A Subchapter S corporation C. has all the organizational benefits of a corporation and its income is only taxed once.
Money markets would include which of the following securities? B. Treasury bills and commercial paper.
5. A corporate restructuring can result in Changes in capital structure, selling of low profit margin divisions, reductions to the work force… D. all of these.
10. Increasing interest expense will have what effect on EBIT? No effect
11. The residual income of the firm belongs to common stockholders.
12. Candy Company had sales of $320,000 and cost of goods sold of $112,000. What is the gross profit margin (ratio of gross profit to sales)? Gross Profit = Sales- Cost of Goods Sold… then GP/Sales= GP Margin 65%
14. Ratio analysis can be useful for historical trend analysis, comparison to industry, or measuring effects of financing… D. All of these are true.
17. A quick ratio that is much smaller than the current ratio reflects B. a large portion of current assets is in inventory.
21. In using a systems approach to financial planning, it is necessary develop a proforma income statement, proforma balance sheet, and cash budget…D. all of these.
24. A firm utilizing LIFO inventory accounting would, in calculating gross profits, assume that C. sales were from current production until current production was depleted, and then use sales from beginning inventory.
30. A highly automated plant would generally have B. more fixed than variable costs.
31. Financial leverage deals with: B. the relationship of debt and equity in the capital structure.
35. A financial executive devotes the most time to D. Working capital management.
36. The term “permanent current assets” implies C. some minimum level of current assets that are not self-liquidating.
37. An inverted yield curve would suggest that B. interest rates are expected to fall.
40. In managing cash and marketable securities, what should be the manager’s primary concern? D. Liquidity and safety
41. “Float” takes place because C. a lag exists between writing a check and clearing it through the banking system.
42. Which of the following is NOT a valid quantitative measure for accounts receivable collection policies? D. Ratio of bad debts to credit sales
46. Trade credit may be used to finance a major part of the firm’s working capital when A. the firm extends less liberal credit terms than the supplier.
48. In determining the cost of bank financing, which is the important factor? C. Effective rate
49. Hedging refers to B. a transaction that reduces risk exposure.
51. You are to receive $12,000 at the end of 5 years. The available yield on investments is 6%. Which table would you use to determine the value of that sum today? C. Present value of $1
52. Babe Ruth Jr. has agreed to play for the Cleveland Indians for $3 million per year for the next 10 years. What table would you use to calculate the value of this contract in today’s dollars? A. Present value of an annuity
55. Which of the following financial assets is likely to have the highest required rate of return based on risk? D. Common stock.
56. The relationship between a bond’s price and the yield to maturity B. is an inverse relationship.
58. The cost of equity capital in the form of new common stock will be higher than the cost of retained earnings because of B. the existence of flotation costs.
60. the Internal Rate of Return and Net Present Value Methods: C. usually give the same investment decision answer.
61. As the cost of capital increases A. fewer projects are accepted.
62. Capital rationing assumes: . A limited amount of capital is available.
63. If a firm is experiencing no capital rationing, it should accept all investment proposals that… B. that return an amount equal to or greater than the cost of capital

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