1. A decrease in the asset “Land” from one month’s balance sheet to the next
a. probably means that we bought some land during the month.
b. would mean an increase in the cash account or a source of cash.
c. might mean that our land has increased in value during the month.
d. would mean there is less working capital available for use.
e. none of the above.
2. You are on the board of a company and you are reviewing the financial ratios provided by the CFO. Last quarter the receivables turnover was 11 and this quarter it has increased to13. What should you do?
a. Assume that the CFO made a mistake and ask him to be more careful next time.
b. Suggest to the board that they quit giving credit, since people don’t want to pay.
c. Congratulate the receivables manager on bringing that number up.
d. Fire the receivables manager for letting receivables turnover get out of control.
e. Suggest to the board that they need more collectors to work on the accounts receivable.
3. There is threat of a hostile takeover of your company by someone who is offering twice the current price for the stock. Management begins a writing and calling program to discourage the stockholders from selling. This might be a case of
a. agency conflict because it could be in the best interests of the stockholders to sell.
b. a misunderstanding; management would want to encourage the sale.
c. a violation of Securities and Exchange Commission rules.
d. an issue for the audit committee of the board to investigate.
e. none of the above.
4. For a combined common size and common base year analysis
a. you divide all items on the balance sheet by total liabilities.
b. you divide all items on the income statement by net income.
c. you divide the dollar amounts across, using the base year dollar amount as the denominator
d. you divide the common size percentages across, using the base year percentage as the denominator.
e. you divide all items across, using the base year as the numerator.
5. All of the following are part of the financial planning model EXCEPT one. Which one?
a. Economic forecast
b. Sustainable growth rate
c. Pro forma statements
d. Sales forecast
e. Financial requirements
6. A good example of a non-cash expense is
a. Officer’s salaries
b. Depreciation expense
c. Line of credit (used)
d. Advertising expense
e. Transportation expense
7. A certain company has a balance of $250,000 in the Goodwill Account. Which of the following can be inferred from this?
a. At some time, the stock was sold at a price in excess of par value.
b. There had to have been some net income in a prior year.
c. The company has bought some other company for more than the book value of its assets.
d. The company owns some trademarks or patents.
e. The company has a major liquidity problem.
8. ABC Company has an Internal Growth Rate of 11% and a Sustainable Growth Rate of 12%. This means that
a. ABC Company is holding too much cash on its balance sheet.
b. ABC Company has some debt on the balance sheet.
c. ABC Company is more profitable than most companies in the industry.
d. ABC Company’s management is particularly effective.
e. ABC Company is a publicly traded company.
9. Which of the following explains what it means to have a Times Interest Earned ratio of 4?
a. The average collection period for our customers is 4 days.
b. We are covering our current interest four times with EBIT.
c. A unit of inventory sits on the shelf an average of 4 days before being sold.
d. For every dollar of sales, we are generating 4 dollars of net income.
e. We are turning our total assets 4 times per year.
11. The biggest disadvantage of the corporation form of ownership is:
I. double taxation
II. liability
III. raising capital
a. I only
b. II only
c. III only
d. I and II equally.
e. II and III equally.
12. All of the following are major decisions in the finance area EXCEPT one. Which one?
a. How should the firm manage its short term assets and liabilities?
b. Should the firm attempt to sell our products overseas?
c. What long term investments should the firm make?
d. What is the best way to raise funds in order to finance investments?
e. All of the following are finance decisions.
13. If a company is using only 75% of its capacity and current year sales are $600,000, then
a. the company can grow by $450,000 next year without adding assets.
b. the company can grow to $675,000 next year without adding assets.
c. The company cannot grow at all without adding assets.
d. The company can grow to $800,000 next year without adding assets.
e. There is not enough information to compute growth without adding assets.
14. The used portion of a line of credit would appear on the balance sheet
a. in the footnotes
b. in the Assets
c. in the Liabilities
d. in the Owner’s Equity
e. not at all.
15. A particular product takes 3.75 man-hours to assemble and $14.59 in raw materials. These are examples of
a. fixed costs
b. variable costs
c. non-cash expenses
d. intangible assets
e. net capital spending
16. Auto Mart International Company has a debt/equity ratio of 1.16. Which of the following is FALSE?
a. This could be considered high or low, depending on the industry.
b. The equity multiplier is 2.16.
c. For every dollar of equity, there is 1.16 in debt.
d. The company has more equity than debt.
e. The total debt ratio is .54.
17. Which of the following is TRUE about External Financing Needed?
a. It must be positive; cannot be negative.
b. It is generally the amount listed under “Asset Requirements” of the Financial Planning Model.
c. It can mean bringing in additional loans or selling new equity.
d. It cannot be computed until you have IGR and SGR.
e. None of the above is true.