Ans Doc157Y


1) An item which may be converted to cash within one year or one operating cycle of the firm is classified as a
A)current liability.
B)long-term asset.
C)current asset.
D)long-term liability.
2) Which of the following is not a primary source of capital to the firm?
B)common stock
C)preferred stock
3) The residual income of the firm belongs to
B)preferred stockholders.
C)common stockholders.
4) A person signs a contract calling for payments of $250,000 per year, to begin 10 years from now. To find the present value of this contract, which table or tables should you use?
A)the future value of $1
B)the future value of an annuity of $1 and the future value of $1
C)the present value of an annuity of $1 and the present value of $1
D)none of the above
5) Which account represents the cumulative earnings of the firm since its formation, minus dividends paid?
A)Paid-in capital
B)Common stock
C)Retained earnings
D)Accumulated depreciation
6) Book value is the same as
A)stockholders’ equity.
B)fixed assets minus long-term debt.
C)net worth.
D)current assets minus current debt.
7) A short-term creditor would be most interested in
A)profitability ratios.
B)asset utilization ratios.
C)liquidity ratios.
D)debt utilization ratios.
8) Which two ratios are used in the DuPont system to create return on assets?
A)Return on assets and asset turnover
B)Profit margin and asset turnover
C)Return on total capital and the profit margin
D)Inventory turnover and return on fixed assets
9) If a firm has both interest expense and lease payments,
A)times interest earned will be smaller than fixed charge coverage.
B)times interest earned will be greater than fixed charge coverage.
C)times interest earned will be the same as fixed charge coverage.
D)fixed charge coverage cannot be computed.

10) You will deposit $2,000 today. It will grow for 6 years at 10% interest compounded semiannually. You will then withdraw the funds annually over the next 4 years. The annual interest rate is 8%. Your annual withdrawal will be:
11) A firm has total assets of $2,000,000. It has $900,000 in long-term debt. The stockholders equity is $900,000. What is the total debt to asset ratio?
12) If accounts receivable stays the same, and credit sales go up
A)the average collection period will go up.
B)the average collection period will go down.
C)accounts receivable turnover will decrease.
D)there is no relationship between accounts receivable and credit sales

13) A firm has forecasted sales of $4,000 in January, $6,000 in February and $5,500 in March. All sales are on credit. 40% is collected the month of sale and the remainder the following month. How much is collected from accounts receivable in February?
14) In the construction of the cash payments schedule, the major cash payment is generally
A)the general and administrative expense.
B)costs associated with inventory manufactured.
C)interest and dividends.
D)payments for new plant and equipment.
15) Net cash flow is equal to:
A)income after taxes minus depreciation.
B)income after taxes minus dividends.
C)cash receipts minus cash payments.
D) cash receipts minus cash payments minus depreciation.
16) Firms that successfully increase their rates of inventory turnover will, among other things,
A)be able to reduce their borrowing needs.
B)be able to reduce their dividend payments to stockholders.
C)find it more difficult to be given credit by their resource suppliers.
D)have a greater need for high balances in their cash accounts.
17) A rapid rate of growth in sales and profits may require
A)higher dividend payments to shareholders.
B)increased borrowing by the firm to support the sales increase.
C)the firm to be more lenient with credit customers.
D)sales forecasts to be made less frequently.

18) The after-tax cost of preferred stock to the issuing corporation
A)is the same as the before-tax cost.
B)is usually lower than the cost of debt.
C)is dependent on the firm’s tax bracket.
D)none of the above.
19) In break-even analysis the contribution margin is defined as
A)sales minus variable costs.
B)sales minus fixed costs.
C)variable costs minus fixed costs.
D)fixed costs minus variable costs.
20) If sales volume exceeds the break-even point, the firm will experience
A)an operating loss.
B)an operating profit.
C)an increase in plant and equipment.
D)an increase in stock price.
21) A highly automated plant would generally have
A)more variable than fixed costs.
B)more fixed than variable costs.
C)all fixed costs.
D)all variable costs.
22) New common stock is more expensive than ke
A)to compensate for risk.
B)to compensate for more dividends.
C)to compensate for expansionary problems.
D)to cover distribution costs.
23) One of the first considerations in cash management is
A)to have as much cash as possible on hand.
B)synchronization of cash inflows and cash outflows.
D)to put any excess cash into accounts receivable.

24) The difference between the amount of cash on the firm’s books and the amount credited to it by the bank is
A)an overdraft.
B)interest revenue.
C)extended disbursement.

25) How would electronic funds transfer affect the use of “float”?
A)Increase its use somewhat
B)Decrease its use somewhat
C)Virtually eliminate its use
D)Have no effect on its use

26) Price Corp. is considering selling to a group of new customers and creating new annual sales of $70,000. 5% will be uncollectible. The collection cost on these accounts is 3.5% of new sales, the cost of producing and selling is 80% of sales and the firm is in the 31% tax bracket. What is the profit on new sales?
D)none of the above.
27) Money market funds are
A)accounts that allow small investors to participate in buying large-denomination securities.
B)extremely risky but high-yielding accounts used by large corporations to finance operations.
C)accounts that allow small investors to buy shares in companies that then buy shares of common stock.
D)pools of bonds held by large utility companies.
28) The three primary policy variables to consider when extending credit include all of the following except
A)credit standards.
B)the level of interest rates.
C)the terms of trade.
D)collection policy.
29) Companies that are mostly influenced by seasonal sales have to make a choice between
A)level production and inventory buildup.
B)seasonal production and an uneven workforce.
C)a stable workforce and a fluctuating workforce.
D)All of the above
30) The Jersey Corporation has 70% of its capital structure in the form of equity capital. $150,000 in capital needs to be raised for a project but only $30,000 in funds is available through retained earnings. How much must be raised through common stock to maintain Jersey Corporation’s capital structure?