Finance 302 Test 1

Which of the following statements best represents what finance is about?A. How political, social, and economic forces affect corporations.B.Maximizing profitsC. the study of how people and businesses make investment decisions and how to finance those decisionsD. Reducing risk C. the study of how people and businesses make investment decisions and how to finance those decisions
From a financial point of view, a company that decides to develop new product is makingA. a financing decisionB. an investment decisionC. a capital structure decisionD. a cash flow decisions B. An investment decision
Working Capital Management refers toA. long term financing decisionsB. The management of cash flowsC. Investing in product developmentD. Capital Structure B. The management of cash flows
Finance Managers need to interact constantly withA. Marketing managersB. Accounting StaffC. Management information systems staffD. All of the above D. All of the above
The personal decision to obtain a college degree in business is primarily a ——– decision?A. socialB. InvestmentC. ethicalD. Financing B. Investment
The area of finance that deals with long term investment decisions is known as A. Capital StructureB. Working Capital ManagementC. Financial strategyD. capital budgeting D. Capital budgeting
Maximization of shareholder wealth as a goal is superior to accounting profit maximization becauseA. It considers the time value of the moneyB. Following the shareholder wealth maximization goal will ensure high stock prices.C. accounting profits are not the same as cash flow.D. A and C A. It considers the time value of the money
Which of the following best describes the goal of the firm?A. The maximization of the total market value of the firm’s common stockB. Profit maximizationC. Risk minimizationD. None of the above A. The maximization of the total market value of the firm’s common stock
Profit maximization does not adequately describe the goal of the firm becauseA. Profit maximization does not require the consideration of risk.B. Profit maximization ignores the timing of a project’s return.C. Maximization of dividend payout ratio is a better description of the goal of the firm.D. A and B D. A and B
Which of the following goals of the firm is equivalent to the maximization of shareholder wealth?A. Profit MaximizationB.Risk minimizationC. Maximization of the total market value of the firm’s common stock.D. None of the above C. Maximization of the total market value of the firm’s common stock.
If managers are making decisions to maximize shareholder wealth, then they are primarily concerned with making decisions that shouldA. Positively affect profitsB. Increase the market value of the firm’s common stockC. Either increase or have no effect on the value of the firms common stockD. accomplish all of the above. B. Increase the market value of the firm’s common stock
Profit maximization is not an adequate goal of the firm when making financial decisions becauseA. it does not necessarily reflect shareholder wealth maximizationB. It ignores the risk inherent in different projects that will generate the profitsC. it ignores the timing of a project’s returnsD. All of the above are correct D. All of the above are correct
Which of the following goals is in the best long term interest of stockholders?A. Profit maximizationB. Risk minimizationC. Maximizing of the market value of the existing shareholders’ common stock D. Maximizing sales revenues C. Maximizing of the market value of the existing shareholders’ common stock
If managers do not pursue the goal of maximizing shareholder wealthA. They concentrate on more important matters like growing market shareB. they can focus more on social responsibilitiesC. They are likely to lose their jobsD. they can focus on more long term profitability C. They are likely to lose their jobs
What does the agency problem refer to?A. The conflict that exists between the board of directors and the employees of the firmB. The problem associated with financial managers and Internal Revenue agentsC. The conflict that exists between stockbrokers and investorsD. The problem that results from potential conflicts of interest between the manager of a business and the stockholders. D. The problem that results from potential conflicts of interest between the manager of a business and the stockholders.
Managers of corporations need to act in an ethical mannerA. Because ethics violations will be punished by the lawB. because a business must be trusted by investors, customer and the public if it is to succeedC. because business managers must answer to a higher authorityD. Because ethical behavior is its own justification. B. because a business must be trusted by investors, customers, and the public if it is to succeed
If an investor had a choice of receiving $1000 today or $1000 in five years, which would the average investor prefer?A. 1000 in five years because they are not good at saving moneyB. 1000 today because it will be worth more than 1000 received in five yearsC. 1000 in five years because it will be worth more than 1000 received todayD. Investors would be indifferent to when they would receive the 1000E. None of the above B. 1000 today because it will be worth more than 1000 received in five years
Why do investors prefer receiving cash sooner rather than later, according to finance theory?A. Incremental profits are greater than accounting profitsB. Money received earlier can be reinvested and returns can be increased.C. Tax considerations are important when investing.D. Diversification leads to increased value B. Money received earlier can be reinvested and returns can be increased.
Investors choose to invest in higher risk investments because these investments offer higherA. expected returnsB. InflationC. Actual returnsD. future consumption A. expected returns
Foregoing the earning potential of a dollar today is referred to as theA. Time value of moneyB. Opportunity cost conceptC. Risk/Return TradeoffD. Creation of wealth B. Opportunity cost concept
In measuring value the focus should be onA. Cash flowB. accounting profitsC. Time value of moneyD. Earnings per share A. Cash flow
Which of the following is a characteristic of an efficient market?A. small number of individualsB. Opportunities exist for investors to profit from publicly available informationC. Security prices reflect fair value of the firmD. Immediate response occurs for the new public information C. Security prices reflect fair value of the firm
Which of the following factors is most important in investment decisions?A. the change in earnings before taxesB.Th change in gross sales revenueC. The change in net incomeD. The change in after-tax cash flow C. The change in net income
Investors prefer $1 today versus $1 in the future due to A. time value of moneyB. response to incentivesC. the need for immediate gratificationD. A and B A. time value of money
The price of Netflix stock dropped sharply after customers responded negatively to a change in pricing policies. The change in stock price illustrates which principle?A. Market prices reflect informationB. Individuals respond to incentivesC. Cash flows are the source of valueD. The time value of money A. Market prices reflect information
All of the following operate as financial intermediaries exceptA. commercial banksB. mutual fundsC. insurance companiesD. public universities D. public universities
All of the following are true about insurance companies ExceptA. they invest their reservesB. they may guarantee to reimburse lenders would lenders loans go into defaultC. They participate in equipment leasingD. They may only invest their reserves in interest paying bank accounts under Federal law D. They may only invest their reserves in interest paying bank accounts under Federal law
Which of the following is true regarding Investment Banks As a result of the financial crisis of 2008 all stand alone investment banks either failed were merged into commercial banks or became commercial banks
Each of the following is true of mutual funds except?A. Funds can be classified as load or no load fundsB. Mutual Fund shares must be bought from or sold to the Fund by investorsC. An index fund is the fund with the highest expenses payable by investorsD. The NAV is the total value of stock held by the fund divided by the number of outstanding shares in the mutual fund C. An index fund is the fund with the highest expenses payable by investors
Insurance companies have a great deal of money to invest becauseA. Their profit margins are so highB. because they are reluctant to cover insurable lossesC. because they must hold large reserves to pay potential claimsD. Insurance do not actually have large sums to invest C. because they must hold large reserves to pay potential claims
Which of the following is true about bonds?A. They are obligations from the investor to the corporationB. Their interest rate always varies with the Consumer Price IndexC. They have a fixed maturity, and they pay an amount equal to the maturity value times the coupon rate each yearD. At maturity of the bond, the investor receives the market price of the bond C. They have a fixed maturity, and they pay an amount equal to the maturity value times the coupon rate each year
Which of the following is true about Preferred Stock?A) Preferred shareholders always have voting rights.B) If at a time a dividend is due on preferred stock, if the company does not have the funds to pay the dividend, the right of the preferred shareholders to collect that dividend lapses.C) Preferred dividends are not tax deductible to the corporation.D) Like bonds, preferred stock always has a maturity date at which time the issue price must be repaid to shareholders. C) Preferred dividends are not tax deductible to the corporation.
The market for short term debt is known asA. The bond marketB. the notes marketC. the capital marketD. the money market D. The money market
Characteristics of typical bonds include all of the following exceptA. the par valueB. The dividend rateC. The coupon rateD. the maturity date B. The dividend rate
Which of the following financial instruments is not traded in the capital markets?A. Debt with a maturity of less than one yearB. BondsC. Common StockD. Preferred Stock A. Debt with a maturity of less than one year
Which of the following instruments entails the most risk and potentially the highest returns for investors?A. Debt with a maturity of less than one yearB. BondsC. Common StockD. Preferred Stock C. Common Stock
Which of the basic financial statements is best used to answer the question, “How profitable is the businessA. Balance sheetB. Statement of shareholder’s equityC. Income StatementD. Accounts receivable aging schedule C. Income Statement
Who owns the retained earnings of a public firm?A. The IRSB. common stockholdersC. BondholdersD. Preferred stockholders B. common stockholders
Which of the following represents an attempt to measure the earnings of the firm’s operations over a given time period?A. Balance SheetB. Cash flow statementC. Income StatementD. None of the above C. Income Statement
Stock that is repurchased by the issuing company is called Treasury Stock
Which of the basic financial statements is best used to answer the question, “What does the company own and how is it financed” A. Balance SheetB. Statement of shareholders’ equityC. Income StatementD. Cash Flow statement A. Balance Sheet
Which of the basic financial statements is best used to answer the question, ” Where did the company’s money come from and how was it spent over the preceding year?”A. Balance SheetB. Statement of shareholders’ equityC. Income StatementD. Cash Flow statement D. Cash Flow statement
Which of the basic financial statements is best used to answer questions about the changes in owner’s equity that are not explained by the income statement?A. Balance SheetB. Statement of shareholders’ equityC. Income StatementD. Cash Flow statement B. Statement of shareholders’ equity
On the income statement, sales revenue, minus cost of goods sold and operating expenses, equals which of the following?A. Net profitB. Retained earningsC. Net income available to preferred shareholdersD. EBIT D. EBIT
Which of the following streams of income is not affected by how a firm is financed (whether with debt or equity)?A. Net profit after tax but before dividendsB. Net working capitalC. Operating incomeD. Income before tax C. Operating income
which of the following is not included in computing EBT (earnings before taxes)?A. Marketing expensesB. Depreciation expenseC. Cost of goods sold D. Dividends D. Dividends
Your firm has the following income statement items: sales of $50,250,000; income tax of $1,744,000; operating expenses of $10,115,000; cost of goods sold of $35,025,000; and interest expense of $750,000. what is the amount of the firms EBIT? $5,110,000 ( Sales minus everything but interest and taxes)
Your firm has the following income statement items: sales of $50,250,000; income tax of $1,744,000; operating expenses of $10,115,000; cost of goods sold of $35,025,000; and interest expense of $750,000. What is the amount of the firm’s gross profit? $15,225,000 (Sales – Cost of Goods sold)
Your firm has the following income statement items: sales of $50,250,000; income tax of $1,744,000; operating expenses of $10,115,000; cost of goods sold of $35,025,000; and interest expense of $750,000. What is the amount of the firm’s income before taxes? $4,360,000
Your firm has the following income statement items: sales of $50,250,000; income tax of $1,744,000; operating expenses of $8,750,000; cost of goods sold of $35,025,000; and interest expense of $750,000. What is the amount of the firm’s net income? $4,731,000
Your firm has the following income statement items: sales of $52,000,000; income tax of 1,880,000; operating expenses of $9,000,000; cost of goods sold of $36,000,000; and interest expense of $800,000. Compute the firm’s gross profit margin. 30.8 (subtract cost of goods sold (COGS) from total revenue and dividing that number by total revenue)
Calculate dividends Current net income + previous net income – current retained earnings
Bird’s common stock dividend for 2012? 2300
total amount of Snark common stock dividend for 2012 400
Which of the following best represents operating income? A. Income after financing activitiesB. Earnings before interest and taxesC. Income from capital gainsD. Income from discontinued operations B. Earnings before interest and taxes
Which of the following best represents the stream of income that is available to stock holders?A. Net profit after taxB. Earnings before interest, taxes and dividendsC. Gross profit D. Operating profit C. Gross profit
Which of the following is NOT included in operating income?A. Cost of goods soldB. SalesC. TaxesD. Operating expenses C. Taxes
The practice of shifting income from good years to poor years in order to show a record of steady growth is Known as earnings management and is considered unethical
Firms should compare their gross, operating and net profit margins to past years and other companies in order toA. evaluate the firms performanceB. Identify expenses that seem to be out of lineC. better manage the reporting of the firm’s earningsD. Both A and B D. Both A and B
Investors in common stock increase their wealth when the A. the market value of the stock goes upB. when the stock pays a dividendC. when the stock pays interest on the original investment.D. Both A and B D. Both A and B

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