage ratios
D Activity ratios
E Efficiency ratios
A Profitability ratios
13 Use the Strategic Profit Model to calculate the ROE for Badger Inc in 2007:
Profit Margin = 10%
Asset Turnover = 1.5
Financial Leverage = 0.6
A 6.0%
B 9.0%
C 12.0%
D 15.0%
E 18.0%
B 9.0%
14 On a common sized income statement, what is Intel's 'Short Term Investments' in 2008?
A 13.64%
B 26.83%
C 10.51%
D 18.13%
E 22.43%
C 10.51%

short term investments/assets
15 What is Intel's return on assets for 2008?
A 8.92%
B 13.54%
C 10.43%
D 15.84%
E 11.33%
E 11.33%

net income/assets
16 What is Intel's Current Ratio in 2007?
A 2.50%
B 8.70%
C 4.13%
D 2.78%
E 5.80%
D 2.78%

current assets/current liabilities
17 What is Intel's inventory turnover for 2008?
A 2.78
B 4.47
C 4.31
D 5.66
E 8.10
B 4.47

CGS/inventory
18 Which of the following is true regarding financial ethics?
A The capitalization of expenses involves shifting income from the current period to a future period
B Earnings management involves ommitting the disclosure of certain liabilities of a corporation
C WorldCom's primary shenigan was in its aggressive recognition of revenue
D Wall Street's brokerage firms and the banking industry escaped blame in the financial scandals such as Enron
E The most common form of 'financial shenanigan' involves improper revenue recognition
E The most common form of 'financial shenanigan' involves improper revenue recognition
19 Which of the following is an example of a working capital management issue:
A Determining how much cash to keep on hand
B Identifying long-term investment opportunities for the company
C Deciding whether to invest in technology to support customer service
D Determining whether to raise the dividend paid on shares of stock
E Choosing the best financing option for an acquisition
A Determining how much cash to keep on hand
20 Calculate Hawkeye Corp's Market Capitalization using the below information.
Shares Outstanding = 1,000,000
Price Per Share = $2
Book Value Per Share = $5
Earnings Per Share = $.25
A $5,000,000
B $2,000,000
C $250,000
D $10,000,000
E $2,500,000
B $2,000,000

Price per share*number of shares outstanding
21 The Dow Jones is currently trading at ________; The Nasdaq is currently trading at ________?
A 16,000; 1,350
B 8,750; 4,350
C 25,000; 3,500
D 12,000; 2,500
E 7,000; 1,200
D 12,000; 2,500
22 Which of the following is true regarding the roles of the Controller and Treasurer
A Controller oversees the Treasury of the company; Treasurer is the head of Accounting
B Controller is responsible for auditing company financials; Treasurer puts together the financial statements
C Controller is responsible for compiling Financial Statements & Reports; Treasurer manages Capital Budgets
D Controller reports to the Treasurer; Treasurer reports to the President
E Controller is responsible for managing short term capital requirements; Treasurer is reponsible for managing long term capital requirements
C Controller is responsible for compiling Financial Statements & Reports; Treasurer manages Capital Budgets
23 Which of the following is true about Bernie Madoff?
A Madoff's investment scam lasted only several months
B Unlike Charles Ponzi, Madoff promised very high investment returns
C Madoff's fraud pre-dated the scheme run by Charles Ponzi
D The Securities and Exchange Commission ddiscovered Madoff's investment
E Schemes like Madoff's require new investment dollars on an ongoing basis to continue
E Schemes like Madoff's require new investment dollars on an ongoing basis to continue
24 The current financial crisis includes all of the following except:
A The dramatic fall in the mortgage market after a financial bubble in the housing market
B An increase in the U.S. inflation rate
C A government bail-out of the financial system
D The collapse of several major financial institutions, including Lehman Brothers
E An economic recession
B An increase in the U.S. inflation rate
25 Given the following information, calculate the Cash Flow for Wolverine Inc
Net Income = $500,000
Depreciation = $50,000
Sales of Property = $100,000
Common Stock Repurchase = $200,000
A $400,000
B $450,000
C $500,000
D $550,000
E $600,000
B $450,000

Net Income+Depreciation+Sales-Purchases
26 Which of the following statements is true concerning Firms A, B, & C
A A is the most liquid of the 3 firms
B Investors believe C has the greatest growth prospects
C C is the most efficient at collecting payments from customers
D A derives the most net income for every dollar of assets
E B is more profitable compared to the other firms
D A derives the most net income for every dollar of assets
27 Which of the following statements is true concerning Firms A, B, & C
A B is the highest leveraged of the three firms
B A earns the most profit for every dollar of equity
C B is the least efficient at turning over inventory
D C has more equity than debt
E A is the least profitable of the 3 firms
B A earns the most profit for every dollar of equity
28 Which of the following is true regarding Berkshire Hatheway?
A Berkshire was one of the companies bailed out by the Federal Government after the financial crisis
B Berkshire 's stock has underperformed the overall stock market over the long term.
C Berkshire's A shares trade for over $100,000 per share
D Bershire is primarily an energy company
E Bershire is 100% owned by Warren Buffett
C Berkshire's A shares trade for over $100,000 per share
29 Which of the following is an example of an agency problem?
A Management decides to acquire another firm at a much higher value than its worth
B Management provides dividends to shareholders
C Management decides to invest in a project with a positive net present value
D Managers buy additional shares in the company
E Managerment issues debt to reduce the cost of capital
A Management decides to acquire another firm at a much higher value than its worth
30 Which of the following is a way of shifting current revenues to a later period?
A Taking the Big Bath
B Aggressive Accounting
C Cookie Jar Reserves
D Recording Bogus Revenue
E Pacman Defense
C Cookie Jar Reserves