FINANCE 300 Test 1 Multiple Choice

The higher a firm’s debt utilization ratios, the more risky the firm’s financial position
A firm has $200,000 in current assets, $800,00 in long-term assets and $900,000 in long-term financing. What is its net working capital? $100,000
___ analysis involves the comparison of different firm’s financial ratios at the same point in time Cross Sectional
The___ is used to measure the efficiency with which the firm is using its earnings assets to generate sales Fixed Asset Turnover
The higher the value of __ ratio, the better able the firm is to fulfill its inters obligations Times Interest Earned
The __ ratio is commonly used to assess the market’s appraisal of the share value Price Earnings
The cash budget gives the financial manager a clear view of timing of the firm’s expected profitability over a given time False, Income Statement
A pro forma income statement is prepared so the accountants can close out the historic balance sheet and publish the annual report False, Balance Sheet
The percentage of sales method to prepare the pro forma income statement assumes all costs are fixed so each entry on the income statement varies as a percentage of sales False, Variable
Percentage of Sales Pro Forma Income Statement is ___ accurate but ___ -Less-Quick
Managerial Pro Forma Income Statement is ___ accurate but ____ -More-Longer
Depreciation is considered a cash outflow because the cash must come from somewhere False, Not a Cash Flow
Financial managers spend most of their time managing the firms production schedule False, Financial Statements
Corporate income taxes are flat as all income is tacked at the same 26% rates False, Progressive
If a firm has debt ratio of 75% and the industry average is 40%, we can assume the firm has lower financial risk than the industry False, Higher
Investing decisions deal with the left-hand of the firm’s balance sheet and involve the most appropriate mix of current and fixed asset True
A firm with a current ratio of 2.0 when the industry average is 2.5 is doing a very good job of managing its current assets False, Bad
Firms do not like to use an accelerated depreciation method such as MACRS for tax reporting purposes as it lowers a firm’s reported income and makes the market believe the firm is worth less than what it really is. False, do like
Inventory turnover ratio measures how well management is managing its accounts False, Measures Inventory
Goal of the firm is to _____ or maximize _____ -Shareholder’s Wealth-Value of the firm
Partner form of business organization has the disadvantage of double taxation False, Corporation
The key initial element in developing pro forma statements is the cash budget False, Sales Forecast
A firm has $100,00 in current assets, $300,000 in long0term assets and $350,000 in long-term financing. What os the current ratio?(CA/CL) 2
Short-term securities are traded in capital market False, Money Market
Pro forma financial statement Are used by the finance manager for financial forecasting
Income statement is a stock as it shows how the firm has earned and invested its capital and how it is financed False, Balance Sheet
Most common component of cash receipts are Cash sales collection of accounts receivable
Generally, executives and senior management do not accept riskier projects than what the shareholders would prefer True
Time-series is the evaluation of the firm’s financial performance in comparison to other firm’s at the same point in time False, Against itself, Several Time Periods
Firm with a total asset turnover lower than industry standard may have Insufficient Sales
Speculative motive for holding cash is to allow a firm to take advantage of unforeseen business opportunities True
Common stock is selling for $200 per share. P/E ratio is 10, whats the EPS? $20
The Firm’s Outstanding sales days are 120 days and industry average is 45 days. Firm may have a problem with Being too lenient in granting credit
Firm debt ratio is 70% and the industry average 45%. may indicate that Firm is at a greater Financial Risk
Firm with a P/E ratio of 20 when the Industry Average is 12, firm is not favored by investors False, Favored
A Firm that prepared a pro forma balance sheet that forecasts more assets than liabilities and equity should anticipate that The firm will need external financing

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