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Finance Practice test 1

Tax, Cost Accounting, Data Processing, and Financial Accounting Manager
What is the Controller in charge of?
Cash, Credit, Caplital Expenditures, Financial Planning
What is the Treasurer in charge of?
Equity; long term debt, shareholders
Captial Structure decisions are the basis of?
Assets; Tangible and Intangible
What do Capital Budgeting decisions entail?
Short term Assets & Liability
What does Working Capital involve?
Corperation
A business created as a distinct legal entity and treated as a legal “person” is called a:
Stakeholder
Any person or entity other than a stockholder or creditor who potentially has a claim on the cash flows of a firm is a….
II, III, and IV only
Which of the following questions are addressed by financial managers?
I. How should a product be marketed?
II. Should customers be given 30 or 45 days to pay for their credit purchases?
III. Should the firm borrow more money?
IV. Should the firm acquire new equipment?
B. income tax returns
Which one of the following functions should be the responsibility of the controller rather than the treasurer?
A. daily cash deposit
B. daily cash deposit
C. equipment purchase analysis
D. customer credit approval
E. payment to a vendor
B. deciding whether or not to purchase a new machine for the production line
Which one of the following is a capital budgeting decision?
A. determining how many shares of stock to issue
B. deciding whether or not to purchase a new machine for the production line
C. deciding how to refinance a debt issue that is maturing
D. determining how much inventory to keep on hand
E.determining how much money should be kept in the checking account
D. determining how much debt should be assumed to fund a project
Which one of the following is a capital structure decision?
A. determining which one of two projects to accept
B.determining how to allocate investment funds to multiple projects
C. determining the amount of funds needed to finance customer purchases of a new product
D. determining how much debt should be assumed to fund a project
E.determining how much inventory will be needed to support a project
D. capital structure decision
The decision to issue additional shares of stock is an example of which one of the following?
A. net working capital decision
B. capital budgeting
C. controller’s duties
D. capital structure decision
E. working capital management
I, II, and IV only
Which of the following accounts are included in working capital management?
I. accounts payable
II. accounts receivable
III. fixed assets
IV. inventory
B. determining whether to pay cash for a purchase or use the credit offered by the supplier
Which one of the following is a working capital management decision?
A. determining the amount of equipment needed to complete
B. determining whether to pay cash for a purchase or use the credit offered by the supplier
C. determining the amount of long-term debt required to complete a project
D. determining the number of shares of stock to issue to fund an acquisition
E. determining whether or not a project should be accepted
because they have been hired to represent the interests of the current shareholders
Why should financial managers strive to maximize the current value per share of the existing stock?
Market Value per Share
Decisions made by financial managers should primarily focus on increasing?
Management greed and abuses
The Sarbanes-Oxley Act of 2002 is a governmental response to:
Corporations delisting from major exchanges
What is an unintended result of the Sarbanes-Oxley Act?
E. increasing current profits when doing so lowers the value of the firm’s equity
Which one of the following actions by a financial manager is most apt to create an agency problem?
A. refusing to borrow money when doing so will create losses for the firm
B. refusing to lower selling prices if doing so will reduce the net profits
C. refusing to expand the company if doing so will lower the value of the equity
E. increasing current profits when doing so lowers the value of the firm’s equity
Uses of Cash
Activities of a firm which require the spending of cash are known as:
Sales
A common-size income statement is an accounting statement that expresses all of a firm’s expenses as percentage of:
Common-base year statemen
Which statement standardizes items on the income statement and balance sheet relative to their values as of a common point in time?
Financial Ratios
Relationships determined from a firm’s financial information and used for comparison purposes are known as:
Du Point
The formula which breaks down the return on equity into three component parts is?
E. decrease in inventory
Which one of the following is a source of cash?
A.increase in accounts receivable
B. decrease in common stock
C. decrease in long-term debt
D. decrease in accounts payable
E. decrease in inventory
Return on equity and price-earnings
Shareholders probably have the most interest in which two ratios?
Uses the same accounting procedures and other firms in the industry
It is easier to evaluate a firm using financial statements when the firm:
Componuding
By leaving her interest earnings in her account, she increases the amount of interest she earns each year.
Discounted cash flow valuation
The process of determining the present value of future cash flows in order to know their worth today is called which one of the following?
Reciporicals
What is the relationship between present value and future value interest factors?
E. Time and present value are inversely related, all else held constant.
Which one of the following statements correctly states a relationship?
ATime and future values are inversely related, all else held constant.
B. Interest rates and time are positively related, all else held constant.
C. An increase in the discount rate increases the present value, given positive rates.
D. An increase in time increases the future value given a zero rate of interest.
E. Time and present value are inversely related, all else held constant.
Continuous
Which compounding periods will yield the smallest present value given a stated future value and annual percentage rate?
Pure discount loan
The entire repayment of which one of the following loans is computed simply by computing a single future value?
Annual percentage rate
What is the interest rate charged per period multiplied by the number of periods per year called?

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