a

Which one of the following is defined as a firm's short-term assets less its short-term liabilities?

A. working capital

B. debt

C. investment capital

D. net capital

E. capital structure

A business formed by two or more individuals who each have unlimited liability for all of the firm's
business debts is called a:

A. corporation.

B. sole proprietorship.

C. general partnership.

D. limited partnership.

E. limited liability company

A business created as a distinct legal entity and treated as a legal "person" is called a:

A. corporation.

B. sole proprietorship.

C. general partnership.

D. limited partnership.

E. unlimited liability company

A stakeholder is:

A. a person who owns shares of stock.

B. any person who has voting rights based on stock ownership of a corporation.

C. a person who initially founded a firm and currently has management control over that firm.

D. a creditor to whom a firm currently owes money.

E. any person or entity other than a stockholder or creditor who potentially has a claim on the cash
flows of a firm.

Which of the following questions are addressed by financial managers?

I. How should a product be marketed?

II. Should customers be given 30 or 45 days to pay for their credit purchases?

III. Should the firm borrow more money?

IV. Should the firm acquire new equipment?

A. I and IV only

B. II and III only

C. I, II, and III only

D. II, III, and IV only

E. I, II, III, and IV

b
Which one of the following is a capital budgeting decision?

A. determining how many shares of stock to issue

B. deciding whether or not to purchase a new machine for the production line

C. deciding how to refinance a debt issue that is maturing

D. determining how much inventory to keep on hand

E. determining how much money should be kept in the checking account

Which of the following should a financial manager consider when analyzing a capital budgeting project?

I. project start up costs

II. timing of all projected cash flows

III. dependability of future cash flows

IV. dollar amount of each projected cash flow

A. I and IV only

B. I, II, and IV only

C. I, II, and III only

D. II, III, and IV only

E. I, II, III, and IV

Which one of the following is a capital structure decision?

A. determining which one of two projects to accept

B. determining how to allocate investment funds to multiple projects

D. determining how much debt should be assumed to fund a project

E. determining how much inventory will be needed to support a project

Which of the following accounts are included in working capital management?

I. accounts payable

II. accounts receivable

III. fixed assets

IV. inventory

A. I and II only

B. I and III only

C. II and IV only

D. I, II, and IV only

E. II, III, and IV only

Which one of the following is a working capital management decision?

A. determining the amount of equipment needed to complete a job

B. determining whether to pay cash for a purchase or use the credit offered by the supplier

C. determining the amount of long-term debt required to complete a project

D. determining the number of shares of stock to issue to fund an acquisition

E. determining whether or not a project should be accepted

Which of the following are advantages of the corporate form of business ownership?

I. limited liability for firm debt

II. double taxation

III. ability to raise capital

IV. unlimited firm life

A. I and II only

B. III and IV only

C. I, III, and IV only

D. II, III, and IV only

E. I, II, III, and IV

Which one of the following statements is correct?

A. A general partnership is legally the same as a corporation.

B. Both sole proprietorship and partnership income is taxed as individual income.

C. Partnerships are the most complicated type of business to form.

D. All business organizations have bylaws.

E. Only firms organized as sole proprietorships have limited lives.

c
Which one of the following business types is best suited to raising large amounts of capital?

A. sole proprietorship

B. limited liability company

C. corporation

D. general partnership

E. limited partnership

Why should financial managers strive to maximize the current value per share of the existing stock?

A. doing so guarantees the company will grow in size at the maximum possible rate

B. doing so increases employee salaries

C. because they have been hired to represent the interests of the current shareholders

D. because this will increase the current dividends per share

E. because managers often receive shares of stock as part of their compensation

Which of the following represent cash outflows from a corporation?

I. issuance of securities

II. payment of dividends

III. new loan proceeds

IV. payment of government taxes

A. I and III only

B. II and IV only
C. I and IV only

D. I, II, and IV only

E. II, III, and IV only

1. Which one of the following is the financial statement that shows the accounting value of a firm's
equity as of a particular date?

A. income statement

B. creditor's statement

C. balance sheet

D. statement of cash flows

E. dividend statement

2. Noncash items refer to:

A. accrued expenses.

B. inventory items purchased using credit.

C. the ownership of intangible assets such as patents.

D. expenses which do not directly affect cash flows.

E. sales which are made using store credit

3. The _____ tax rate is equal to total taxes divided by total taxable income.
A. deductible

B. residual

C. total

D. average

E. marginal

4. Which one of the following is included in a firm's market value but yet is excluded from the firm's
accounting value?

A. real estate investment

B. good reputation of the company

C. equipment owned by the firm

D. money due from a customer

E. an item held by the firm for future sale

5. Which one of the following represents the most liquid asset?

A. $100 account receivable that is discounted and collected for $96 today

B. $100 of inventory which is sold today on credit for $103

C. $100 of inventory which is discounted and sold for $97 cash today

D. $100 of inventory that is sold today for $100 cash

E. $100 accounts receivable that will be collected in full next week

6. The book value of a firm is:

A. equivalent to the firm's market value provided that the firm has some fixed assets.

B. based on historical cost.

C. generally greater than the market value when fixed assets are included.

D. more of a financial than an accounting valuation.

E. adjusted to the market value whenever the market value exceeds the stated book value.

7. Depreciation:

A. reduces both taxes and net income.

B. increases the net fixed assets as shown on the balance sheet.

C. reduces both the net fixed assets and the costs of a firm.

D. is a noncash expense which increases the net income.

E. decreases net fixed assets, net income, and operating cash flows.

8. An increase in the depreciation expense will do which of the following?

I. increase net income

II. decrease net income

III. increase the cash flow from assets

IV. decrease the cash flow from assets

A. I only
B. II only

C. I and III only

D. II and III only

E. II and IV only

e.

Current assets = $6,230 - $3,910 = $2,320

Current liabilities = $2,320 - $640 = $1,680

Total liabilities = $1,680 + $4,180 = $5,860

9. A firm has net working capital of $640. Long-term debt is $4,180, total assets are $6,230, and fixed
assets are $3,910. What is the amount of the total liabilities?

A. $2,050

B. $2,690

C. $4,130

D. $5,590

E. $5,860

b. Net working capital = $4,900 - $3,200 - $1,400 = $300

10. Your firm has total assets of $4,900, fixed assets of $3,200, long-term debt of $2,900, and short-term
debt of $1,400. What is the amount of net working capital?

A. -$100

B. $300

C. $600

D. $1,700
E. $1,800

b. Net income = $1,300 + (-$310) = $990

11. Jensen Enterprises paid $1,300 in dividends and $920 in interest this past year. Common stock
increased by $1,200 and retained earnings decreased by $310. What is the net income for the year?

A. -$210

B. $990

C. $1,610

D. $1,910

E. $2,190

e. Change in net working capital = ($122,418 - $103,718) - ($121,306 - $124,509) = $21,903

12. At the beginning of the year, a firm had current assets of $121,306 and current liabilities of
$124,509. At the end of the year, the current assets were $122,418 and the current liabilities were
$103,718. What is the change in net working capital?

A. -$19,679

B. -$11,503

C. -$9,387

D. $1,809

E. $21,903

1. Activities of a firm which require the spending of cash are known as:

A. sources of cash.
B. uses of cash.

C. cash collections.

D. cash receipts.

E. cash on hand.

2. A common-size income statement is an accounting statement that expresses all of a firm's expenses
as percentage of:

A. total assets.

B. total equity.

C. net income.

D. taxable income.

E. sales.

3. The U.S. government coding system that classifies a firm by the nature of its business operations is
known as the:

A. NASDAQ 100.

B. Standard & Poor's 500.

C. Standard Industrial Classification code.

D. Governmental ID code.

E. Government Engineered Coding System

4. Which one of the following is a use of cash?

A. increase in notes payable

B. decrease in inventory

C. increase in long-term debt

D. decrease in accounts receivables

E. decrease in common stock

5. Which one of the following is a source of cash?

A. increase in accounts receivable

B. decrease in common stock

C. decrease in long-term debt

D. decrease in accounts payable

E. decrease in inventory

6. Which of the following ratios are measures of a firm's liquidity?

I. cash coverage ratio

II. interval measure

III. debt-equity ratio

IV. quick ratio

A. I and III only

C. I, III, and IV only

D. I, II, and III only

E. I, II, III, and IV

7. An increase in which one of the following will increase a firm's quick ratio without affecting its cash
ratio?

A. accounts payable

B. cash

C. inventory

D. accounts receivable

E. fixed assets

8. Ratios that measure a firm's financial leverage are known as _____ ratios.

A. asset management

B. long-term solvency

C. short-term solvency

D. profitability

E. book value

c
9. Jasper United had sales of $21,000 in 2008 and $24,000 in 2009. The firm's current accounts remained
constant. Given this information, which one of the following statements must be true?

A. The total asset turnover rate increased.

B. The days' sales in receivables increased.

C. The net working capital turnover rate increased.

D. The fixed asset turnover decreased.

E. The receivables turnover rate decreased.

10. It is easier to evaluate a firm using financial statements when the firm:

A. is a conglomerate.

B. has recently merged with its largest competitor.

C. uses the same accounting procedures as other firms in the industry.

D. has a different fiscal year than other firms in the industry.

E. tends to have many one-time events such as asset sales and property acquisitions.

11. Which of the following represent problems encountered when comparing the financial statements
of two separate entities?

I. Either one, or both, of the firms may be conglomerates and thus have unrelated lines of business.

II. The operations of the two firms may vary geographically.

III. The firms may use differing accounting methods.

IV. The two firms may be seasonal in nature and have different fiscal year ends.

A. I and II only
B. II and III only

C. I, III, and IV only

D. I, II, and III only

E. I, II, III, and IV

c. 130 + 40 -75 = 95

12. During the year, Kitchen Supply increased its accounts receivable by $130, decreased its inventory by
$75, and decreased its accounts payable by $40. How did these three accounts affect the firm's cash
flows for the year?

A. $245 use of cash

B. $165 use of cash

C. $95 use of cash

D. $95 source of cash

E. $165 source of cash

a. Cash coverage ratio = ($68,400 - $42,900)/$2,100 = 12.14

13. A firm has sales of $68,400, costs of $42,900, interest paid of $2,100, and depreciation of $6,500.
The tax rate is 34 percent. What is the value of the cash coverage ratio?

A. 12.14

B. 15.24

C. 17.27

D. 23.41

E. 24.56
c. Inventory turnover = $628,300/$208,400 = 3.014875

Days in inventory = 365/3.014875 = 121.07 days

14. Al's Sport Store has sales of $897,400, costs of goods sold of $628,300, inventory of $208,400, and
accounts receivable of $74,100. How many days, on average, does it take the firm to sell its inventory
assuming that all sales are on credit?

A. 74.19 days

B. 84.76 days

C. 121.07 days

D. 138.46 days

E. 151.21 days

e. Number of shares = $150,980/$0.87 = 173,540

15. Big Guy Subs has net income of $150,980, a price-earnings ratio of 12.8, and earnings per share of
$0.87. How many shares of stock are outstanding?

A. 13,558

B. 14,407

C. 165,523

D. 171,000

E. 173,540

e. Accounts receivable turnover for 2009 = $627,800/$56,700 = 11.07

Days' sales in receivables for 2009 = 365/11.07 = 32.97

17. How many days of sales are in receivables? (Use 2009 values)

A. 17.08 days

B. 23.33 days
C. 26.49 days

D. 29.41 days

E. 32.97 days

b. Cash coverage ratio = ($95,200 + $11,200)/$10,100 = 10.53

18. What is the cash coverage ratio for 2009?

A. 9.43

B. 10.53

C. 11.64

D. 11.82

E. 12.31

e. Dividends paid = $56,200 - ($131,800 - $120,700) = $45,100

19. What is the amount of the dividends paid for 2009?

A. $11,100

B. $15,000

C. $32,600

D. $41,200

E. $45,100