FIN200 multiple choice questions use it as a guide only3
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WEEK2 QUIZ The partnership form of an organization A has unlimited life. . avoids the double taxation of earnings and dividends found in the B. corporate form of organization. C usually provides limited liability to the partners. . D simplifies decision making. . 2) The SarbanesOxley Act was passed in an effort to A. guarantee outside auditors can control corporate accounting practices. C. ensure that partnerships divide profits among partners in a fair manner. D. control corrupt corporate behavior. The primary disadvantage of accrual accounting is that A it does not recognize accounts receivable. . it does not match revenues and expenses in the period in which they are B. incurred. D it does not adequately show the actual cash flow position of the firm. . 4) A firm's purchase of plant and equipment would be considered a A. source of cash for investment activities. B. use of cash for financing activities. . D. use of cash for investment activities. ) Which of the following is not an asset utilization ratio? B. Inventory turnover C. Return on assets D. Average collection period 6) Asset utilization ratios A. are most important to stockholders. B. relate balance sheet assets to income statement sales. C. measure how much cash is available for reinvestment into current assets. D. measures the firm's ability to generate a profit on sales. 7) Refer to the figure above. The firm's fixed asset turnover ratio is B. 2.0x. C. 1.6x. D. 1.3x. 8) The Bubba Corp. had earnings before taxes of $200,000 and sales of $2,000,000. If it is in the 50% tax bracket its aftertax profit margin is: A. 20% B. 5% C. 12% D. 25% WEEK 4 QUIZ 1) A rapid rate of growth in sales may require A. increased borrowing by the firm to support the sales increase. B. sales forecasts to be made less frequently. C. the firm to be more lenient with credit customers. D. higher dividend payments to shareholders. 2) Net cash flow is equal to: A. income after taxes minus dividends. B. cash receipts minus cash payments minus depreciation. C. cash receipts minus cash payments. income after taxes minus depreciation. D. 3) A firm has beginning inventory of 300 units at a cost of $11 each. Production during the period was 650 units at $12 each. If sales were 700 units, what is the value of the ending inventory using LIFO? A. $3,250 B. $2,550 C. $3,300 D. $2,750 4) A firm utilizing FIFO inventory accounting would, in calculating gross profits, assume that A all sales were from beginning inventory. . B. all sales were for cash. C sales were from beginning inventory until it was depleted, and then use . sales from current production. D . all sales were from current production. 5) Combined leverage is concerned with the relationship between A. changes in volume and changes in EPS. B. changes in EBIT and changes in net income. C. changes in volume and changes in EBIT. D. changes in EBIT and changes in EPS. 6) Which of the following is concerned with the change in operating profit as a result of a change in volume? A. Breakeven point B. Combined leverage C. Operating leverage D. Financial leverage 7) 1 If sales volume exceeds the breakeven point, the firm will experience A. an operating profit. B. an increase in stock price. C. an increase in plant and equipment. D. an operating loss. 8) A weakness of breakeven analysis is that it assumes: A prices and costs increase when the economy is strong and confidence is . high. B. there is no weakness. C cost of goods sold goes up as revenue increases. . D . revenue and costs are a linear (constant) function of volume. WEEK 6 QUIZ 1) Permanent current assets are not a factor in a manager's decision making process when all current assets will be A. selfliquidating. B. longterm in nature. C. financed by shortterm debt. D. internally financed. 2) A "normal" term structure of interest rates would depict A. no general relationship between short and longterm rates. B. longterm rates higher than shortterm rates. C. shortterm rates higher than longterm rates. D. medium rates (15 years) lower than both shortterm and longterm rates. 3) The theory of the term structure of interest rates which suggests that longterm rates are determined by the average of shortterm rates expected over the time that a longterm bond is outstanding is the A. liquidity premium theory. B. segmentation theory. C. expectations hypothesis. D. market average rate theory. 4) Frisch Fish Corp expects net income next year to be $600,000. Inventory and accounts receivable will have to be increased by $300,000 to accommodate this sales level. Frisch will pay dividends of $400,000. How much external financing will Frisch Fish need assuming no organically generated increase in liabilities? A. $200,000 B. $100,000 C. No external financing is required. D. $300,000 5) Which of the following is not a true statement about automated clearinghouses (ACHs)? A Debits drawn on automated clearinghouses cost less than half that of . checks processed through financial institutions. Commercial transactions using automated clearinghouses have been B. growing at close to 17% per year since 1989. C Automated clearinghouses are responsible for the check clearing process . between commercial banks and the Federal Reserve Banks. D The ability to reduce transactions costs and create convenience is driving . the growth of automated clearinghouses. 6) One of the first considerations in cash management is A. profitability. B. synchronization of cash inflows and cash outflows. C. to have as much cash as possible on hand. D. to put any excess cash into accounts receivable. 7) Assuming that we can earn a 13.5% return on accounts receivable, which of the following actions to finance an increase in our accounts receivable balance would be optimal? A. an increase in bank loans that would cost us 11.5%. B. a decrease in inventories which are earning a 17.6% return. C. a reduction in marketable securities which are earning a return of 14.2%. D. an increase in accounts payable that would cost our firm 15%. 8) Hedging A. is a legal agreement to buy or sell a financial futures contract. B. increases risk. C. is a way to protect your accounts receivable position. D. can be carried out with a futures contract. POSSIBLE QUESTIONS When the yield curve is downward sloping, generally a financial manager should A. utilize shortterm financing B. increase investment and level of financing overall C. expect an economic boom D. utilize longterm financing Which of the following is not a method of speeding up collections? A. All of these are methods for speeding up collections. B. Extended disbursement float. C. Lockbox system. D. Regional collection centers. Some analysts believe that the term structure of interest rates is determined by the behavior of various types of financial institutions. This theory is called the B. market segmentation theory. WEEK 8 QUIZ 1) Firms exposed to the risk of interest rate changes may reduce that risk by A. hedging in the financial futures market. B. hedging in the commodities market. C. pledging or factoring accounts receivable. D. obtaining a Eurodollar loan. 2) LIBOR is A. an interest rate paid on Eurodollar loans in the London market. B. an interest rate paid by European firms when they borrow Eurodollar deposits from U.S. banks. C. the interest rate paid by the British government on its longterm bonds. D. a resource used in production. 3) A firm has invested in corporate bonds; it may engage in a financial futures contract in order to protect itself from A. rising interest rates. B. inflation. C. changes in hedging activities. D. declining interest rates. 4) Commercial paper is very popular with many firms because A. it satisfies the firm's need for longterm funds. B. there are no required lines of credits at the bank. C. it is very easy to roll over (refinance) in times of economic turmoil. D. it can usually be issued below the prime rate 5) Under what conditions must a distinction be made between money to be received today and money to be received in the future? A. When idle money can earn a positive return. B. When there is no risk of nonpayment in the future. C. When current interest rates are different from expected future rates. D. A period of recession. 6) As the time period until receipt increases, the present value of an amount at a fixed interest rate A. remains the same. B. increases. C. Not enough information to tell. D. decreases. 7) To save for her newborn son's college education, Lea Wilson will invest $1,000 at the beginning of each year for the next 18 years. The interest rate is 12 percent. What is the future value? A. $34,931. B. $63,440. C. $55,750. D. $7,690. 8) Mr. Nailor invests $5,000 in a money market account at his local bank. He receives annual interest of 8% for 7 years. How much return will his investment earn during this time period? A. $3,570 B. $6,254 C. $8,570 D. $2,915 3) Which of the following is the largest category of assetbacked securities? A. Automobile Loans B. Home Equity Loans C. Manufactured Housing Loans D. Student Loans 1) Commercial paper that is sold without the use of an actual paper certificate is known as A. dealer paper. B. finance paper. C. term paper. D. bookentry paper. 5) Sharon Smith will receive $1 million in 50 years. The discount rate is 14%. As an alternative, she can receive $2,000 today. Which should she choose? A. $2,000 today. B. the $1 million dollars in 50 years. C. need more information. D. she should be indifferent 8) Kathy has $60,000 to invest today and would like to determine whether it is realistic for her to achieve her goal of buying a home for $150,000 in 10 years with this investment. What return must she achieve in order to buy her home in 10 years? A. between 8% and 9% B. between 7% and 8% C. between 10% and 11% D. between 9% and 10% FINAL TEST 1) Corporate governance is the A governance of the company by the board of directors with . a focus on social responsibility. B relationship and exercise of oversight by the board of . directors of the company. operation of a company by the chief executive officer C . (CEO) and other senior executives on the management team. D relationship between the chief financial officer and . institutional investors. 2) Regarding risk levels, financial managers should A . evaluate investor's desire for risk B pursue higher risk projects because they increase value . C. focus primarily on market fluctuations D avoid higher risk projects because they destroy value . 3) One of the major disadvantages of a sole proprietorship is A. low operating costs. B. the simplicity of decision making. C. low organizational costs. D. that there is unlimited liability to the owner 4) Which of the following would represent a use of funds and, indirectly, a reduction in cash balances? A. the sale of new bonds by the firm B. a decrease in marketable securities C. an increase in accounts payable D. an increase in inventories 5) Which of the following is an inflow of cash? A. the retirement of the firm's bonds B. the purchase of a new factory C. the sale of the firm's bonds D. funds spent in normal business operations 6) Which account represents the cumulative earnings of the firm since its formation, minus dividends paid? A. Accumulated depreciation B. Common stock C. Retained earnings D. Paid-in capital 7) A quick ratio that is much smaller than the current ratio reflects A. that the firm will have a high return on assets. B. a large portion of current assets is in inventory. C. that the firm will have a high inventory turnover. D. a small portion of current assets is in inventory. 8) For a given level of profitability as measured by profit margin, the firm's return on equity will A. decrease as its times-interest-earned ratio decreases. B. decrease as its current ratio increases. C. increase as its debt-to assets ratio increases. D increase as its debt-to-assets ratio decreases. . 9) The most rigorous test of a firm's ability to pay its short-term obligations is its A. times-interest-earned ratio. B. quick ratio. C. debt-to-assets ratio. D. current ratio. 10) Refer to the figure above. The firm's inventory turnover ratio is A. 0.1x. B. 8x. C. 2.7x. D. 10x. 11) Refer to the figure above. The firm's debt to asset ratio is A. 48%. B. 33%. C. 25%. D. 58%. 12) Refer to the figure above. Megaframe's current ratio is A. 3.2:1 B. 1.625:1 C. 1.5:1 D. 1.9:1 13) The percent-of-sales method of financial forecasting A . provides a month-to-month breakdown of data. B requires more time than a cash budget approach. . C assumes that balance sheet accounts maintain a constant . relationship to sales. D is more detailed than a cash budget approach. . 14) In order to estimate production requirements, we A add beginning inventory to desired ending inventory and . subtract projected sales in units. B add projected sales in units to desired ending inventory . and subtract beginning inventory. C add beginning inventory to desired ending inventory and . divide by two. D add beginning inventory to projected sales in units and . subtract desired ending inventory. 15) In the percent-of-sales method, an increase in dividends A. more information is needed. B. has no effect on required new funds. C. will increase required new funds. D. will decrease required new funds. 16) In developing the pro forma income statement we follow four important steps: 1) compute other expenses, 2) determine a production schedule, 3) establish a sales projection, 4) determine profit by completing the actual pro forma statement. What is the correct order for these four steps? A. 3,2,1,4 B. 2,1,3,4 C. 1,2,3,4 D. 3,2,4,1 17) The pro forma income statement is important to the overall process of constructing pro forma statements because it allows us to determine a value for: A. prepaid expenses. B. interest expense. C. change in retained earnings. D. gross profit. 18) The difference between total receipts and total payments is referred to as A. cash balance. B. net cash flow. C. cumulative cash flow. D. beginning cash flow. Stas: 38% (18/48) 19) Financial leverage deals with: A . the entire balance sheet. B . the entire income statement. C the relationship of fixed and variable costs. . D the relationship of debt and equity in the capital . structure. 20) The degree of operating leverage is computed as A percent change in operating income divided by percent . change in volume. B percent change in EPS divided by percent change in . operating income. C percent change in operating profit divided by percent . change in net income. D percent change in volume divided by percent change in . operating profit. 21) When a firm employs no debt A. it will not be profitable. B. its operating leverage is equal to its financial leverage. C. it has a financial leverage of one. D. it has a financial leverage of zero. 22) If a firm has a price of $4.00, variable cost per unit of $2.50 and a breakeven point of 20,000 units, fixed costs are equal to: A. $50,000 B. $30,000 C. $13,333 D. $10,000 23) In break-even analysis, the contribution margin is defined as A. fixed cost minus variable cost. B. variable cost minus fixed cost. C. price minus variable cost. D. price minus fixed cost. 24) If TechCor has fixed costs of $80,000, variable costs of $1.20/unit, sales price/unit of $6, and depreciation expense of $25,000, what is their cash breakeven in units? A. 45,833 B. 21,875 C. 9,167 D. 11,458 25) When the yield curve is upward sloping, generally a financial manager should: A. lease B. wait for future financing C. utilize long-term financing D. utilize short-term financing 26) Normally, permanent current assets should be financed by A. internally generated funds. B. borrowed funds. C. long-term funds. D. short-term funds. 27) During tight money periods A the relationship between short and long-term rates . remains unchanged. B short-term rates are equal to long-term rates. . C . long-term rates are higher than short-term rates. D short-term rates are higher than long-term rates. . 28) An aggressive working capital policy would have which of following characteristics? A A short average collection period. . B A high ratio of short-term debt to long-term sources of . funds. C . A high ratio of long-term debt to fixed assets. D . A low ratio of short-term debt to fixed assets. 29) Risk exposure due to heavy short-term borrowing can be compensated for by A. carrying more receivables to increase cash flow. B. carrying highly liquid assets. C. carrying illiquid assets. D carrying longer term, more profitable current assets. . 30) An aggressive, risk-oriented firm will likely A. borrow short-term and carry high levels of liquidity. B. borrow long-term and carry low levels of liquidity. C. borrow short-term and carry low levels of liquidity. D . borrow long-term and carry high levels of liquidity. 31) The system whereby funds are moved between computer terminals without use of checks is A. magnetic character recognition. B. electronic funds transfer. C. float. D. a lock-box system. 32) The difference between the amount of cash on the firm's books and the amount credited to it by the bank is A. float. B. an overdraft. C. interest revenue. D. extended disbursement. 33) How would electronic funds transfer affect the use of "float"? A. Have no effect on its use B. Increase its use somewhat C. Decrease its use somewhat D. Virtually eliminate its use 34) When developing a credit scoring report, many variables would be considered. Which of the following best represent the major factors Dun & Bradstreet would examine? A The company's cash balances, return on equity, and its . average tax rates. B The age of the management team, the dollar amount of . sales, net profits, and long-term debt. C The age of the company, the number of employees, the . level of current assets. D The financial statements, satisfactory or slow payment . experiences, negative public records (suits, liens, judgments, bankruptcies). 35) The most subjective and also significant segment of the 5 C's of credit for giving final approval is A. conditions. B. capacity. C. collateral. D. character. 36) The three primary policy variables to consider when extending credit include all of the following except A. collection policy. B. credit standards. C. the level of inflation. D. the terms of trade. Large firms tend to be A firms with low levels of inventory turnover and accounts . receivable turnover. B net users of trade credit. . C net suppliers of trade credit. . D firms with high levels of profitability. . 38) Which of the following is not a true statement about commercial paper? A Industrial companies, utility firms or finance companies . too small to sell direct paper sell dealer paper. B Finance paper is sold directly to the lender by the finance . company. C . Finance paper is also referred to as direct paper. D Dealer paper is sold directly to the lender by a finance . company. 39) Commercial paper that is sold without going through a broker or dealer is known as A. term paper. B. direct paper. C. dealer paper. D. book-entry transactions. 40) General Rent-All's officers arrange a $50,000 loan. The company is required to maintain a minimum checking account balance of 10% of the outstanding loan. This practice is called A. a balloon payment. B. an installment loan. C. a compensating balance. D. a discounted loan. 41) Firms exposed to the risk of interest rate changes may reduce that risk by A. pledging or factoring accounts receivable. B. obtaining a Eurodollar loan. C. hedging in the financial futures market. D. hedging in the commodities market. 42) From the banker's point of view, short-term bank credit is an excellent way of financing A. seasonal bulges in inventory and receivables. B. fixed assets. C. repayment of long-term debt. D. permanent working capital needs. 43) As the interest rate increases, the present value of an amount to be received at the end of a fixed period A. Not enough information to tell B. increases C. remains the same D. decreases 44) Increasing the number of periods will increase all of the following except A. the future value of an annuity. B. the present value of an annuity. C. the future value of $1. D. the present value of $1. 45) As the discount rate becomes higher and higher, the present value of inflows approaches A. need more information B. 0 C. plus infinity D. minus infinity ) If you invest $8,000 at 12% interest, how much will you have in 7 years? A. $80,712 B. $18,016 C. $3616 D. $17,688 47) Ali Shah sets aside 2,000 each year for 5 years. He then withdraws the funds on an equal annual basis for the next 4 years. If Ali wishes to determine the amount of the annuity to be withdrawn each year, he should use the following two tables in this order: A future value of an annuity of $1; future value of a $1 . B present value of an annuity of $1; future value of an . annuity of $1 C . future value of an annuity of $1; present value of a $1 D future value of an annuity of $1; present value of an . annuity of $1 48) Mr. Blochirt is creating a college investment fund for his daughter. He will put in $850 per year for the next 15 years and expects to earn an 8% annual rate of return. How much money will his daughter have when she starts college? A. $23,079 B. $11,250 C. $24,003 D. $12,263
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