Reference no: EM133204620

Financial Management Assignment - Multiple Choice Questions

Q1. A firm's return on equity (ROE) measures ______.

a. its profitability relative to its total assets

b. its profitability relative to its equity investment

c. its return on sales

d. its debt to equity ratio

Q2. A firm's ________ contains key financial statements, management's insights about performance and additional financial details to aid in understanding financial statements.

a. annual report

b. balance sheet

c. income statement

d. statement of cash flows

Q3. Spartacus Inc., has sales of $4,500,000, net income of $250,000, assets worth $3,700,000, and total common stockholder equity of $2,500,000. The ROE for Spartacus is ______.

a. 5.56%

b. 6.76%

c. 10.00%

d. 55.56%

Q4. The asset turnover ratio ______.

a. considers how much revenue a firm is able to generate relative to its asset base

b. affects the firm's ROE in that a higher ratio increases ROE and a lower ratio decreases ROE other things equal

c. captures the capital intensity of a business: the more capital intense a firm is, the lower its asset turnover

d. all of the above

Q5. How many times can the Johnson Corporation cover their interest expenses if the firm has sales of $3,000,000, total assets of $2,100,000, EBIT equal to $1,000,000, a tax rate of 40% and interest expense of $250,000?

a. 1.43

b. 2.10

c. 4.00

d. 12.00

Q6. The average age of inventory ratio would most likely be considered ______.

a. a profitability ratio

b. a leverage ratio

c. a working capital measure

d. a debt ratio

Q7. The cash flow cycle also is known as the ______.

a. cash conversion cycle

b. cash-to-cash cycle

c. working capital cycle

d. revolving credit cycle

Q8. For an exporter to lose money after accepting a banker's acceptance, ______.

a. both the importer and the importer's bank would need to default on the agreement

b. the importer would have to default on the agreement

c. the exporter would have to default on the agreement

d. the federal government would need to step into the transaction and declare it to be null and void

Q9. The ________ is, in theory, the interest rate offered to a bank's most credit worthy customers.

a. LIBOR

b. prime rate

c. promissory rate

d. bridge rate

Q10. Your firm issues 20-year bonds. This type of financing would be most appropriate for which of the following activities?

a. the support of accounts receivable

b. the construction of a new warehouse

c. the support of accounts payable

d. the financing of inventory

Q11. Which of the following trade credit terms for goods and services purchased would be least desirable to the purchasing firm?

a. 2/10 net 30

b. 1/10 net 30

c. 3/15 net 30

d. Unless we know the firm's cost of borrowing we cannot determine which set of terms is least preferred.

Q12. The practice of extending credit to customers is known as ______.

a. float

b. trade credit

c. forfaiting

d. discounting

Q13. Your new firm uses cash on hand to purchase $5,000 of inventory. The two accounting transactions are to ________ cash by $5,000 and to ________ inventory by $5,000.

a. decrease;increase

b. decrease;decrease

c. increase;increase

d. increase;decrease

Q14. Managers often begin with an estimate of ________ when beginning to develop pro forma financial statements.

a. net income

b. sales

c. assets

d. equity

15. It is not unusual for a successful firm to temporarily grow more rapidly than its sustainable growth rate if the firm is in the ________ phase of business.

a. swan song

b. start-up

c. cash cow

d. middle

Q16. A pro forma ________ forecasts the timing and amount of cash inflows and cash outflows.

a. income statement

b. balance sheet

c. cash budget

d. annual report

Q17. Jensen Inc. has net earnings of $24,000,000 this year and a dividend payout policy of 40% of earnings. If the firm follows its regular payout policy what will be the addition to retained earnings this year?

a. $9,600,000

b. $12,000,000

c. $14,400,000

d. $16,000,000

Q18. Dunweiler Inc., is developing a pro forma income statement for the coming year. The chief financial officer estimates that sales will be $150,000,000. If gross profits are historically 36% of sales, what is the expected cost of goods sold (in dollars)?

a. $36,000,000

b. $54,000,000

c. $64,000,000

d. $96,000,000

Q19. If you were able to invest $2,500 at a rate of 6.40% for six months, how much money would you have at the end of that period?

a. $2,349.62

b. $2,423.65

c. $2,578.76

d. $2,660.00

Q20. What is the present value of $3,500 received 3 years from today if the prevailing interest rate is 6.10%?

a. $2,732.98

b. $2,930.37

c. $3,625.14

d. $4,192.20

Q21. Cascade Industries Inc. intends to pay a common stock dividend of $3.18 one year from today and the firm anticipates that the dividend will continue to grow at a rate of 2% per year indefinitely. If the firm has a 13% required rate of return, what is the current price per share of stock?

a. $21.20

b. $28.91

c. $21.62

d. $29.49

Q22. If a bond is selling for its face value, which of the following statements is TRUE?

a. The coupon rate and the yield to maturity are the same.

b. The par value is less than the face value.

c. This is only possible if this is a zero coupon bond.

d. all of the statements above are true

Q23. Which of the following is a type of financial security issued by a corporation in need of capital?

a. bonds

b. preferred stock

c. common stock

d. all of the above

Q24. Eastinghome Inc. just paid $8,000 to a landowner to explore for but not extract valuable minerals. If the landowner invests the money at a rate of 5.5% compounded annually for 7 years, what is the investment worth at the end of that time period?

a. $5,499.49

b. $11,637.43

c. $56,000.00

d. $66,135.15

Q25. You own a contract that promises an annuity cash flow of $100 beginning-of-the-year cash flows for each of the next three years (note: the first cash flow is today). At an interest rate of 10%, what is the present value of this contract?

a. $248.69

b. $273.55

c. $331.00

d. $364.10