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Finance Flashcards

Finance Exam 3 Review

A business partner whose potential financial loss in the partnership will not exceed his or her investment in that partnership is called a:a. zero partnerb. corporate shareholderc. limited partnerd. generally partnere. sole proprietor c. limited partner
Which one of the following is defined as a firm’s short-term assets and its short-term liabilities?a. debtb. capital structurec. investment capitald. net capitale. working capital e. working capital
A general partner:a. has no say over a firm’s daily operationsb. faces double taxation whereas a limited partner does notc. is personally responsible for all the partnerships debtsd. has a max loss equal to his or her equity investmente. receives a salary in lieu of a portion of the profits c. is personally responsible for all the partnerships debts
A stakeholder is:a. a person who initially founded a firm and currently has management control over that firmb. any person or entity other than a stockholder or creditor who potentially has a claim on the cash flows of a firmc. a creditor to whom a firm currently owes moneyd. a person who owns shares of stocke. any person who has voting rights based on stock ownership of a corporation b. any person or entity other than a stockholder or creditor who potentially has a claim on the cash flows of a firm
Which one of the following statements concerning a sole proprietorship is correct?a. the owner of a sole proprietorship is personally responsible for all of the company’s debtsb. the profits of a sole proprietorship are subject to double taxationc. A sole proprietorship is structured the same as a limited liability companyd. there are very few sole proprietorships remaining in the U.S. todaye. A sole proprietorship is designed to protect the personal assets of the owner a. the owner of a sole proprietorship is personally responsible for all of the company’s debts
Which one of the following terms is defined as the management of a firm’s long-term investments?a. agency cost analysisb. capital structurec. working capital managementd. capital budgetinge. financial allocation d. capital budgeting
Which one of the following functions should be the responsibility of the controller rather than the treasurer?a. equipment purchase analysisb. payment to a vendorc. income tax returns d. daily cash deposit c. income tax returns
Which one of the following best describes the primary advantage of being a limited partner instead of a general partner?a. no potential financial lossb. greater control over the business affairs of the partnershipc. active participation in the firm’s activitiesd. maximum loss limited to the capital investede. tax-free income d. maximum loss limited to the capital invested
Which one of the following best illustrates that the management of a firm is adhering to the goal of financial management?a. increase in the number of share outstandingb. decrease in the net working capitalc. decrease in the per unit production costsd. increase in the amount of the quarterly dividende. increase in the market value per share e. increase in the market value per share
Which one of the following is a capital structure decision?a. determining which one of two projects to acceptb. determining the amount of funds needed to finance customer purchases of a new productc. determining how much debt should be assumed to fund a projectd. determining how much inventory will be needed to support a projecte. determining how to allocate investment funds to multiple projects c. determining how much debt should be assumed to fund a project
Which one of the following is included in a firm’s market value but yet is excluded from the firm’s accounting value?a. an item held by the firm for future saleb. good reputation of the company c. money due from a customerd. equipment owned by the firme. real estate investment b. good reputation of the company
Non-cash items refer to:a. accrued expensesb. the ownership of intangible assets such as patentsc. sales which are made using store creditd. expenses which do not directly affect cash flowe. inventory items purchased using credit d. expenses which do not directly affect cash flow
Which one of the following must be true if a firm had a negative cash flow from assets?a. Newly issued shares of stock were soldb. The firm borrowed moneyc. The firm had a net loss for the periodd. The firm acquired new fixed assetse. The firm utilized outside funding e. the firm utilized outside funding
Depreciation: a. decreases net fixed assets, net income, and operating cash flowsb. reduces both taxes and net income c. reduces both the net fixed assets and the costs of a firmd. increases the net fixed assets as shown on the balance sheete. is a noncash expense which increases the net income b. reduces both taxes and net income
The cash flow of a firm which is available for distribution to the firm’s creditors and stockholders is called the:a. cash flow to stockholdersb. net working capitalc. operating cash flowd. net capital spendinge. cash flow from assets e. cash flow from assets
The percentage of the next dollar you earn that must be paid in taxes is referred to as the _____ tax rate.a. averageb. marginal c. totald. residuale. mean b. marginal
Which one of the following will increase the value of a firm’s net working capital?a. collecting an accounts receivableb. selling inventory at a profitc. using cash to pay a supplierd. depreciating an assete. purchasing inventory on credit b. selling inventory at a profit
Cash flow to stockholders is defined as:a. the total amount of interest and dividends paid during the past yearb. operating cash flow minus the cash flow to creditorsc. cash flow from assets plus the cash flow to creditorsd. dividend payments less net new equity raisede. the change in total equity over the past year d. dividend payments less net new equity raised
The book value of a firm is:a. adjusted to the market value whenever the market value exceeds the stated book valueb. based on historical cost c. more of a financial than an accounting valuationd. equivalent to the firm’s market value provided that the firm has some fixed assetse. generally greater than the market value when fixed assets are included b. based on historical cost
Shareholder’s equity:a. is equal to total assets plus total liabilitiesb. increases in value anytime total assets increasesc. includes long-term debt, preferred stock, and common stockd. represents the residual value of a firm e. decreases whenever new shares of stock are issued d. represents the residual value of a firm
The cash flow related to interest payments less any net new borrowing is called the:a. cash flow to creditors b. cash flow from assetsc. net working capitald. operating cash flowe. capital spending cash flow a. cash flow to creditors
Which one of the following statements concerning net working capital is correct?a. The lower the value of net working capital the greater the ability of firm to meet its current obligationsb. Firms with equal amounts of net working capital are also equally liquidc. Net working capital is a part of the opreating cash flowd. An increase in net working capital must also increase current assetse. Net working capital increases when inventory is sold for cash at a profit e. Net working capital increases when inventory is sold for cash at a profit
Which one of these is most apt to be a fixed cost?a. office salaries b. raw materialsc. manufacturing wagesd. shipping and freighte. management bonuses a. office salaries
Which one of the following is classified as an intangible fixed asset?a. accounts receivableb. inventoryc. production equipmentd. trademark e. building d. trademark
Which one of the following accounts is the most liquid?a. inventoryb. landc. accounts receivabled. equipmente. building c. accounts receivable
The common set of standards and procedures by which audited financial statements are prepared is known as the :a. Financial Accounting Reporting Principlesb. matching principlec. cash flow identityd. Standard Accounting Value Guidelinese. Generally Accepted Accounting Principles e. Generally Accepted Accounting Principles
Which one of the following is the financial statement that shows the accounting value of a firm’s equity as of a particular date?a. statement of cash flowsb. income statementc. creditor’s statementd. balance sheet e. dividend statement d. balance sheet
Activities of a firm which require the spending of cash are known as:a. cash receiptsb. uses of cash c. cash on handd. sources of cashe. cash collections b. uses of cash
Which one of the following standardizes items on the income statement and balance sheet relative to their values as of a chosen point in time?a. common-base year statement b. statement of standardizationc. statement of cash flowsd. common size statemente. base reconciliation statement a. common-base year statement
A common-size income statement is an accounting statement that expresses all of a firm’s expenses as a percentage of:a. total equityb. net incomec. salesd. taxable incomee. total assets c. sales
Relationships determined from a firm’s financial information and used for comparison purposes are known as:a. scenario analysisb. dimensional analysisc. identitiesd. financial ratiose. solvency analysis d. financial ratios
The formula which breaks down the return on equity into three component part is referred to as which one of the following?a. equity performance formulab. Du Pont identityc. SIC formulad. equity equatione. profitability determinant b. Du Pont identity
An increase in current liabilities will have which one of the following effects, all else held constant? Assume all ratios have positive values.a. increase in the cash ratiob. increase in the net working capital to total assets ratioc. increase in the current ratiod. decrease in the cash coverage ratioe. decrease in the quick ratio e. decrease in the quick ratio
A firm currently has $600 in debt for every $1,000 in equity. Assume the firm uses some of its cash to decrease its debt while maintaining its current equity and net income. Which one of the following will decrease as a result of the action?a. profit margin b. equity multiplierc. return of equityd. total asset turnovere. return on assets b. equity multiplier
Which one of the following is a source of cash?a. repurchase of common stockb. purchase of inventoryc. acquisition of debt d. granting credit to a customere. payment to a supplier c. acquisition of debt
Which on of the following is a source of cash?a. decrease in notes payableb. decrease in common stockc. increase in accounts payabled. increase in accounts receivable e. increase in inventory c. increase in accounts payable
A firm is currently operating at full capacity. Net working capital, costs, and all assets vary directly with sales. The firm does not wish to obtain any additional equity financing. The dividend payout ratio is currently at 40 percent. If the firm has a positive external financing need, that need will be met by:a. long-term debt b. retained eariningsc. accounts payabled. fixed assetse. common stock a. long-term debt
Atlas Industries combines the smaller investment proposals from each operational unit into a single project for planning purposes. This process is referred to as which one of the following?a. summationb. conjoiningc. appropriationd. conglomeratione. aggregation e. aggregation
When constructing a pro forma statement, net working capital generally:a. varies only if the firm is producing at less than full capacityb. remains fixedc. varies only if the firm maintains a fixed debt-equity ratiod. varies proportionally with sales e. varies only if the firm is currently producing at full capacity d. varies proportionally with sales
Which one of the following terms is defined as dividends paid expressed as a percentage of net income?a. dividend sectionb. dividend portionc. dividend payout ratiod. dividend yielde. dividend retention ratio c. dividend payout ratio
Financial planning:a. is a process that firms employ only when major changes to a firm’s operations are anticipatedb. considers multiple options and scenarios for the next two to five years c. provides minimal benefits for firms that are highly responsive to economic changesd. is a process that firms undergo once every five yearse. focuses solely on the short-term outlook for a firm b. considers multiple options and scenarios for the next two to five years
Which one of the following is correct in relation to pro forma statements?a. Fixed assets must increase if sales are projected to increaseb. The addition to retained earnings is equal to net income plus dividends paidc. Net working capital is affected only when a firm’s sales are expected to exceed the firm’s current production capacityd. Inventory changes are directly proportional to sales changes e. Long-term debt varies directly with sales when a firm is currently operating at maximum capacity d. inventory changes are directly proportional to sales changes
You are getting ready to prepare pro forma statements for your business. Which one of the following are you most apt to estimate first as you begin this process?Select one:a. external financing needb. fixed assetsc. current assetsd. sales forecast e. projected net income d. sales forecast
A pro forma statement indicates that both sales and fixed assets are projected to increase by 7 percent over their current levels. Given this, you can safely assume that the firm:a. currently has excess capacityb. is projected to grow at the sustainable rate of growthc. retains all of its net incomed. is projected to grow at the internal rate of growthe. is currently operating at full capacity e. is currently operating at full capacity
Phil is working on a financial plan for the next three years. The time period is referred to as which one of the following?a. planning agendab. short-runc. planning horizond. financial rangee. current financing period c. planning horizon
Which one of the following terms is applied to the financial planning method which uses the projected sales level as the basis for determining changes in balance sheet and income statement account values?a. sales dilution methodb. common-size methodc. sales reconciliation methodd. trend methode. percentage of sales method e. percentage of sales method

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