Question 1
Under which of the following legal forms of organization is ownership readily transferable?
Sole proprietorship
Partnership
Limited partnership
Corporation
Question 2
All of the following are key strengths of a corporation EXCEPT
access to capital markets.
limited liability.
low organization costs.
readily transferable ownership.
Question 3
The financial manager recognizes revenues and expenses utilizing
the accrual method.
the inflows and outflows of cash.
the standardized, generally accepted, accounting principles.
the revenue method.
Question 4
The primary economic principle used in managerial finance is
supply and demand.
the liquidity trap.
the crowding out effect.
marginal analysis.
Question 5
Johnson, Inc. has just ended the calendar year making a sale in the amount of $10,000 of merchandise purchased during the year at a total cost of $7,000. Although the firm paid in full for the merchandise during the year, it has yet to collect at year end from the customer. The net profit and cash flow from this sale for the year are
$3,000 and $10,000, respectively.
$3,000 and -$7,000, respectively.
$7,000 and $10,000 respectively.
-$3,000 and $7,000, respectively.
Question 6
Managing the firm's assets includes all of the following EXCEPT
inventory.
fixed assets.
accounts receivable.
notes payable.
Question 7
The primary goal of the financial manager is
maximizing risk.
Maximizing profit.
maximizing wealth.
maximizing return.
Question 8
A more recent issue that is causing major problems in the business community is
the privatization of ownership.
ethical problems.
short-term versus long-term financial goals of management.
environmental concerns.
Question 9
The average tax rate of a corporation with pretax income of $105,000 and a tax liability of $24,200 is
46 percent.
23 percent.
34 percent.
15 percent.
Question 10
Corporation X needs $1,000,000 and can raise this through debt at an annual rate of 10 percent or preferred stock at an annual cost of 7 percent. If the corporation has a 40 percent tax rate, the after-tax cost of each is
debt: $100,000; preferred stock: $70,000.
debt: $60,000; preferred stock: $42,000.
debt: $60,000; preferred stock, $70,000.
debt: $100,000; preferred stock, $42,000.
Question 11
The Sarbanes-Oxley Act of 2002 was passed in response to
false disclosures in financial reporting.
insider trading activities.
the decline in technology stocks.
income tax fraud.
Question 12
The stockholders' report should include all of the following EXCEPT
the cash budget.
the income statement.
the statement of cash flows.
the balance sheet.
Question 13
Gross profits are defined as
operating profits minus depreciation.
operating profits minus cost of goods sold.
sales revenue minus operating expenses.
sales revenue minus cost of goods sold.
Question 14
Earnings available for common stockholders are defined as net profits
after taxes.
after taxes minus preferred dividends.
after taxes minus common dividends.
before taxes.
Question 15
Retained earnings on the balance sheet represents
net profits after taxes.
cash.
net profits after taxes minus preferred dividends.
the cumulative total of earnings reinvested in the firm.
Question 16
Firm ABC had operating profits of $100,000, taxes of $17,000, interest expense of $34,000 and preferred dividends of $5,000. What was the firm's net income after taxes?
$66,000
$49,000
$44,000
$83,000
Question 17
Candy Corporation had pretax profits of $1,200,000, and average tax rate of 34% and it paid preferred stock dividends of $50,000. There were 100,000 shares of common stock outstanding and no interest expense. What were Candy Corporation's earnings per share?
$3.91
$7.42
$4.52
$7.59
Question 18
A firm had year end retained earnings balances of $670,000 in 2004 and $560,000 in 2005. The firm reported net profits after taxes of $100,000 in 2005. The firm paid how much in dividends in 2005?
$10,000
$100,000
$110,000
$210,000
Question 19
In the near term, the important ratios that provide the information critical to the short-run operation of the firm are
liquidity, activity, and profitability.
liquidity, activity, and common stock.
liquidity, activity, and debt.
activity, debt, and profitability.
Question 20
Allocation of the historic costs of fixed assets against the annual revenue they generate is called
net profits.
gross profits.
depreciation.
amortization.
Question 21
The depreciable value of an asset, under MACRS, is
the full cost excluding installation costs.
the full cost minus the salvage value.
the full cost including installation costs.
the full cost including installation costs adjusted for the salvage value.
Question 22
The statement of cash flows includes all of the following categories EXCEPT
operating flows.
investment flows.
financing flows.
equity flows.
Question 23
For the year ended Dec. 31, 2005, a corporation had cash flow from operating activities of $20,000, cash flow from investment activities of -$15,000, and cash flow from financing activities of -$10,000. The Statement of Cash Flows would show a
net increase of $5,000 in cash.
net decrease of $5,000 in cash.
net devrease of $15,000 in cash.
net increase of $25,000 in cash.
Question 24
The primary purpose in preparing a budget is
for profit planning.
for cash planning.
for risk analysis.
to estimate sales.
Question 25
A firm has projected salesof 200,000 in June; and $300,000 in July. The firm makes 20% of its sales for cash and collects the balance one month following the sales. The firm's total estimated cash receipts for July
are $220,000.
are $200,000.
are $180,000.
cannot be determined from the information given.
Question 26
Cash disbursements may include all of the following EXCEPT
tax payments.
rent payments.
depreciation expense.
short-term loan payments.
Question 27
Calculate net operating profit after taxes (NOPAT) if a firm has sales of 1,000,000, operating profit (EBIT) of 100,000, interest expense of $50,000, and a tax rate of 30%.
$85,000
$700,000
$70,000
Cannot be determined with information given.
Question 28
In future value or present value problems, unless stated otherwise, cash flows are assumed to be
at the end of the time period.
at the beginning of the time period.
in the middle of the time period.
evenly spread out over a time period.
Question 29
When the amount earned on a deposit has become part of the principal at the end of a specified time period the concept is called
discount interest.
compound interest.
primary interest.
future value.
Question 30
A firm has just ended the calendar year with sales of $150,000 worth of merchandise that was purchased during the year at a cost of $112,500. Although the firm paid in full for the merchandise during the year, it has yet to collect on any of the sales during the year. The gross profit and the cash flow for the year are
$0 and $150,000, respectively.
$37,500 and -$150,000, respectively.
$37,500 and -$112,500, respectively.
$150,000 and $112,500, respectively.
Question 31
The future value of $200 deposited at 8% for three years is (use tables)
$248.
$252.
$158.
$200.
Question 32
The present value interest factor is
between 2.0 and 0.0.
always negative.
always less than 1.0.
a discount rate.
Question 33
The present value of $200 to be received 10 years from today, assuming an opportuinty cost of 10 percent , is
$38.60
$200.00
$518.90
$77.20
Question 34
An annuity with an infinte life is called a(n)
perpetuity.
primia.
indefinte.
deep discount.
Question 35
The present value of a $20,000 perpetuity at a 7 percent discount rate is
$186,915.67
$285,714.29
$140,000
$1,400
Question 36
The future value of an ordinary annuity of $1,000 each year for 10 years, deposited at 3%, is
$11,808.
$11,464.
$8,530.
$10,000.
Question 37
In comparing an ordinary annuity and an annuity due, which of the following is true?
The future value of an annuity due is always greater than the future value of an otherwise identical ordinary annuity.
The future value of an ordinary annuity is always greater than the future value of an otherwise identical annuity due.
The future value of an annuity due is always less than the future value of an otherwise identical ordianary annuity, since one less payment is received with an annuity due.
All things being equal, one would prefer to receive an ordinary annuity compared to an annuity due.
Question 38
Find the future value at the end of year 3 of the following stream of cash flows received at the end of each year, assuming the firm can earn 8 percent on its investments:
Year 1: $10,000
Year 2: $16,000
Year 3: $19,000
$45,000
$53,396
$47,940
$56,690
Question 39
The present value of $1,000 received at the end of year 1, $1,200 received at the end of year 2, and $1,300 received at the end of year 3, assuming an opportunity cost of 7 percent, is
$2,500.
$3,043.
$6,856.
$2,856.
Question 40
Which of the following is true about annuities?
An ordinary annuity is an equal payment paid or received at the beginning of each period.
An annuity due is a payment paid or received at the beginning of each period that increases by an equal amount each period.
An annuity due is an equal payment paid or received at the beginning of each period.
An ordinary annuity is a payment paid or received at the end of each period that increases by an equal amount each period.