| 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 |
