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 |