26) The financial leverage multiplier is an indicator of how much ________ a
corporation is utilizing.
a. long-term debt
b. total debt
c. operating leverage
d. total assets
27) Allocation of the historic costs of fixed assets against the annual revenue they
generate is called
a. amortization.
b. net profits.
c. depreciation.
d. gross profits.
28) The cash flows from operating activities section of the statement of cash
flows considers
a. interest expense.
b. stock repurchases.
c. dividends paid.
d. cost of raw materials.
29) The key aspects of the financial planning process are
a. cash planning and investment planning.
b. cash planning and profit planning.
c. investment planning and profit planning.
d. cash planning and financing.
30) A firm has projected sales in May, June, and July of $100, $200, and $300,
respectively. The firm makes 20 percent of sales for cash and collects the
balance one month following the sale. The firm's total cash receipts in July
a. are $200.
b. are $220.
c. are $180.
d. cannot be determined with the information provided.
31) A projected excess cash balance for the month may be
a. financed with long-term securities.
b. invested in marketable securities.
c. financed with short-term securities.
d. invested in long-term securities.
32) 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
a. required total financing of $500.
b. required total financing of $2,500.
c. excess cash balance of $500.
d. excess cash balance of $5,500.
33) The key inputs for preparing pro forma income statements using the simplified approaches are the
a. sales forecast for the preceding year and financial statements for the coming
year.
b. sales forecast for the coming year and the cash budget for the preceding year.
c. cash budget for the coming year and sales forecast for the preceding year.
d. sales forecast for the coming year and financial statements for the preceding
year.
34) The ________ method of developing a pro forma balance sheet estimates values
of certain balance sheet accounts while others are calculated. In this
method, the firm's external financing is used as a balancing, or plug, figure.
a. cash
b. accrual
c. judgmental
d. percent-of-sales
35) The strict application of the percent-of-sales method to prepare a pro forma
income statement assumes the firm has no fixed costs. Therefore, the use of
the past cost and expense ratios generally tends to ________ profits when
sales are increasing.
a. have no effect on
b. accurately predict
c. overstate
d. understate
36) A firm plans to retire outstanding bonds in the next planning period. The
statements that will be affected are the
a. pro forma balance sheet and cash budget.
b. pro forma income statement and pro forma balance sheet.
c. cash budget and statement of retained earnings.
d. pro forma income statement, pro forma balance sheet, cash budget, and
statement of retained earnings.
37) Utilizing past cost and expense ratios (percent-of-sales method) when preparing
pro forma financial statements will tend to
a. overstate profits when sales are increasing.
b. neither understate nor overstate profits.
c. understate profits when sales are increasing.
d. understate profits when sales are decreasing.
38) 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
a. overstate retained earnings and understate the financing needed.
b. overstate retained earnings and overstate the additional financing needed.
c. understate retained earnings and overstate the financing needed.
d. understate retained earnings and understate the additional financing needed.
39) For positive interest rates, the future value interest factor is
a. sometimes negative.
b. always greater than 1.0.
c. never greater than 25.
d. always less than 0.
40) The amount of money that would have to be invested today at a given interest
rate over a specified period in order to equal a future amount is called
a. present value.
b. future value.
c. future value interest factor.
d. present value interest factor.
41) The present value of $200 to be received 10 years from today, assuming an
opportunity cost of 10 percent, is
a. $200.
b. $50.
c. $518.
d. $77.
42) The future value of a dollar ________ as the interest rate increases and
________ the farther in the future an initial deposit is to be received.
a. increases; increases
b. decreases; increases
c. decreases; decreases
d. increases; decreases
43) The present value of a $25,000 perpetuity at a 14 percent discount rate is
a. $350,000.
b. $285,000.
c. $178,571.
d. $219,298.
44) The future value of $100 received today and deposited in an account for four
years paying semiannual interest of 6 percent is
a. $450.
b. $889.
c. $134.
d. $126.
45) The future value of an annuity of $1,000 each quarter for 10 years, deposited
at 12 percent compounded quarterly is
a. $75,401.
b. $17,549.
c. $93,049.
d. $11,200.
46) Adam borrows $4,500 at 12 percent annually compounded interest to be
repaid in four equal annual installments. The actual end-of-year payment is
a. $2,641.
b. $1,125.
c. $942.
d. $1,482.
47) 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?
a. 7 percent
b. 5 percent
c. 14 percent
d. 12 percent
48) 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
a. 13%.
b. 50%.
c. 7.5%.
d. cannot be determined with given information.
49) Aunt Bertha 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 ________.
a. $1,947.10
b. $1,336.00
c. $2,906.11
d. $1,560.14
50) 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?
a. 5.98%
b. 5.28%
c. 6.23%
d. 4.55%
corporation is utilizing.
a. long-term debt
b. total debt
c. operating leverage
d. total assets
27) Allocation of the historic costs of fixed assets against the annual revenue they
generate is called
a. amortization.
b. net profits.
c. depreciation.
d. gross profits.
28) The cash flows from operating activities section of the statement of cash
flows considers
a. interest expense.
b. stock repurchases.
c. dividends paid.
d. cost of raw materials.
29) The key aspects of the financial planning process are
a. cash planning and investment planning.
b. cash planning and profit planning.
c. investment planning and profit planning.
d. cash planning and financing.
30) A firm has projected sales in May, June, and July of $100, $200, and $300,
respectively. The firm makes 20 percent of sales for cash and collects the
balance one month following the sale. The firm's total cash receipts in July
a. are $200.
b. are $220.
c. are $180.
d. cannot be determined with the information provided.
31) A projected excess cash balance for the month may be
a. financed with long-term securities.
b. invested in marketable securities.
c. financed with short-term securities.
d. invested in long-term securities.
32) 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
a. required total financing of $500.
b. required total financing of $2,500.
c. excess cash balance of $500.
d. excess cash balance of $5,500.
33) The key inputs for preparing pro forma income statements using the simplified approaches are the
a. sales forecast for the preceding year and financial statements for the coming
year.
b. sales forecast for the coming year and the cash budget for the preceding year.
c. cash budget for the coming year and sales forecast for the preceding year.
d. sales forecast for the coming year and financial statements for the preceding
year.
34) The ________ method of developing a pro forma balance sheet estimates values
of certain balance sheet accounts while others are calculated. In this
method, the firm's external financing is used as a balancing, or plug, figure.
a. cash
b. accrual
c. judgmental
d. percent-of-sales
35) The strict application of the percent-of-sales method to prepare a pro forma
income statement assumes the firm has no fixed costs. Therefore, the use of
the past cost and expense ratios generally tends to ________ profits when
sales are increasing.
a. have no effect on
b. accurately predict
c. overstate
d. understate
36) A firm plans to retire outstanding bonds in the next planning period. The
statements that will be affected are the
a. pro forma balance sheet and cash budget.
b. pro forma income statement and pro forma balance sheet.
c. cash budget and statement of retained earnings.
d. pro forma income statement, pro forma balance sheet, cash budget, and
statement of retained earnings.
37) Utilizing past cost and expense ratios (percent-of-sales method) when preparing
pro forma financial statements will tend to
a. overstate profits when sales are increasing.
b. neither understate nor overstate profits.
c. understate profits when sales are increasing.
d. understate profits when sales are decreasing.
38) 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
a. overstate retained earnings and understate the financing needed.
b. overstate retained earnings and overstate the additional financing needed.
c. understate retained earnings and overstate the financing needed.
d. understate retained earnings and understate the additional financing needed.
39) For positive interest rates, the future value interest factor is
a. sometimes negative.
b. always greater than 1.0.
c. never greater than 25.
d. always less than 0.
40) The amount of money that would have to be invested today at a given interest
rate over a specified period in order to equal a future amount is called
a. present value.
b. future value.
c. future value interest factor.
d. present value interest factor.
41) The present value of $200 to be received 10 years from today, assuming an
opportunity cost of 10 percent, is
a. $200.
b. $50.
c. $518.
d. $77.
42) The future value of a dollar ________ as the interest rate increases and
________ the farther in the future an initial deposit is to be received.
a. increases; increases
b. decreases; increases
c. decreases; decreases
d. increases; decreases
43) The present value of a $25,000 perpetuity at a 14 percent discount rate is
a. $350,000.
b. $285,000.
c. $178,571.
d. $219,298.
44) The future value of $100 received today and deposited in an account for four
years paying semiannual interest of 6 percent is
a. $450.
b. $889.
c. $134.
d. $126.
45) The future value of an annuity of $1,000 each quarter for 10 years, deposited
at 12 percent compounded quarterly is
a. $75,401.
b. $17,549.
c. $93,049.
d. $11,200.
46) Adam borrows $4,500 at 12 percent annually compounded interest to be
repaid in four equal annual installments. The actual end-of-year payment is
a. $2,641.
b. $1,125.
c. $942.
d. $1,482.
47) 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?
a. 7 percent
b. 5 percent
c. 14 percent
d. 12 percent
48) 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
a. 13%.
b. 50%.
c. 7.5%.
d. cannot be determined with given information.
49) Aunt Bertha 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 ________.
a. $1,947.10
b. $1,336.00
c. $2,906.11
d. $1,560.14
50) 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?
a. 5.98%
b. 5.28%
c. 6.23%
d. 4.55%
