Financial Management Quiz

FINANCIAL MANAGEMENT QUIZ
WEEK 3 (20 March)

. Your firm has the following income statement items: sales of $52,000,000;
6
income tax of $1,880,000; operating expenses of $9,000,000; cost of
goods sold of $36,000,000; and interest expense of $800,000. Compute
the firm's gross profit margin.
a. 8.3%
b. 30.8%
c. 69.2%
d. 13.5%
5
. On the income statement, sales revenue, minus cost of goods sold and
operating expenses, equals
a. Net operating income (EBIT)
b. Retained earnings
c. Net income available to preferred shareholders
d. Net profit
4
. Which of the following is NOT an advantage of the sole proprietorship?
a. None of the above
b. No legal requirements for starting the business
c. Limited liability
d. No time limit imposed on its existence
3
. Which of the following streams of income is not affected by how a firm is
financed (whether with debt or equity)?
a. Net working capital
b. Operating income
c. Income before tax
d. Net profit after tax but before dividends
2
. Which of the following financial instruments is not traded in the capital
markets?
a. bonds
b. common stock
c. preferred stock
d. debt with a maturity of less than one year
. In terms of organizational costs, which of the following sequences is

1
generally correct, moving from lowest to highest cost?
a. Corporation, limited partnership, general partnership, sole proprietorship
b. Sole proprietorship, general partnership, limited partnership, corporation
.
7
c. General partnership, sole proprietorship, limited partnership, corporation
d. Sole proprietorship, general partnership, corporation, limited partnership
. Your firm has the following balance sheet statement items: total current
liabilities of $805,000; total assets of $2,655,000; fixed and other assets of
$1,770,000; and long-term debt of $200,000. What is the amount of the
firm's total current assets?
6
a. $885,000
b. $600,000
c. $1,550,000
d. $325,000
. Which of the following financial ratios is the best measure of the operating
effectiveness of a firm's management?
a. Current ratio
b. Gross profit margin
c. Quick ratio
d. Return on investment
. Which of the following is the best indicator of management's effectiveness

at generating profits relative to the firm's assets?
WEEK 6 (30 April)

. Abbot Corporation has an average collection period of 49 days, an
inventory conversion period of 83 days, and a payables deferral period of
36 days. What is Abbott's cash conversion cycle?
a. 70 days
b. 96 days
c. 132 days
d. 85 days
. Apple Two Enterprises expects to generate sales of $5,950,000 for fiscal

2014; sales were $3,450,000 in fiscal 2013. Assume the following figures
for the fiscal year ending 2013: cash $70,000; accounts receivable
$250,000; inventory $400,000; net fixed assets $520,000; accounts
payable $235,000; and accruals $155,000. Use the percent-of-sales
method to forecast accounts payable for the fiscal year ending 2014.
a. $212,036
b. $619,619
c. $155,000
d. $405,290
. Assume all else remains the same. Which of the following statements is
true?
a. The higher the dividend payout, the higher the retention percentage.
.
b. The lower the dividend payout, the less a firm will have to reinvest.
c. The higher the dividend payout, the more discretionary financing a firm
will require.
d. The lower the dividend payout, the more discretionary financing a firm
will require.
. The primary purpose of a cash budget is to

a. determine the level of investment in current and fixed assets.
b. determine accounts payable.
c. determine the estimated income tax for the year.
d. provide a detailed plan of future cash flows.
. What is the most important ingredient in developing a firm's financial plan?

a. Deciding upon which method of depreciation a firm should utilize
b. Determining the amount of dividends to pay shareholders
c. A forecast of sales revenues
d. Projecting the rate of interest on proposed new debt
. If management expects interest rates to rise and credit to tighten in the

near future, it should consider
a. decreasing the use of spontaneous financing.
b. increasing its use of commercial paper and loans secured by current
assets.
c. decreasing the level of permanent financing.
d. increasing the level of permanent financing.
. A typical corporate planning process will encompass

a. a long-term financial plan.
b. a short-term financial plan.
c. all answers are correct
d. a strategic plan.
. Once a cash discount period has passed

a. cannot be determined from the information.
b. one should pay after the final due date.
c. there is no financial incentive to pay before the final due date.
d. one should pay immediately.
. Miller Metalworks had sales in November of $60,000, in December of

$40,000, and in January of $80,000. Miller collects 40% of sales in the
month of the sale and 60% one month after the sale. Calculate Miller's cash
receipts for January.
a. $64,000
b. $44,000
c. $56,000
d. $72,000
. What is the conventional method for financing permanent levels of
accounts receivable and inventory?
a. Bonds and equity
b. Accounts payable and accrued expenses
c. Short-term loans
d. Equity only
. As of December 31, Budget, Inc. had a cash balance of $50,000. December

sales were $150,000 and are expected to be $100,000 in January. 20% of
sales in any month are cash sales, and 80% of sales are collected during
the following month. In January, Budget is expected to have total cash
disbursements of $120,000, and Budget requires a minimum cash balance
of $50,000. Budget's expected cash receipts for January are
a. $80,000.
b. $140,000.
c. $100,000.
d. $110,000.

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FINANCIAL MANAGEMENT QUIZ

WEEK 3 (20 March)

. In terms of organizational costs, which of the following sequences is

. Which of the following is the best indicator of management's effectiveness

WEEK 6 (30 April)

. Apple Two Enterprises expects to generate sales of $5,950,000 for fiscal

. The primary purpose of a cash budget is to

. What is the most important ingredient in developing a firm's financial plan?

. If management expects interest rates to rise and credit to tighten in the

. A typical corporate planning process will encompass

. Once a cash discount period has passed

. Miller Metalworks had sales in November of $60,000, in December of

. As of December 31, Budget, Inc. had a cash balance of $50,000. December

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