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FINC 318 Test 1

Common-size financial statements present all balance sheet account values as a percentage of:
Total Assets
The DuPont identity can be totally defined by which one of the following?
Equity Multiplier and Return on Assets
Which one of the following is the maximum growth rate that a firm can achieve without any additional external financing?
Internal growth rate
The sustainable growth rate is defined as the maximum rate at which a firm can grow given which of the following conditions?
No new equity and a constant debt-equity ratio
Builder’s Outlet just hired a new chief financial officer. To get a feel for the company, she wants to
compare the firm’s sales and costs over the past three years to determine if any trends are present
and also determine where the firm might need to make changes. Which one of the following
statements will best suit her purposes?
Balance sheet
A firm has a current ratio of 1.4 and a quick ratio of 0.9. Given this, you know for certain that the firm:
has more cash than inventory.
Fred is the owner of a local feed store. Which one of the following ratios should he compute if he
wants to know how long the store can pay its bills given the amount of cash the store currently has
Cash ratio
Which one of the following is a measure of long-term solvency
Equity multiplier
The cash coverage ratio is used to evaluate the:
speed at which a firm generates cash.
Kelso’s Pharmacy generates $2 in sales for every $1 the firm has invested in total assets. Which one of the following ratios would reflect this relationship?
Return on assets
You would like to borrow money three years from now to build a new building. In preparation for applying for that loan, you are in the process of developing target ratios for your firm. Which set of ratios represents the best target mix considering that you want to obtain outside financing in the relatively near future?
Cash coverage ratio = 2.6; debt-equity ratio = 0.3
The DuPont identity can be used to help a financial manager determine the:
I. degree of financial leverage used by a firm.
II. operating efficiency of a firm.
III. utilization rate of a firm’s assets.
IV. rate of return on a firm’s assets.
I, II, and III only
Balance Sheet
Assets
Current Assets
Cash
Accounts Receivable
Inventory
Total
Fixed Assets
Net Fixed Assets
Balance Sheet
Liabilities
Current Liabilities
Accounts Payable
Notes Payable
Total
Long Term Debt
Owner’s Equity
Common Stock & Paid in Surplus
Retained Earnings
Total Liabilities and Owner’s Equity
Income Statement
Net Sales
Cost of Goods Sold
Depreciation
Earnings Before Interest and Taxes
Interest Paid
Taxable Income
Taxes
Net Income
Dividends
Addition to Retained Earnings
Net working capital is defined as:
current assets minus current liabilities.
The accounting statement that measures the revenues, expenses, and net income of a firm over a period of time is called the
income statement
The financial statement that summarizes a firm’s accounting value as of a particular date is called the:
balance sheet
Which one of the following terms is defined as the total tax paid divided by the total taxable income
Average tax rate
Which one of the following is the tax rate that applies to the next dollar of taxable income that a firm earns?
Marginal tax rate
Cash flow from assets is defined as
operating cash flow minus net capital spending minus the change in net working capital
Operating cash flow is defined as
a firm’s operating margin
Which one of the following has nearly the same meaning as free cash flow
Cash flow from assets
Cash flow to creditors is defined as:
interest paid minus net new borrowing.
Cash flow to stockholders is defined as:
operating cash flow minus cash flow to creditors.
Which one of the following is an intangible fixed asset
Copyright
Which one of the following is included in net working capital
Equipment
Over the past year, a firm decreased its current assets and increased its current liabilities. As a result, the firm’s net working capital:
had to decrease
Tim has been promoted and is now in charge of all fixed asset purchases. In other words, Tim is in charge of:
capital budgeting
Stadford, Inc. is financed with 40 percent debt and 60 percent equity. This mixture of debt and equity is referred to as the firm’s:
capital structure.
Lester’s BBQ has $121,000 in current assets and $109,000 in current liabilities. These values as referred to as the firm’s:
working capital
Margie opened a used bookstore and is both the 100 percent owner and the store’s manager. Which type of business entity does Margie own if she is personally liable for all the store’s debts?
Sole proprietorship
Todd and Cathy created a firm that is a separate legal entity and will share ownership of that firm on
a 50-50 basis. Which type of entity did they create if they have no personal liability for the firm’s
debts?
Corporation
The potential conflict of interest between a firm’s owners and its managers is referred to as which
type of conflict?
Agency
The federal government has a tax claim on the cash flows of The Window Store. This claim is defined
as a claim by one of the firm’s:
Stakeholders.
Which one of the following occupations best fits into the international area of finance?
Currency trader
Which of the following individuals commonly use finance in the course of their job?
I. Chief financial officers
II. Accountants
III. Security analysts
IV. Strategic managers
I, II, III, and IV
Which one of the following is a working capital decision?
How much cash should the firm keep in reserve?
Which one of the following is a capital structure decision?
Establishing the preferred debt-equity level
Working capital management includes which one of the following?
Determining which customers will be granted credit
The daily financial operations of a firm are primarily controlled by managing the:
working capital
A sole proprietorship
has its profits taxed as personal income.
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
The primary goal of financial management is to maximize which one of the following for a corporation?
Market value of existing stock
Which one of the following best matches the primary goal of financial management?
Increasing the market value of the firm
The goal of financial management is to increase the:
current market value per share.
What is the goal of financial management for a sole proprietorship?
Maximize the market value of the equity
Which one of the following situations is most apt to create an agency conflict?
Rejecting a profitable project to protect employee jobs
Which one of the following is most apt to create a situation where an agency conflict could arise?
Separating management from ownership
Which one of the following is most apt to align management’s priorities with shareholders’ interests?
Compensating managers with shares of stock that must be held for three years before the shares can be sold
Marti had an unexpected surprise when she ate her Lotsa Good cereal this morning. She found a piece of metal mixed in her cereal. The potential claim that Marti has against this firm is that of a(n):
stakeholder.
Which one of the following transactions occurred in the primary market?
South Wind Products sold 1,000 shares of newly issued stock to Mike.
Valerie bought 200 shares of Able stock today. Able stock has been trading for some time on the NYSE. Valerie’s purchase occurred in which market?
Secondary market

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