FIN571 Multiple Choice Questions
The primary goal of financial management is to:
minimize operational costs and maximize firm efficiency.
maximize current dividends per share of the existing stock.
maximize the current value per share of the existing stock.
avoid financial distress.
maintain steady growth in both sales and net earnings.
2
Financial managers should primarily strive to:
maximize current dividends even if doing so adds financial distress costs to the firm.
minimize costs while increasing current dividends.
maximize the current value per share of existing stock.
maximize current market share in every market in which the firm participates.
maximize the current profits of the firm.
3.
If a firm is currently profitable, then:
its reported sales exceed its costs.
its cash flows are known with certainty.
its current cash inflows must exceed its current cash outflows.
it will always have sufficient cash to pay its bills in a timely manner.
the timing of the cash flows on proposed projects is irrelevant.
4. The owners of a limited liability company generally prefer:
having liability exposure similar to that of a general partner.
having liability exposure similar to that of a sole proprietor.
being taxed like a corporation.
being taxed personally on all business income.
being taxed like a corporation with liability like a partnership.
5.
| First City Bank pays 6 percent simple interest on its savings account balances, whereas Second City Bank pays 6 percent interest compounded annually. |
| If you made a $69,000 deposit in each bank, how much more money would you earn from your Second City Bank account at the end of 10 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| Difference in accounts | $ |
6.
| a. | Compute the future value of $2,000 compounded annually for 10 years at 6 percent. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| Future value | $ |
| b. | Compute the future value of $2,000 compounded annually for 10 years at 11 percent. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| Future value | $ |
| c. | Compute the future value of $2,000 compounded annually for 15 years at 6 percent. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| Future value | $ |
7.
What is the future value of $3,052 invested for 9 years at 5.00 percent compounded annually?
$4,450.57
$1,923.52
$4,720.69
$4,734.65
$4,748.62
8.
Six months ago, you purchased 1,200 shares of ABC stock for $21.20 a share and have received total dividend payments of $.60 a share. Today, you sold all of your shares for $22.20 a share. What is your total dollar return on this investment?
$1,440
$720
$3,840
$1,200
$1,920
9.
The excess return you earn by moving from a relatively risk-free investment to a risky investment is called the:
inflation premium.
geometric average return.
time premium.
risk premium.
arithmetic average return.
10.
Which one of the following accounts is included in stockholders’ equity?
intangible assets
plant and equipment
accumulated retained earnings
deferred taxes
long-term debt
11.
| Shelton, Inc., has sales of $391,000, costs of $179,000, depreciation expense of $44,000, interest expense of $25,000, and a tax rate of 40 percent. (Do not round intermediate calculations.) |
| What is the net income for the firm? |
| Net income | $ |
| Suppose the company paid out $34,000 in cash dividends. What is the addition to retained earnings? |
| Addition to retained earnings | $ |
12
Net working capital is defined as:
current assets plus fixed assets.
current assets minus current liabilities.
current assets plus stockholders’ equity.
fixed assets minus long-term liabilities.
total assets minus total liabilities.
13
Which one of these equations is an accurate expression of the balance sheet?
Stockholders’ equity ≡ Assets + Liabilities
Stockholders’ equity ≡ Assets −Liabilities
Liabilities ≡ Stockholders’ equity −Assets
Assets ≡ Stockholders’ equity −Liabilities
Assets ≡ Liabilities −Stockholders’ equity
14
| Galaxy United, Inc. 2009 Income Statement ($ in millions) |
|
| Net sales | $8,450 |
| Less: Cost of goods sold | 7,220 |
| Less: Depreciation | 410 |
| Earnings before interest and taxes | 820 |
| Less: Interest paid | 83 |
| Taxable Income | 737 |
| Less: Taxes | 258 |
| Net income | $ 479 |
| Galaxy United, Inc. 2008 and 2009 Balance Sheets ($ in millions) |
||||||
| 2008 | 2009 | 2008 | 2009 | |||
| Cash | $ 110 | $ 150 | Accounts payable | $1,100 | $1,130 | |
| Accounts rec. | 940 | 780 | Long-term debt | 1,000 | 1,332 | |
| Inventory | 1,490 | 1,510 | Common stock | $3,110 | $2,910 | |
| Sub-total | $2,540 | $2,440 | Retained earnings | 520 | 698 | |
| Net fixed assets | 3,190 | 3,630 | ||||
| Total assets | $5,730 | $6,070 | Total liab. & equity | $5,730 | $6,070 | |
What is the days’ sales in receivables? (use 2009 values)
41.0
33.7
24.9
47.5
80.4
15
A firm has sales of $1,360, net income of $227, net fixed assets of $469, and current assets of $329. The firm has $95 in inventory. What is the common-size statement value of inventory?
41.5 percent
11.9 percent
20.3 percent
7.0 percent
28.9 percent
16.
The Purple Martin has annual sales of $4,800, total debt of $1,360, total equity of $2,200, and a profit margin of 5 percent. What is the return on assets?
10.91 percent
6.74 percent
17.65 percent
8.72 percent
5.00 percent
17.
Al’s Sport Store has sales of $2,740, costs of goods sold of $2,100, inventory of $533, and accounts receivable of $444. How many days, on average, does it take the firm to sell its inventory assuming that all sales are on credit?
71.0
92.6
140.0
130.0
91.4
18
Jessica’s Boutique has cash of $47, accounts receivable of $70, accounts payable of $190, and inventory of $160. What is the value of the quick ratio?
2.07
1.46
.37
.62
.84
19.
One of the primary weaknesses of many financial planning models is that they:
ignore the size, risk, and timing of cash flows.
are iterative in nature.
ignore the goals and objectives of senior management.
rely too much on financial relationships and too little on accounting relationships.
ignore cash payouts to stockholders.
20
If a firm bases its growth projection on the rate of sustainable growth, shows positive net income, and has a dividend payout ratio of 30 percent, then the:
number of common shares outstanding will increase at the same rate of growth.
debt-equity ratio will remain constant while retained earnings increase.
debt-equity ratio will have to increase.
fixed assets will have to increase at the same rate, even if the firm is currently operating at only 78 percent of capacity.
fixed assets, the debt-equity ratio, and number of common shares outstanding will all increase.
21
Marcie’s Mercantile wants to maintain its current dividend policy, which is a payout ratio of 35 percent. The firm does not want to increase its equity financing but is willing to maintain its current debt-equity ratio. Given these requirements, the maximum rate at which Marcie’s can grow is equal to:
65 percent of the sustainable rate of growth.
65 percent of the internal rate of growth.
35 percent of the internal rate of growth.
the internal rate of growth.
the sustainable rate of growth.
22
| f the Hunter Corp. has an ROE of 11 and a payout ratio of 19 percent, what is its sustainable growth rate? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
| Sustainable growth rate |
23
24. The operating cycle can be decreased by:
increasing the accounts payable turnover rate.
discontinuing the discount given for early payment of an accounts receivable.
paying accounts payable faster.
collecting accounts receivable faster.
decreasing the inventory turnover rate.
25
The length of time between the payment for inventory and the collection of cash from receivables is called the:
inventory period.
operating cycle.
accounts receivable period.
cash cycle.
accounts payable period.
26.
| Consider the following financial statement information for the Rivers Corporation: |
| Item | Beginning | Ending | |||||||
| Inventory | $ | 11,000 | $ | 12,000 | |||||
| Accounts receivable | 6,000 | 6,300 | |||||||
| Accounts payable | 8,200 | 8,600 | |||||||
| Net sales | $ | 90,000 | |||||||
| Cost of goods sold | 70,000 | ||||||||
|
|
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| Calculate the operating and cash cycles. (Use 365 days a year. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) |
| Operating cycle | |
| Cash cycle |
27.
| Here are the most recent balance sheets for Country Kettles, Inc. Excluding accumulated depreciation, determine whether each item is a source or a use of cash, and the amount. (Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32. Input all amounts as positive values): |
| COUNTRY KETTLES, INC. Balance Sheet December 31, 2016 |
||||||
| 2015 | 2016 | |||||
| Assets | ||||||
| Cash | $ | 31,400 | $ | 30,590 | ||
| Accounts receivable | 70,900 | 74,080 | ||||
| Inventories | 61,800 | 64,125 | ||||
| Property, plant, and equipment | 157,000 | 167,800 | ||||
| Less: Accumulated depreciation | (46,720 | ) | (50,900 | ) | ||
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| Total assets | $ | 274,380 | $ | 285,695 | ||
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| Liabilities and Equity | ||||||
| Accounts payable | $ | 45,900 | $ | 48,090 | ||
| Accrued expenses | 7,280 | 6,420 | ||||
| Long-term debt | 26,600 | 29,500 | ||||
| Common stock | 26,000 | 31,000 | ||||
| Accumulated retained earnings | 168,600 | 170,685 | ||||
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| Total… | ||||||
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