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Finance 450 Exam 1

Uptown Markets is financed with 45 percent debt and 55 percent equity. This mixture of debt and equity is referred to as the firm’s:
Capital Structure
Will and Bill both enjoy sunshine, water, and surfboards. Thus, the two friends decided to create a business together renting surfboards, paddle boats, and inflatable devices in California. Will and Bill will equally share in the decision making and in the business profits or losses. Which type of business did they create if they both have full personal liability for the firm’s debts?
General Partnership
Which one of the following correctly defines a common chain of command within a corporation?
The controller reports directly to the chief financial officer.
Which one of the following forms of business organization offers liability protection to some of its owners but not to all of its owners?
Limited Partnership
A corporation:
is a legal entity separate from its owners.
Limited liability companies are primarily designed to:
provide limited liability while avoiding double taxation.
The primary goal of financial management is to maximize:
The market value of existing stock
Which one of the following best describes the primary intent of the Sarbanes-Oxley Act of 2002?
Increase the protections against corporate fraud
Probably the least effective means of aligning management goals with shareholder interests is:
automatically increasing management salaries on an annual basis.
You contacted your stock broker this morning and placed an order to sell 300 shares of a stock that trades on the NYSE. This sale will occur in the:
secondary market.
Which one of the following terms is defined as the total tax paid divided by the total taxable income?
Average Tax rate
Operating cash flow is defined as:
the cash that a firm generates from its normal business activities.
Which one of these is correct?
Depreciation has no effect on taxes.
Interest paid is a noncash item.
Taxable income must be a positive value.
***Net income is distributed either to dividends or retained earnings.
Taxable income equals net income × (1 + Average tax rate).
Net working capital includes:
an invoice from a supplier.
Cash flow from assets is defined as:
operating cash flow minus the change in net working capital minus net capital spending.
Lester had $6,270 in his savings account at the beginning of this year. This amount includes both the $6,000 he originally invested at the beginning of last year plus the $270 he earned in interest last year. This year, Lester earned a total of $282.15 in interest even though the interest rate on the account remained constant. This $282.15 is best described as:
Compound Interest
Stacey deposits $5,000 into an account that pays 2 percent interest, compounded annually. At the same time, Kurt deposits $5,000 into an account paying 3.5 percent interest, compounded annually. At the end of three years:
Kurt will have a larger account value than Stacey will.
The relationship between the present value and the investment time period is best described as:
Inverse
Financial statement analysis:
provides useful information that can serve as a basis for forecasting future performance.
If a firm has an inventory turnover of 15, the firm:
sells its entire inventory an average of 15 times each year.
Which one of these statements is true concerning the price-earnings (PE) ratio?
A high PE ratio may indicate that a firm is expected to grow significantly.
A firm can increase its sustainable rate of growth by decreasing its:
dividends.
Leon is the owner of a corner store. Which ratio should he compute if he wants to know how long the store can pay its bills given its current level of cash and accounts receivable? Assume all receivables are collectible when due.
Quick ratio
The Wood Shop generates $.97 in sales for every $1 invested in total assets. Which one of the following ratios would reflect this relationship?
Total asset turnover
Book value
the balance sheet value of the assets, liabilities, and equity
Market value
true value; the price at which the assets, liabilities, or equity can actually be bought or sold.
Cash Flow
one of the most important
pieces of information that can be derived from financial statements
Standardized statements are useful for:
-Comparing financial information year-to-year
-Comparing companies of different sizes, particularly within the same industry
Janis just won a scholarship that will pay her $500 a month, starting today, and continuing for the next 48 months. Which one of the following terms best describes these scholarship payments?
Annuity Due
Cindy is taking out a loan today. The cash amount that she is receiving is equal to the present value of the lump sum payment that she will be required to pay two years from today. Which type of loan is this?
Pure Discount
Which one of the following statements is correct?
The EAR, rather than the APR, should be used to compare both investment and loan options.
Four basic areas of finance
-corporate finance
-investments
-financial institutions
-international finance
Which one of the following qualifies as an annuity payment?
Auto Loan Payment
All else held constant, the present value of an annuity will decrease if you:
decrease the annuity payment
Which one of the following features distinguishes an ordinary annuity from an annuity due?
Timing of the annuity payments

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