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FINA 320 Practice quiz 1

Terms in this set (31)

1. Which of the following does NOT offer the protection of limited liability?
sole proprietorship
2. Why does the double taxation problem exist for corporations?
d. Corporations earn taxable income, pays taxes on that income, and then pay dividends to the stockholders, who also have net taxable income.
3. A chief financial officer (CFO) is the top finance officer in a firm. Which function is CFO involved with?
I. Capital budgeting
II. Cost of capital management
III. Working capital management
e. I, II and III
4. Which of the following actions are likely to reduce agency conflicts between stockholders and managers?
b. Increasing the threat of corporate takeover
5. The fundamental goal of financial management should be:
b. Maximize the current value per share of the existing stock.
6. Which of the following would most likely be considered the most liquid asset?
a. A share of IBM common stock
Use the information below for the Greek Corporation to answer the following questions.

Balance Sheet Accounts of Greek Corporation
Account
Balance 12/31/2014
Accounts payable
$2,750
Accounts receivable
$3,200
Cash
$1,500
Common stock
$6,250
Inventory
$4,500
Long-Term debt
$7,100
Plant, property, and equipment
$11,740
Retained earnings
$4,840

7. Refer to the Balance Sheet Accounts of Greek Corporation. The value of total assets for the year-end is ________.
a. $20,940
Total Asset = Cash + A/R + Inventory + PPE
= 1500 + 3200 + 4500 + 11740 = 20940
8. Refer to the Balance Sheet Accounts of Greek Corporation. The value of net working capital at the year-end is ________.
b. $6,450
NWC = CA - CL = (Cash + A/R + Inventory) - A/P
= (1500 + 3200 + 4500) - 2750 = 6450
9. Refer to the Balance Sheet Accounts of Greek Corporation. The value of equity for the year-end is ________.
d. $11,090
Equity = Common Stock + Retained Earnings = 6250 + 4840 = 11090
10. The income statement begins with revenue and subtracts various operating expenses until arriving at the intermediate point of ________.
d. EBIT
11. Net income is ________.
a. not cash flow
12. Which of the following changes in working capital will result in an increase in cash flows?
a. increase in accounts payable
13. The SEC has a site named EDGAR that ________.
d. provides an on-line platform that will help investors find a company and its financial statements
14. A firm has sales of $800, total assets of $500, and a debt ratio of 0.30. If its return on equity is 18%, what is its net income?
d. 63
debt ratio = total debt/total asset =0.3
total debt = 0.3*500 = $150
Total asset = total equity + Total debt
500 = total equity + 150
Total equity = 350
ROE = NI/Total Equity = 18%
NI = 18%*350 = 63
15. The quick ratio is measured as:
d. Current assets minus inventory, divided by current liabilities
16. Which of the following could be calculated with only the use of an income statement?
d. profit margin
17. A firm has a times interest earned ratio of 4.5 times. This means:
d. The firm has sufficient EBIT to cover its interest expense 4.5 times over.
18. Assume a firm's current ratio equals 3.5. Which of the following actions would increase it?
b. Paying off short-term bank loan with the proceeds from new long-term debt.
19. You have the following data for a company. What is the return on assets (ROA)? Return on equity = 15%; Earnings before taxes = $50,000; Total asset turnover = 1.2; Profit margin = 7.5%; Tax rate = 35%.
a. 9%
Net Income = EBT - Tax = EBT - EBT*(Tax Rate)
= 50000 - 50000*35% = 32500
Profit Margin = Net Income/Sale
7.5% = 32500/Sale
Sale = 433333
Total Asset Turnover = Sale/Total Asset
1.2 = 433333/Total Asset
Total Asset = 361111
ROA = Net Income/Total Asset = 32500/361111 =9%
20. Which of the statements below is TRUE?
d. DuPont analysis shows that ROE is net income/sales × sales/total assets × total assets/total equity.
5) ________________ is the area of finance concerned with valuation and risks of financial assets such as stocks and bonds.
Investments
6) Investors buy and sell stocks in ________markets.
secondary
7) The means by which a company is financed refers to the firm's _________.
Capital Structure
8) Which of the following is not a capital budgeting question?
The proper mix of stocks and bonds to hold for financing assets
9) Which of the following is not an advantage of a sole proprietorship?
Limited liability
9) Which of the following is not an advantage of a sole proprietorship?
Limited liability
11) In agency theory, the owners of the business are _______ and the managers are _______
Principles, agents
18) Cash and equivalents are $1561; short-term investments are $1052; accounts receivable are $3616; accounts payable are $5173; short-term debt (due in six months) is $288; inventories are $1816; other current liabilities are $1401; and other current assets are $707. What is the amount of total current liabilities?
6862
17) The income statement begins with revenue and subtracts various operating expenses until arriving at __________.
EBIT (earnings before interest and taxes)
19) The financial data of company ABC on Yahoo! Finance's includes cost of revenue. You would like to break the cost of revenue into its two major components: cost of goods sold and depreciation. To do so, we would need to look at _________ for the cost of goods sold.
income statement
10) Double taxation refers to which of the following scenarios?
The corporation pays taxes on its earnings and stockholders pay taxes on dividends received
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