1) Which of the following legal forms of organization is characterized by limited
liability?
a. Professional partnership
b. Sole proprietorship
c. Corporation
d. Partnership
2) The financial manager may be responsible for any of the following EXCEPT
a. keeping track of quarterly tax payments.
b. analyzing quarterly budget and performance reports.
c. analyzing the effects of more debt on the firm's capital structure.
d. determining whether to accept or reject a capital asset acquisition.
3) The financial manager's financing decisions determine
a. both the mix and the type of assets found on the firm's balance sheet.
b. both the mix and the type of assets and liabilities found on the firm's balance
sheet.
c. the most appropriate mix of short-term and long-term financing.
d. the proportion of the firm's earnings to be paid as dividend.
4) Wealth maximization as the goal of the firm implies enhancing the wealth of
a. the firm's stockholders.
b. the Board of Directors.
c. the firm's employees.
d. the federal government.
5) The amount earned during the accounting period on each outstanding share
of common stock is called
a. common stock dividend.
b. net profits after taxes.
c. earnings per share.
d. net income.
6) Cash flow and risk are the key determinants in share price. Increased cash
flow results in ________, other things remaining the same.
a. an unchanged share price
b. a lower share price
c. an undetermined share price
d. a higher share price
7) A more recent issue that is causing major problems in the business community
is
a. short-term versus long-term financial goals of management.
b. the privatization of ownership.
c. ethical problems.
d. environmental concerns.
8) The implementation of a pro-active ethics program is expected to result in
a. a positive corporate image and increased respect, but is not expected to affect
cash flows.
b. a positive corporate image and increased respect, but is not expected to affect
share price.
c. an increased share price resulting from a decrease in risk, but is not expected
to affect cash flows.
d. a positive corporate image and increased respect, a reduction in risk, and enhanced
cash flow resulting in an increase in share price.
9) The Sarbanes-Oxley Act of 2002 was passed in response to
a. the decline in technology stocks.
b. insider trading activities.
c. false disclosures in financial reporting.
d. all of the above
10) The key participants in financial transactions are individuals, businesses,
and governments. Individuals are net ________ of funds, and businesses are
net ________ of funds.
a. demanders; suppliers
b. purchasers; sellers
c. suppliers; demanders
d. users; providers
11) The over-the-counter (OTC) market is
a. an intangible market for unlisted securities.
b. a place where securities are bought and sold.
c. the New York Stock Exchange.
d. an organized stock exchange.
12) The two key financial markets are
a. primary market and secondary market.
b. capital market and secondary market.
c. primary market and money market.
d. money market and capital market.
13) Securities exchanges create efficient markets that do all of the following
EXCEPT
a. ensure a market in which the price reflects the true value of the security.
b. control the supply and demand for securities through price.
c. allocate funds to the most productive uses.
d. allow the price to be determined by supply and demand of securities.
14) The tax deductibility of various expenses such as general and administrative
expenses ________ their after-tax cost.
a. reduces
b. has no effect on
c. has an undetermined effect on
d. increases
15) The dividend exclusion for corporations receiving dividends from another
corporation has resulted in
a. stock investments being relatively less attractive, relative to bond investments
made by one corporation in another corporation.
b. stock investments being relatively more attractive relative to bond investments
made by one corporation in another corporation.
c. a lower cost of equity for the corporation paying the dividend.
d. a higher relative cost of bond-financing for the corporation paying the dividend.
16) The rule-setting body, which authorizes generally accepted accounting principles
is
a. FASB.
b. Federal Reserve System.
c. SEC.
d. GAAP.
17) Candy Corporation had pretax profits of $1.2 million, an average tax rate
of 34 percent, and it paid preferred stock dividends of $50,000. There were
100,000 shares outstanding and no interest expense. What were Candy Corporation's
earnings per share?
a. $4.52
b. $7.59
c. $7.42
d. $3.91
18) The analyst should be careful when evaluating a ratio analysis that
a. the dates of the financial statements being compared are the same time.
b. pre-audited statements are used.
c. neither A nor B.
d. both A and B.
19) The ________ is useful in evaluating credit and collection policies.
a. current asset turnover
b. current ratio
c. average collection period
d. average payment period
20) The ________ ratio may indicate poor collections procedures or a lax credit
policy.
a. average collection period
b. average payment period
c. inventory turnover
d. quick
21) ________ are especially interested in the average payment period, since it
provides them with a sense of the bill-paying patterns of the fi rm.
a. Lenders and suppliers
b. Borrowers and buyers
c. Stockholders
d. Customers
22) If the inventory turnover is divided into 365, it becomes a measure of
a. sales turnover.
b. the average collection period.
c. sales efficiency.
d. the average age of the inventory.
23) The ________ ratio may indicate that the firm will not be able to meet interest
obligations due on outstanding debt.
a. times interest earned
b. return on total assets
c. net profit margin
d. debt
24) The ________ measures the percentage of profit earned on each sales dollar
before interest and taxes.
a. net profit margin
b. operating profit margin
c. earnings available to common shareholders
d. gross profit margin
25) In the DuPont system, the return on total assets (asset) is equal to
a. (net profit margin) × (fixed asset turnover).
b. (return on equity) × (total asset turnover).
c. (return on equity) × (financial leverage multiplier).
d. (net profit margin) × (total asset turnover).
liability?
a. Professional partnership
b. Sole proprietorship
c. Corporation
d. Partnership
2) The financial manager may be responsible for any of the following EXCEPT
a. keeping track of quarterly tax payments.
b. analyzing quarterly budget and performance reports.
c. analyzing the effects of more debt on the firm's capital structure.
d. determining whether to accept or reject a capital asset acquisition.
3) The financial manager's financing decisions determine
a. both the mix and the type of assets found on the firm's balance sheet.
b. both the mix and the type of assets and liabilities found on the firm's balance
sheet.
c. the most appropriate mix of short-term and long-term financing.
d. the proportion of the firm's earnings to be paid as dividend.
4) Wealth maximization as the goal of the firm implies enhancing the wealth of
a. the firm's stockholders.
b. the Board of Directors.
c. the firm's employees.
d. the federal government.
5) The amount earned during the accounting period on each outstanding share
of common stock is called
a. common stock dividend.
b. net profits after taxes.
c. earnings per share.
d. net income.
6) Cash flow and risk are the key determinants in share price. Increased cash
flow results in ________, other things remaining the same.
a. an unchanged share price
b. a lower share price
c. an undetermined share price
d. a higher share price
7) A more recent issue that is causing major problems in the business community
is
a. short-term versus long-term financial goals of management.
b. the privatization of ownership.
c. ethical problems.
d. environmental concerns.
8) The implementation of a pro-active ethics program is expected to result in
a. a positive corporate image and increased respect, but is not expected to affect
cash flows.
b. a positive corporate image and increased respect, but is not expected to affect
share price.
c. an increased share price resulting from a decrease in risk, but is not expected
to affect cash flows.
d. a positive corporate image and increased respect, a reduction in risk, and enhanced
cash flow resulting in an increase in share price.
9) The Sarbanes-Oxley Act of 2002 was passed in response to
a. the decline in technology stocks.
b. insider trading activities.
c. false disclosures in financial reporting.
d. all of the above
10) The key participants in financial transactions are individuals, businesses,
and governments. Individuals are net ________ of funds, and businesses are
net ________ of funds.
a. demanders; suppliers
b. purchasers; sellers
c. suppliers; demanders
d. users; providers
11) The over-the-counter (OTC) market is
a. an intangible market for unlisted securities.
b. a place where securities are bought and sold.
c. the New York Stock Exchange.
d. an organized stock exchange.
12) The two key financial markets are
a. primary market and secondary market.
b. capital market and secondary market.
c. primary market and money market.
d. money market and capital market.
13) Securities exchanges create efficient markets that do all of the following
EXCEPT
a. ensure a market in which the price reflects the true value of the security.
b. control the supply and demand for securities through price.
c. allocate funds to the most productive uses.
d. allow the price to be determined by supply and demand of securities.
14) The tax deductibility of various expenses such as general and administrative
expenses ________ their after-tax cost.
a. reduces
b. has no effect on
c. has an undetermined effect on
d. increases
15) The dividend exclusion for corporations receiving dividends from another
corporation has resulted in
a. stock investments being relatively less attractive, relative to bond investments
made by one corporation in another corporation.
b. stock investments being relatively more attractive relative to bond investments
made by one corporation in another corporation.
c. a lower cost of equity for the corporation paying the dividend.
d. a higher relative cost of bond-financing for the corporation paying the dividend.
16) The rule-setting body, which authorizes generally accepted accounting principles
is
a. FASB.
b. Federal Reserve System.
c. SEC.
d. GAAP.
17) Candy Corporation had pretax profits of $1.2 million, an average tax rate
of 34 percent, and it paid preferred stock dividends of $50,000. There were
100,000 shares outstanding and no interest expense. What were Candy Corporation's
earnings per share?
a. $4.52
b. $7.59
c. $7.42
d. $3.91
18) The analyst should be careful when evaluating a ratio analysis that
a. the dates of the financial statements being compared are the same time.
b. pre-audited statements are used.
c. neither A nor B.
d. both A and B.
19) The ________ is useful in evaluating credit and collection policies.
a. current asset turnover
b. current ratio
c. average collection period
d. average payment period
20) The ________ ratio may indicate poor collections procedures or a lax credit
policy.
a. average collection period
b. average payment period
c. inventory turnover
d. quick
21) ________ are especially interested in the average payment period, since it
provides them with a sense of the bill-paying patterns of the fi rm.
a. Lenders and suppliers
b. Borrowers and buyers
c. Stockholders
d. Customers
22) If the inventory turnover is divided into 365, it becomes a measure of
a. sales turnover.
b. the average collection period.
c. sales efficiency.
d. the average age of the inventory.
23) The ________ ratio may indicate that the firm will not be able to meet interest
obligations due on outstanding debt.
a. times interest earned
b. return on total assets
c. net profit margin
d. debt
24) The ________ measures the percentage of profit earned on each sales dollar
before interest and taxes.
a. net profit margin
b. operating profit margin
c. earnings available to common shareholders
d. gross profit margin
25) In the DuPont system, the return on total assets (asset) is equal to
a. (net profit margin) × (fixed asset turnover).
b. (return on equity) × (total asset turnover).
c. (return on equity) × (financial leverage multiplier).
d. (net profit margin) × (total asset turnover).
