Exam

Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
 
1)  Which of the following legal forms of organization is characterized by limited liability? 1) ______
  A)  Professional partnership.
  B)  Partnership.
  C)  Corporation.
  D)  Sole proprietorship.

2)  The dominant form of organization with respect to receipts and net profits is the 2) ______
  A)  corporation.
  B)  S-corporation.
  C)  sole proprietorship.
  D)  partnership.

3)  A "legal entity" which can sue and be sued, make and be party to contracts, and acquire property in its own name is 3) ______
  A)  a partnership.
  B)  a sole proprietorship.
  C)  a corporation.
  D)  a professional partnership.

4)  The ________ is responsible for evaluating and recommending proposed asset investments. 4) ______
  A)  Financial Analyst
  B)  Pension Fund Manager
  C)  Capital Expenditures Analyst
  D)  Credit Analyst

5)  In a(n) ________, owners have limited liability with regard to the business. They are not personally liable for the malpractice of other owners. 5) ______
  A)  S-corporation
  B)  partnership
  C)  limited liability partnership
  D)  limited partnership

6)  By concentrating on cash flows within the firm the financial manager should be able to 6) ______
  A)  avoid insolvency.
  B)  control expenses.
  C)  speak authoritatively to stockholders.
  D)  prepare tax returns.

7)  The officer responsible for the firm's financial activities such as financial planning and fund raising, making capital expenditure decisions, and managing cash, credit, the pension fund, and foreign exchange is 7) ______
  A)  controller.
  B)  treasurer.
  C)  foreign exchange manager.
  D)  none of the above.

8)  Marginal analysis states that financial decisions should be made and actions taken only when 8) ______
  A)  added benefits are greater than zero.
  B)  benefits equal costs.
  C)  demand equals supply.
  D)  added benefits exceed added costs.

9)  The officer responsible for the firm's accounting activities, such as corporate accounting, tax management, financial accounting, and cost accounting is the 9) ______
  A)  treasurer.
  B)  controller.
  C)  foreign exchange manager.
  D)  none of the above.

10)  A firm has just ended its calendar year making a sale in the amount of $200,000 of merchandise purchased during the year at a total cost of $150,500. Although the firm paid in full for the merchandise during the year, it has yet to collect at year end from the customer. The possible problem this firm may face is 10) ______
  A)  inability to receive credit.
  B)  lack of cash flow.
  C)  low profitability.
  D)  high leverage.

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.
 
11)  When considering each financial decision alternative or possible action in terms of its impact on the share price of the firm's stock, financial managers should accept only those actions that are expected to increase the firm's profitability. 11) ______

12)  Financial analysis and planning is concerned with analyzing the mix of assets and liabilities. 12) ______

13)  Financing decisions deal with the left-hand side of the firm's balance sheet and involve the most appropriate mix of current and fixed assets. 13) ______

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
 
14)  The key role of the financial manager is 14) ______
  A)  the presentation of financial statements.
  B)  the collection of financial data.
  C)  the preparation of data for future evaluation.
  D)  decision making.

15)  The key activities of the financial manager include all of the following EXCEPT 15) ______
  A)  making financing decisions.
  B)  financial analysis and planning.
  C)  making investment decisions.
  D)  managing financial accounting.

16)  Included in the primary activities of the financial manager are 16) ______
  A)  financial analysis and planning.
  B)  making investment decisions.
  C)  analyzing and planning cash flows.
  D)  making financing decisions.
  E)  all of the above.

17)  The financial manager may be responsible for any of the following EXCEPT 17) ______
  A)  analyzing the effects of more debt on the firm's capital structure.
  B)  analyzing budget and performance reports.
  C)  monitoring of quarterly tax payments.
  D)  determining whether to accept or reject a capital asset acquisition.

18)  Making investment decisions includes all of the following EXCEPT 18) ______
  A)  inventory.
  B)  notes payable.
  C)  accounts receivable.
  D)  fixed assets.

19)  Making financing decisions includes all of the following EXCEPT 19) ______
  A)  analyzing quarterly budget and performance reports.
  B)  determining the appropriate mix of short-term and long-term financing.
  C)  deciding which individual short-term sources are best at a given point in time.
  D)  deciding which individual long-term sources are best at a given point in time.

20)  The Sarbanes-Oxley Act of 2002 did all of the following EXCEPT 20) ______
  A)  toughen penalties against executives who commit corporate fraud.
  B)  tighten audit regulations and controls.
  C)  toughen penalties against overcompensated executives.
  D)  All of the above are true.

21)  A financial manager must choose between four alternative Assets: 1, 2, 3, and 4. Each asset costs $35,000 and is expected to provide earnings over a three-year period as described below.



Based on the profit maximization goal, the financial manager would choose
21) ______
  A)  Asset 1.
  B)  Asset 2.
  C)  Asset 3.
  D)  Asset 4.

22)  A financial manager must choose between three alternative investments. Each asset is expected to provide earnings over a three-year period as described below. Based on the wealth maximization goal, the financial manager would


22) ______
  A)  choose Asset 1.
  B)  choose Asset 2.
  C)  choose Asset 3.
  D)  be indifferent between Asset 1 and Asset 2.

23)  A recent ethics survey indicated the opinion that maintaining high ethical standards 23) ______
  A)  had no effect on a firm's competitive position.
  B)  strengthened a firm's competitive position.
  C)  weakened a firm's competitive position, particularly in foreign markets.
  D)  was difficult to enforce.

24)  The implementation of a pro-active ethics program is expected to result in 24) ______
  A)  a positive corporate image and increased respect, a reduction in risk, and enhanced cash flow resulting in an increase in share price.
  B)  a positive corporate image and increased respect, but is not expected to affect share price.
  C)  a positive corporate image and increased respect, but is not expected to affect cash flows.
  D)  an increased share price resulting from a decrease in risk, but is not expected to affect cash flows.

25)  Among solutions to the agency problem in publicly-held corporations are all of the following EXCEPT 25) ______
  A)  bonuses based on short-term results.
  B)  cash bonuses tied to goal achievement.
  C)  stock options.
  D)  performance shares.

26)  Emerging trends resulting from the agency problem are all of the following EXCEPT 26) ______
  A)  restructuring through leveraged buyouts.
  B)  management by active investors.
  C)  large private corporations.
  D)  prohibiting managers from maintaining an ownership interest.

27)  Firms that require funds from external sources can obtain them from 27) ______
  A)  financial markets.
  B)  private placement.
  C)  financial institutions.
  D)  all of the above.

28)  The nonexclusive sale of either bonds or stocks to the general public is called 28) ______
  A)  public offering.
  B)  organized selling.
  C)  private placement.
  D)  none of the above.

29)  Trading is carried out on the floor of the New York Stock Exchange by 29) ______
  A)  the auction process.
  B)  the negotiation process.
  C)  investment bankers.
  D)  a telecommunications network.

30)  All of the following are functions of security exchanges EXCEPT 30) ______
  A)  holding demand deposits.
  B)  aiding in new financing.
  C)  allocating scarce capital.
  D)  creating continuous markets.

31)  All of the following are examples of organized stock exchanges EXCEPT 31) ______
  A)  the over-the-counter exchange.
  B)  the New York Stock Exchange.
  C)  the American Stock Exchange.
  D)  the Pacific Stock Exchange.

32)  The major securities traded in the capital markets are 32) ______
  A)  bonds and commercial paper.
  B)  stocks and bonds.
  C)  Treasury bills and certificates of deposit.
  D)  commercial paper and Treasury bills.

33)  Long-term debt instruments used by both government and business are known as 33) ______
  A)  stocks.
  B)  equities.
  C)  bonds.
  D)  bills.

34)  The two key financial markets are 34) ______
  A)  primary market and money market.
  B)  money market and capital market.
  C)  primary market and secondary market.
  D)  capital market and secondary market.

35)  The ________ stock exchange is a primary market where new public issues are sold. 35) ______
  A)  New York
  B)  over-the-counter
  C)  American
  D)  regional

36)  Trading is carried out in the Over-the-Counter (OTC) Exchange by 36) ______
  A)  the competitive bid process and the negotiation process.
  B)  the auction process.
  C)  an investment banker.
  D)  the competitive bid process.

37)  Securities exchanges create efficient markets that do all of the following EXCEPT 37) ______
  A)  ensure a market in which the price reflects the true value of the security.
  B)  allow the price to be determined by supply and demand of securities.
  C)  control the supply and demand for securities through price.
  D)  allocate funds to the most productive uses.

38)  The tax liability of a corporation with ordinary income of $105,000 is ________. 38) ______
  A)  $42,000
  B)  $35,700
  C)  $24,200
  D)  $23,950

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.
 
39)  Total asset turnover commonly measures the liquidity of a firm's total assets. 39) ______

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
 
40)  The best way to adjust for the presence of fixed costs when using the simplified approach for pro forma income statement preparation is 40) ______
  A)  to disproportionately vary the costs with the change in sales.
  B)  to break the firm's historical costs into fixed and variable components.
  C)  to proportionately vary the fixed costs with the change in sales.
  D)  to adjust for projected fixed-asset outlays.

41)  The depreciable value of an asset, under MACRS, is 41) ______
  A)  the full cost including installation costs adjusted for the salvage value.
  B)  the full cost including installation costs.
  C)  the full cost excluding installation costs.
  D)  the full cost minus salvage value.

Table 3.3

The financial analyst for Sportif, Inc. has compiled sales and disbursement estimates for the coming months of January through May. Historically, 75 percent of sales are for cash with the remaining 25 percent collected in the following month. The ending cash balance in January is $3,000. Prepare a cash budget for the months of February through May to answer the following multiple choice questions.


42)  At the end of May, the firm has an ending cash balance of (See Table 3.3) 42) ______
  A)  $9,000.
  B)  $14,250.
  C)  $16,750.
  D)  $12,000.

43)  Of the following componenets of a cash budget, generally the easiest to estimate would be 43) ______
  A)  month-to-month short-term borrowing.
  B)  cash sales.
  C)  cash disbursements.
  D)  cash receipts.

44)  For the year ended December 31, 2008, a corporation had cash flow from operating activities of $12,000, cash flow from investment activities of - $10,000, and cash flow from financing activities of $4,000. The Statement of Cash Flows would show a 44) ______
  A)  net increase of $6,000 in cash and marketable securities.
  B)  net decrease of $18,000 in cash and marketable securities.
  C)  net increase of $2,000 in cash and marketable securities.
  D)  net decrease of $6,000 in cash and marketable securities.

45)  ________ forecast is based on a buildup, or consensus, of sales forecasts through the firm's own sales channels, adjusted for additional factors such as production capabilities. 45) ______
  A)  An external sales
  B)  A pro forma
  C)  A sales
  D)  An internal sales

46)  Once sales are forecasted, ________ must be generated to estimate a variety of operating costs. 46) ______
  A)  a production plan
  B)  a cash budget
  C)  a pro forma statement
  D)  an operating budget

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.
 
47)  Cash budget is a statement of the firm's planned inflows and outflows of cash that is used to estimate its long-term cash requirement. 47) ______

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
 
48)  Under the judgmental approach for developing a pro forma balance sheet, the "plug" figure required to bring the statement into balance may be called the 48) ______
  A)  retained earnings.
  B)  accounts receivable.
  C)  cash balance.
  D)  external financing required.

Table 3.1

Ruff Sandpaper Co.
Balance Sheets
For the Years Ended 2002 and 2003

49)  The firm ________ fixed assets worth ________. (See Table 3.1) 49) ______
  A)  purchased; $0
  B)  sold; $200
  C)  sold; $0
  D)  purchased; $200

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.
 
50)  The net current asset investment (NCAI) is defined as the change in current assets minus the change in sum of the accounts payable and accruals. 50) ______

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
 
Table 3.3

The financial analyst for Sportif, Inc. has compiled sales and disbursement estimates for the coming months of January through May. Historically, 75 percent of sales are for cash with the remaining 25 percent collected in the following month. The ending cash balance in January is $3,000. Prepare a cash budget for the months of February through May to answer the following multiple choice questions.


51)  The firm has a negative net cash flow in the month(s) of (See Table 3.3) 51) ______
  A)  January, February, and March.
  B)  February.
  C)  January and February.
  D)  February and March.

52)  A firm plans to retire outstanding bonds in the next planning period. The statements that will be affected are the 52) ______
  A)  cash budget and statement of retained earnings.
  B)  pro forma income statement, pro forma balance sheet, cash budget, and statement of retained earnings.
  C)  pro forma balance sheet and cash budget.
  D)  pro forma income statement and pro forma balance sheet.

53)  The weakness of the judgmental approach to preparing a pro forma balance sheet is 53) ______
  A)  the assumption that the firm faces linear total revenue and total operating cost functions.
  B)  the assumption that the values of certain accounts can be forced to take on desired levels.
  C)  the assumption that the firm's past financial condition is an accurate predictor of its future.
  D)  ease of calculation and preparation.

54)  Three important line items on the statement of cash flows that must be obtained from the income statement include all of the following EXCEPT 54) ______
  A)  net profits after taxes.
  B)  interest expenses.
  C)  cash dividends paid on both preferred and common stocks.
  D)  depreciation and any non-cash charges.

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.
 
55)  Development of pro forma financial statements help the financial manager to project the amount, if any, of external financing required to support a given level of sales as well as a basis for analyzing in advance the level of profitability and overall financial performance of the firm in the coming year. 55) ______

56)  For tax purposes, using MACRS recovery periods, assets in the first four property classes are depreciated by the double-declining balance (200 percent) method using the half-year convention and switching to straight line when advantageous. 56) ______

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
 
57)  The depreciable life of an asset is of concern to the financial manager. In general, 57) ______
  A)  a shorter depreciable life is preferred, because management can then purchase new assets, as the old assets are written off.
  B)  a shorter depreciable life is preferred, because it will result in a faster receipt of cash flows.
  C)  a longer depreciable life is preferred, because it will result in a faster receipt of cash flows.
  D)  a longer depreciable life is preferred, because management can postpone purchasing new assets, since the old assets still have a useful life.

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.
 
58)  The MACRS depreciation method requires use of the half-year convention. Assets are assumed to be acquired in the middle of the year and only one-half of the first year's depreciation is recovered in the first year. 58) ______

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
 
59)  The firm's final sales forecast is usually a function of 59) ______
  A)  internal and external factors in combination.
  B)  salesperson's estimates of demand.
  C)  accounts receivable experience.
  D)  economic forecasts.

60)  In the month of August, a firm had total cash receipts of $10,000, total cash disbursements of $8,000, depreciation expense of $1,000, a minimum cash balance of $3,000, and a beginning cash balance of $500. The excess cash balance (required financing) for August is 60) ______
  A)  excess cash balance of $500.
  B)  required total financing of $500.
  C)  excess cash balance of $5,500.
  D)  required total financing of $2,500.

61)  For the year ended December 31, 2008, a corporation had cash flow from operating activities of $20,000, cash flow from investment activities of -$15,000, and cash flow from financing activities of -$10,000. The Statement of Cash Flows would show a 61) ______
  A)  net increase of $25,000 in cash and marketable securities.
  B)  net decrease of $5,000 in cash and marketable securities.
  C)  net decrease of $15,000 in cash and marketable securities.
  D)  net increase of $5,000 in cash and marketable securities.

62)  NICO Corporation had net fixed assets of $2,000,000 at the end of 2006 and $1,800,000 at the end of 2005. In addition, the firm had a depreciation expense of $200,000 during 2006 and $180,000 during 2005. Using this information, NICO's net fixed asset investment for 2006 was 62) ______
  A)  $20,000.
  B)  $400,000.
  C)  $380,000.
  D)  $0.

63)  Cash flows that result from debt and equity financing transactions, including incurrence and repayment of debt, cash inflows from the sale of stock, and cash outflows to pay cash dividends or repurchase stock are called 63) ______
  A)  financing flows.
  B)  investment flows.
  C)  operating flows.
  D)  none of the above.

64)  In a period of rising sales utilizing past cost and expense ratios (percent-of-sales method), when preparing pro forma financial statements and planning financing, will tend to 64) ______
  A)  overstate retained earnings and understate the financing needed.
  B)  understate retained earnings and understate the additional financing needed.
  C)  understate retained earnings and overstate the financing needed.
  D)  overstate retained earnings and overstate the additional financing needed.

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.
 
65)  The net fixed asset investment (NFAI) is defined as the change in net fixed assets plus depreciation. 65) ______

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
 

Table 3.1

Ruff Sandpaper Co.
Balance Sheets
For the Years Ended 2002 and 2003

66)  The firm's cash flow from operating activities is ________. (See Table 3.1) 66) ______
  A)  $150
  B)  $50
  C)  $350
  D)  $200

67)  Which of the following is a source of cash flows? 67) ______
  A)  Interest expense.
  B)  Taxes.
  C)  Cost of goods sold.
  D)  Depreciation.

68)  The key input to the short-run financial planning process is 68) ______
  A)  the cash budget.
  B)  the sales forecast.
  C)  the pro forma income statement.
  D)  the cash forecast.

69)  Under MACRS, an asset which originally cost $100,000, incurred installation costs of $10,000, and has an estimated salvage value of $25,000, is being depreciated using a 5-year normal recovery period. What is the depreciation expense in year 1? 69) ______
  A)  $22,000
  B)  $11,250
  C)  $12,750
  D)  $15,000

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.
 
70)  Since the differences in the composition of a firm's current assets and liabilities can significantly affect the firm's "true" liquidity, it is important to look beyond measures of overall liquidity to assess the activity (liquidity) of specific current accounts. 70) ______

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
 

Table 2.1



Information (2005 values)
1. Sales totaled $110,000
2. The gross profit margin was 25 percent.
3. Inventory turnover was 3.0.
4. There are 360 days in the year.
5. The average collection period was 65 days.
6. The current ratio was 2.40.
7. The total asset turnover was 1.13.
8. The debt ratio was 53.8 percent.
71)  Notes payable for CEE in 2005 was ________. (See Table 2.1) 71) ______
  A)  $113,466
  B)  $ 52,372
  C)  $ 10,609
  D)  $ 41,372

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.
 
72)  Typically, higher coverage ratios are preferred, but too high a ratio may indicate under-utilization of fixed-payment obligations, which may result in unnecessarily low risk and return. 72) ______

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
 
73)  Two frequently cited ratios of profitability that can be read directly from the common-size income statement are 73) ______
  A)  the gross profit margin and the return on total assets.
  B)  the gross profit margin and the earnings per share.
  C)  the gross profit margin and the net profit margin.
  D)  the earnings per share and the return on total assets.

Table 2.2

Dana Dairy Products Key Ratios

Income Statement
Dana Dairy Products
For the Year Ended December 31, 2005

Balance Sheet
Dana Dairy Products
December 31, 2005


74)  The average collection period for Dana Dairy Products in 2005 was (See Table 2.2) 74) ______
  A)  11.8 days.
  B)  32.5 days.
  C)  25.3 days.
  D)  35.9 days.

75)  The return on equity for Dana Dairy Products for 2005 was (See Table 2.2) 75) ______
  A)  5.6 percent.
  B)  0.6 percent.
  C)  50 percent.
  D)  0.9 percent.

76)  Present and prospective shareholders are mainly concerned with a firm's 76) ______
  A)  liquidity.
  B)  leverage.
  C)  risk and return.
  D)  profitability.

77)  The ________ provides a financial summary of the firm's operating results during a specified period. 77) ______
  A)  balance sheet
  B)  statement of retained earnings
  C)  income statement
  D)  statement of cash flows

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.
 
78)  Gross profit margin measures the percentage of each sales dollar left after the firm has paid for its goods and operating expenses. 78) ______

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
 
79)  When preparing a statement of cash flows, retained earnings adjustments are required so that which of the following are separated on the statement? 79) ______
  A)  Revenue and cost.
  B)  Depreciation and purchases.
  C)  Assets and liabilities.
  D)  Net profits and dividends.

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.
 
80)  The income statement is a financial summary of the firm's operating results during a specified period while the balance sheet is a summary statement of the firm's financial position at a given point in time. 80) ______

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
 
81)  A decrease in total asset turnover will result in ________ in the return on equity. 81) ______
  A)  an undetermined change
  B)  a decrease
  C)  an increase
  D)  no change

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.
 
82)  The par value of common stock is an arbitrarily assigned per share value used primarily for accounting purposes. 82) ______

83)  Publicly-owned corporations are those which are financed by the proceeds from the treasury securities. 83) ______

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
 
84)  Without adjustment, inflation may tend to cause ________ firms to appear more efficient and profitable than ________ firms, all else being the same. 84) ______
  A)  older; newer
  B)  newer; older
  C)  smaller; larger
  D)  large; smaller

85)  The ________ ratio may indicate that the firm will not be able to meet interest obligations due on outstanding debt. 85) ______
  A)  debt
  B)  times interest earned
  C)  return on total assets
  D)  net profit margin

86)  The following groups of ratios primarily measure risk. 86) ______
  A)  activity, debt, and profitability
  B)  liquidity, activity, and profitability
  C)  liquidity, activity, and common stock
  D)  liquidity, activity, and debt

87)  The analyst should be careful when evaluating a ratio analysis that 87) ______
  A)  pre-audited statements are used.
  B)  the dates of the financial statements being compared are the same time.
  C)  neither A nor B.
  D)  both A and B.

88)  The statement of retained earnings reports all of the following EXCEPT 88) ______
  A)  preferred stock dividends.
  B)  interest.
  C)  common stock dividends.
  D)  net profits after taxes.

Table 2.2

Dana Dairy Products Key Ratios

Income Statement
Dana Dairy Products
For the Year Ended December 31, 2005

Balance Sheet
Dana Dairy Products
December 31, 2005


89)  The current ratio for Dana Dairy Products in 2005 was ________. (See Table 2.2) 89) ______
  A)  0.91
  B)  1.58
  C)  1.10
  D)  0.63

90)  The ________ is a popular approach for evaluating profitability in relation to sales by expressing each item on the income statement as a percent of sales. 90) ______
  A)  retained earnings statement
  B)  common-size income statement
  C)  source and use statement
  D)  profit and loss statement

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.
 
91)  The current ratio provides a better measure of overall liquidity only when a firm's inventory cannot easily be converted into cash. If inventory is liquid, the quick ratio is a preferred measure of overall liquidity. 91) ______

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
 
92)  A firm with a total asset turnover lower than the industry standard may have 92) ______
  A)  excessive cost of goods sold.
  B)  insufficient fixed assets.
  C)  insufficient sales.
  D)  excessive debt.

93)  ________ is used by financial managers as a structure for dissecting the firm's financial statements to assess its financial condition. 93) ______
  A)  A common-size income statement
  B)  Cross-sectional analysis
  C)  Statement of cash flows
  D)  The DuPont system of analysis

94)  A firm with a total asset turnover lower than the industry standard and a current ratio which meets the industry standard may have 94) ______
  A)  excessive inventory.
  B)  excessive fixed assets.
  C)  excessive debt.
  D)  excessive accounts receivable.

95)  The three summary ratios basic to the DuPont system of analysis are 95) ______
  A)  net profit margin, total asset turnover, and return on equity.
  B)  net profit margin, total asset turnover, and return on investment.
  C)  net profit margin, total asset turnover, and equity multiplier.
  D)  net profit margin, financial leverage multiplier, and return on equity.

Table 2.1



Information (2005 values)
1. Sales totaled $110,000
2. The gross profit margin was 25 percent.
3. Inventory turnover was 3.0.
4. There are 360 days in the year.
5. The average collection period was 65 days.
6. The current ratio was 2.40.
7. The total asset turnover was 1.13.
8. The debt ratio was 53.8 percent.
96)  Long-term debt for CEE in 2005 was ________. (See Table 2.1) 96) ______
  A)  $41,372
  B)  $30,763
  C)  $10,608
  D)  $52,372

97)  Paid-in-capital in excess of par represents the amount of proceeds 97) ______
  A)  at the current market value of common stock.
  B)  in excess of the par value from the original sale of common stock.
  C)  at the current book value of common stock.
  D)  from the original sale of stock.

98)  A firm had the following accounts and financial data for 2005:



The firm's earnings per share, rounded to the nearest cent, for 2005 was ________.
98) ______
  A)  $0.3204
  B)  $0.3024
  C)  $0.5125
  D)  $0.5335

99)  The tax liability of a corporation with ordinary income of $1,500,000 is ________. 99) ______
  A)  $690,000
  B)  $510,000
  C)  $585,000
  D)  $498,250

100)  The tax liability of a corporation with ordinary income of $1,100,000 is ________. 100) ______
  A)  $374,000
  B)  $340,000
  C)  $362,250
  D)  $390,000

101)  Jennings, Inc. has a tax liability of $170,000 on pretax income of $500,000. What is the average tax rate for Jennings, Inc.? 101) ______
  A)  40 percent
  B)  25 percent
  C)  34 percent
  D)  46 percent

102)  The average tax rate of a corporation with ordinary income of $105,000 and a tax liability of $24,200 is 102) ______
  A)  34 percent.
  B)  46 percent.
  C)  15 percent.
  D)  23 percent.

103)  If a corporation sells certain capital equipment for more than their initial purchase price, the difference between the sale price and the purchase price is called a(n) 103) ______
  A)  capital loss.
  B)  capital gain.
  C)  ordinary gain.
  D)  ordinary loss.

104)  In general, most corporate capital gains are taxed at ________ tax rate. 104) ______
  A)  a 46 percent
  B)  a 30 percent
  C)  a 28 percent
  D)  the ordinary

105)  Congress allows corporations to exclude from taxes 70 to 100 percent of dividends received from other corporations. Congress did this to 105) ______
  A)  encourage corporations to invest in each other.
  B)  lower the cost of equity financing for corporations.
  C)  avoid triple taxation on dividends.
  D)  avoid double taxation on dividends.

106)  Corporation X needs $1,000,000 and can raise this through debt at an annual rate of 10 percent, or preferred stock at an annual cost of 7 percent. If the corporation has a 40 percent tax rate, the after-tax cost of each is 106) ______
  A)  debt: $60,000; preferred stock: $42,000.
  B)  debt: $100,000; preferred stock: $42,000.
  C)  debt: $100,000; preferred stock: $70,000.
  D)  debt: $60,000; preferred stock: $70,000.

107)  Corporation A owns 15 percent of the stock of corporation B. Corporation B pays corporation A $100,000 in dividends in 2002. Corporation A must pay tax on 107) ______
  A)  $ 70,000 of ordinary income.
  B)  $ 30,000 of ordinary income.
  C)  $ 70,000 of capital gain.
  D)  $100,000 of ordinary income.

108)  The dividend exclusion for corporations receiving dividends from another corporation has resulted in 108) ______
  A)  stock investments being relatively less attractive, relative to bond investments made by one corporation in another corporation.
  B)  a higher relative cost of bond-financing for the corporation paying the dividend.
  C)  a lower cost of equity for the corporation paying the dividend.
  D)  stock investments being relatively more attractive relative to bond investments made by one corporation in another corporation.

109)  All of the following are true EXCEPT 109) ______
  A)  Capital gains is taxed as ordinary income.
  B)  Interest income received by a corporation is taxed as ordinary income.
  C)  Corporations may pay taxes on only 30 percent of the dividends received from other corporations, depending on their percentage of ownership.
  D)  Corporations pay taxes on all dividends received from other corporations, no matter their share of ownership.

110)  The future value of a $10,000 annuity due deposited at 12 percent compounded annually for each of the next 5 years is 110) ______
  A)  $63,530.
  B)  $40,376.
  C)  $36,050.
  D)  $71,154.

111)  Xiao Xin is planning to accumulate $40,000 by the end of 5 years by making 5 equal annual deposits. If she plans to make her first deposit today and can earn an annual compound rate of 9 percent on her investment, how much must each deposit be in order to accumulate the $40,000. 111) ______
  A)  $ 9,434
  B)  $ 6,683
  C)  $23,844
  D)  $ 6,132

112)  The rate of interest actually paid or earned, also called the annual percentage rate (APR), is the ________ interest rate. 112) ______
  A)  nominal
  B)  continuous
  C)  discounted
  D)  effective

113)  If a United States Savings bond can be purchased for $14.60 and has a maturity value at the end of 25 years of $100, what is the annual rate of return on the bond? 113) ______
  A)  8 percent
  B)  6 percent
  C)  9 percent
  D)  7 percent

114)  The present value of $200 to be received 10 years from today, assuming an opportunity cost of 10 percent, is 114) ______
  A)  $ 50.
  B)  $ 77.
  C)  $518.
  D)  $200.

115)  How long would it take for you to save an adequate amount for retirement if you deposit $40,000 per year into an account beginning today that pays 12 percent per year if you wish to have a total of $1,000,000 at retirement? 115) ______
  A)  14.8 years
  B)  10.5 years
  C)  11.5 years
  D)  12.2 years

116)  The future value of an ordinary annuity of $1,000 each year for 10 years, deposited at 3 percent, is 116) ______
  A)  $10,000.
  B)  $11,464.
  C)  $11,808.
  D)  $ 8,530.

117)  The future value of a $2,000 annuity due deposited at 8 percent compounded annually for each of the next 10 years is 117) ______
  A)  $14,494.
  B)  $31,292.
  C)  $28,974.
  D)  $13,420.

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.
 
118)  The nominal (stated) annual rate is the rate of interest actually paid or earned. 118) ______

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
 
119)  How long would it take for Nico to save an adequate amount for retirement if he deposits $40,000 per year into an account beginning one year from today that pays 12 percent per year if he wishes to have a total of $1,000,000 at retirement? 119) ______
  A)  15.0 years
  B)  15.5 years
  C)  16.5 years
  D)  14.5 years

120)  Ashley owns stock in a company which has consistently paid a growing dividend over the last five years. The first year Ashley owned the stock, she received $1.71 per share and in the fifth year, she received $2.89 per share. What is the growth rate of the dividends over the last five years? 120) ______
  A)  12 percent
  B)  14 percent
  C)  7 percent
  D)  5 percent

121)  Find the present value of the following stream of cash flows, assuming that the firm's opportunity cost is 14 percent.


121) ______
  A)  $120,820
  B)  $ 14,850
  C)  $131,065
  D)  $ 19,830

122)  Hayley makes annual end-of-year payments of $6,260.96 on a five-year loan with an 8 percent interest rate. The original principal amount was 122) ______
  A)  $25,000.
  B)  $20,000.
  C)  $30,000.
  D)  $31,000.

123)  What annual rate of return would Grandma Zoe need to earn if she deposits $1,000 per month into an account beginning one month from today in order to have a total of $1,000,000 in 30 years? 123) ______
  A)  4.55%
  B)  6.23%
  C)  5.98%
  D)  5.28%

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.
 
124)  Given a discount rate of zero percent and n periods of time, the present-value interest factor and future-value interest factor are equal. 124) ______

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
 
125)  The present value of an ordinary annuity of $350 each year for five years, assuming an opportunity cost of 4 percent, is 125) ______
  A)  $1,896.
  B)  $288.
  C)  $1,750.
  D)  $1,558.

126)  Mary will receive $12,000 per year for the next 10 years as royalty for her work on a finance book. What is the present value of her royalty income if the opportunity cost is 12 percent? 126) ______
  A)  $ 38,640
  B)  $ 67,800
  C)  $120,000
  D)  None of the above.

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.
 
127)  When computing the number of deposits needed to accumulate to a future sum, it will take longer the lower the interest rate, holding the future value and deposit size constant. 127) ______

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
 
128)  What effective annual rate of return (EAR) would Rayne need to earn if she deposits $1,000 per month into an account beginning one month from today in order to have a total of $1,000,000 in 30 years? 128) ______
  A)  6.55%
  B)  5.98%
  C)  6.14%
  D)  4.87%

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.
 
129)  The future value of an annuity due is always greater than the future value of an otherwise identical ordinary annuity for interest rates greater than zero. 129) ______

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
 
130)  Danny Joe borrows $10,500 from the bank at 11 percent annually compounded interest to be repaid in six equal annual installments. The interest paid in the first year is 130) ______
  A)  $1,327.
  B)  $2,481.
  C)  $1,155.
  D)  $ 144.

131)  Find the future value at the end of year 3 of the following stream of cash flows received at the end of each year, assuming the firm can earn 17 percent on its investments.


131) ______
  A)  $23,550
  B)  $20,127
  C)  $23,350
  D)  $20,724

132)  Dorothy borrows $10,000 from the bank. For a four-year loan, the bank requires annual end-of-year payments of $3,223.73. The annual interest rate on the loan is 132) ______
  A)  9 percent.
  B)  12 percent.
  C)  11 percent.
  D)  10 percent.

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.
 
133)  The effective annual rate increases with increasing compounding frequency. 133) ______

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
 
134)  Indicate which formula is correct to determine the future value of an annuity due. 134) ______
  A)  FVAs = PMT × FVIFAi,n
  B)  FVAs = PMT × [FVIFAi,n × (1 + i)]
  C)  FVAs = PMT × FVIFAi,n + 1
  D)  FVAs = PMT × [FVIFAi,n/(1 + i)]

135)  Otto is planning for his son's college education to begin ten years from today. He estimates the yearly tuition, books, and living expenses to be $10,000 per year for a four-year degree. How much must Otto deposit today, at an interest rate of 12 percent, for his son to be able to withdraw $10,000 per year for four years of college? 135) ______
  A)  $18,950
  B)  $12,880
  C)  $40,000
  D)  $ 9,780

136)  A generous benefactor to the local ballet plans to make a one-time endowment which would provide the ballet with $150,000 per year into perpetuity. The rate of interest is expected to be 5 percent for all future time periods. How large must the endowment be? 136) ______
  A)  $ 300,000
  B)  $3,000,000
  C)  $1,428,571
  D)  $ 750,000

137)  Gina has planned to start her college education four years from now. To pay for her college education, she has decided to save $1,000 a quarter for the next four years in a bank account paying 12 percent interest. How much will she have at the end of the fourth year? 137) ______
  A)  $20,157
  B)  $ 1,574
  C)  $19,116
  D)  $16,000

138)  James plans to fund his individual retirement account, beginning today, with 20 annual deposits of $2,000, which he will continue for the next 20 years. If he can earn an annual compound rate of 8 percent on his deposits, the amount in the account upon retirement will be 138) ______
  A)  $19,636.
  B)  $98,846.
  C)  $91,524.
  D)  $21,207.

139)  The future value of $200 received today and deposited at 8 percent compounded semi-annually for three years is 139) ______
  A)  $253.
  B)  $380.
  C)  $252.
  D)  $158.

140)  Julian was given a gold coin originally purchased for $1 by his great-grandfather 50 years ago. Today the coin is worth $450. The rate of return realized on the sale of this coin is approximately equal to 140) ______
  A)  50%.
  B)  7.5%.
  C)  13%.
  D)  cannot be determined with given information.

141)  ________ is an annuity with an infinite life making continual annual payments. 141) ______
  A)  A principal
  B)  An APR
  C)  A perpetuity
  D)  An amortized loan

142)  The present value of $1,000 received at the end of year 1, $1,200 received at the end of year 2, and $1,300 received at the end of year 3, assuming an opportunity cost of 7 percent, is 142) ______
  A)  $2,856.
  B)  $3,043
  C)  $6,516.
  D)  $2,500.

143)  Colin would like to send her parents on a cruise for their 25th wedding anniversary. She has priced the cruise at $15,000 and she has 5 years to accumulate this money. How much must Janice deposit annually in an account paying 10 percent interest in order to have enough money to send her parents on the cruise? 143) ______
  A)  $2,234
  B)  $1,862
  C)  $3,000
  D)  $2,457

144)  The present value of $100 to be received 10 years from today, assuming an opportunity cost of 9 percent, is 144) ______
  A)  $236.
  B)  $699.
  C)  $ 75.
  D)  $ 42.

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.
 
145)  The future value interest factor is the future value of $1 per period compounded at i percent for n periods. 145) ______

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
 
146)  Aunt Butch borrows $19,500 from the bank at 8 percent annually compounded interest to be repaid in 10 equal annual installments. The interest paid in the third year is ________. 146) ______
  A)  $1,336.00
  B)  $1,947.10
  C)  $1,560.14
  D)  $2,906.11

147)  Xiao Li wishes to accumulate $50,000 by the end of 10 years by making equal annual end-of-year deposits over the next 10 years. If Xiao Li can earn 5 percent on her investments, how much must she deposit at the end of each year? 147) ______
  A)  $4,513
  B)  $6,475
  C)  $5,000
  D)  $3,975

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.
 
148)  Future value increases with increases in the interest rate or the period of time funds are left on deposit. 148) ______

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
 
149)  How many years would it take for Jughead to save an adequate amount for retirement if he deposits $2,000 per month into an account beginning today that pays 12 percent per year if he wishes to have a total of $1,000,000 at retirement? 149) ______
  A)  14.9 years
  B)  11.5 years
  C)  13.7 years
  D)  15.5 years

150)  The future value of $200 received today and deposited for three years in an account which pays semiannual interest of 8 percent is ________. 150) ______
  A)  $134.66
  B)  $158.00
  C)  $252.00
  D)  $253.00