SLAM2020 Final Exam

for which of the following ratios is a lower value generally preferred:

• price earnings

• return on equity

• average collection period

• current ratio

average collection period

owners of this business type always enjoy limited liability

corporation

what does a net profit margin of 20% mean

for every $100 of sales the firm generates net income of $20

a firm has three investment opportunities available which each cost $10,000. unfortunately, the firm can only pursue one option. the net present values of each investment option are -$500, -$300, and -$50 respectively. which investment should the firm pursue

none of the available options

in the preparation of a pro forma income statement which is typically estimated first

sales revenue

the ____ of a firm has to do with its ability to meet financial commitments as they become due

liquidity

unearned revenue is a

liability

what best characterizes a firm with a relatively strong growth potential

a high price earnings ratio

in april, a firm had an ending cash balance of $35,000. in may, the firm had total cash receipts of $40,000 and total cash disbursements of $50,000. the minimum cash balance required by the firm is $25,000. at the end of may, the firm had ____

an excess cash balance of $0

recording revenues when they are earned and expenses when they are incurred is based on which accounting concept

the accrual concept

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. at the end of august, the firm

required total financing of $500

pro forma financial statements are used for

profit planning

working capital

current assets - current liabilities

what does the pro forma income statement do

estimates net income in a future period

primary purpose in preparing a cash budget

to estimate a firm’s short term cash requirements

earning service revenue on account will

increase owner’s equity

the process of evaluating the present value of future cash flow streams is known as

discounting

making a payment of $3000 for the next 3 years is an example of

an annuity

which set of forecasts is most likely needed for the creation of a cash budget but not for a pro forma income statement

forecasts about the timing of receipts from credit sales

the process of repaying a loan with interest by making fixed regular payments over a certain period is known as

amortization

receiving $50 every month for the rest of your life is an example of

a perpetuity

a business receives cash two weeks in advance of a sale. when the cash is received the accountant makes the following journal entry; debit: cash, credit: sales revenue. which accounting concept/principle did the accountant violate?

the accrual concept

which of the following will be most concerning to managers?
a. a low debt ratio
b. a high times interest earned ratio
c. a significant and unexpected decrease in sales
d. a low average collection period

a significant and unexpected decrease in sales

a firm is said to be in default when

it is unable to make payments on a debt

what is true of ratio analysis

ratios should only be used to compare the performance over time of the same firm or similar firms. they should not be used to compare firms in dissimilar industries

the price of a share of stock is essentially the ____ value of all estimated future dividend payments

the present value

the ____ ratios are primarily used as measures of efficiency

activity

why is depreciation expense not found on the cash budget

because it does not involve the transfer of any cash

for a one off cashflow stream, the ____ value is usually lower than the ___ value

present, future

accounts receivable is on which financial statement

balance sheet

accounting equation

total assets = total liabilities + owner’s equity

what is not a key difference between a bond and common stock

bonds can be resold in the secondary market, stocks cannot

which of the following is likely to increase the share price of an oil producing company?

a. the firm’s return on equity for the last year was 15%. the same as the year before
b. the firm’s current ratio decreased by 0.5
c. a surprise decision by the government grants the company exclusive rights to drill for oil in a previously restricted area known to have vast amounts of oil reserves
d. the price of oil fails

a surprise decision by the government grants the company exclusive rights to drill for oil in a previously restricted area known to have vast amounts of oil reserves

what do stock prices do

reflect future pay-outs that investors expect to realize on each share

Adam is a shareholder at a particular corporation. In the last five years the company’s profits have experienced annual growth of about 25%. Adam’s dividend payments have remained fixed over that period while another shareholder Keith has experienced annual growth in his dividends of around 25%. Adam is most likely holding what type of stock?

preferred stock

health foods ltd. paid cash to purchase a vehicle. what is true?

the value of total assets is unchanged

balance sheet

represents the assets and liabilities of the company

income statement

shows all of the revenues of the company less the expenses to arrive at the net income (revenues - expenses)

statement of owner’s equity

capital and net income - withdrawals

liquidity ratios

capture the ability of a firm to meet short term financial obligations like expenses

activity ratios

measure the speed with which various accounts are converted into sales or cash—inflows or outflows

sales ratios

• utilize various expenses and the sales revenue figure

• help the firm to identify specific areas where reducing costs would have the most impact

taxes

mandatory payments collected by the government to fund general government expenditure

taxable income

• the portion of income to which tax rates are applied

• gross income - allowances/deductions

tax allowances

provisions that reduce taxable income

tax rate

percentage of taxable income that must be paid as tax

average tax rate

total tax expense / total income

marginal tax rate

the percentage of the next dollar of income that must be paid as tax

corporate income tax rate in louisiana

7.5%

proportional taxes

• take an equal share of income regardless of the size of income

• ex. a flat rate of 10%

progressive taxes

take higher proportions of income from high income earners

regressive taxes

take higher proportions of income from lower income earners

current ratio

current assets / liabilities

return on equity

net income / shareholders’ equity

present value of a perpetuity

cash flow / interest rate