Multiple Choice Answers

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1. Which of the following would result in a decrease in cash flow and a use of cash?
A. A decrease in notes payable
B. An increase in long-term debt
C. A decrease in inventory
D. A decrease in common stock

2. In the United States, for the 2007 tax year, federal corporate income tax rates never exceeded an average rate of
A. 15%.
B. 35%.
C. 39%.
D. 34%.

3. A firm has assets of $60,000 and owners’ equity of $33,000. Which of the following is the correct balance of the firm’s liabilities?
A. $33,000
B. $27,000
C. $93,000
D. $60,000

4. Which of the following would result in an increase in cash flow and a source of cash?
A. A decrease in notes payable
B. A decrease in long-term debt
C. An increase in inventory
D. An increase in common stock

5. A firm has current assets of $10,000 and current liabilities of $7,000. Which of the following is the correct net working capital for the firm?
A. $10,000
B. $7,000
C. $3,000
D. $13,000

6. If a firm has an accounts receivable balance of $18,800 at the end of 2007 and $16,500 at the end of 2008, which of the following statements about accounts receivable is correct?
A. Accounts receivable decreased by $2,300 and represented a use of cash.
B. Accounts receivable increased by $2,300 and represented a source of cash.
C. Accounts receivable decreased by $2,300 and represented a source of cash.
D. Accounts receivable increased by $2,300 and represented a use of cash.

7. If a firm has revenues of $15,090 and expenses of $8,850, what is the firm’s taxable income?
A. $15,090
B. $8,850
C. $6,240
D. $23,940

8. Which of the following statements about the issuance of an initial public offering (IPO) is correct?
A. IPOs may be either underpriced or overpriced.
B. IPOs are never overpriced.
C. IPOs are never underpriced.
D. IPOs are always correctly priced.

9. If a firm has revenues of $15,090, operating expenses of $8,850, and a tax expense
of $2,120, what is the firm’s net income?
A. $8,850
B. $4,120
C. $6,240
D. $8,360

10. When you’re preparing a common-sized balance sheet, which of the following measures is set to equal 100 percent?
A. Total liabilities
b total assets
C. Total owners’ equity
d cash

11. Suppose that a corporation has a taxable income of $200,000. What is the firm’s corporate income tax for the current tax year? (You can use the following table to calculate the firm’s U.S. federal corporate tax.)
Taxable Income
More Than
Taxable Income
Less Than
Tax
Rate
$0 $50,000 15%
$50,001 $75,000 25%
$75,001 $100,000 34%
$100,001 $335,000 39%
$335,001 $10,000,000 34%
$10,000,001 $15,000,000 35%
$15,000,001 $183,333,334 38%
$18,333,334 35%
A. $78,000
B. $6,250
C. $39,000
D. $61,250

12. Using the same table and information provided in Question 11, what is the firm’s average tax rate?
A. 39%
B. 30.625%
C. 34%
D. 31.625%

13. Using the same table and information provided in Question 11, what is the firm’s marginal tax rate?
A. 39%
B. 30.625%
C. 34%
D. 31.625%

14. Dilution refers to the loss of shareholder value, and may be represented by all of the following except dilution of
A. ownership percentage.
B. market value.
C. the firm’s current ratio.
D. book value per share.

15. If a firm has $6,940 in earnings before interest and taxes, $650 in depreciation expense, and $2,120 in taxes, what is the firm’s operating cash flow?
A. $4,120
B. $5,470
C. $6,240
D. $9,710

16. The type of financial statement that summarizes the sources and uses of cash over a specified period of time is called the
A. statement of cash flows.
B. income statement.
C. balance sheet.
D. inventory ratio statement.

17. The current ratio falls within which of the following classifications of financial ratios?
A. Long-term solvency measures
B. Asset management or turnover measures
C. Short-term solvency or liquidity measures
D. Profitability measures

18. If a firm has an accounts payable balance of $34,400 at the end of 2007 and $31,200 at the end of 2008, which of the following statements about accounts payable is correct?
A. Accounts payable decreased by $3,200 and represented a use of cash
B. Accounts payable increased by $3,200 and represented a source of cash
C. Accounts payable decreased by $3,200 and represented a source of cash
D. Accounts payable increased by $3,200 and represented a use of cash

19. Which of the following is not one of the six costs of issuing securities?
A. Rights offering
B. Abnormal returns
C. Green Shoe option
D. Gross spread

20. In the United States, for the 2007 tax year, federal corporate income tax rates never exceeded a marginal rate of
A. 15%.
B. 35%.
C. 39%.
D. 34%.