FIN Ex. 1:

Which one of the following is an advantage of being a limited partner?
Control over the daily operations of the firm
Nontaxable share of any profits
Unlimited profits without risk of incurring a loss
Active market for ownership interest
Losses limited to capital invested

Losses limited to capital invested

Which one of the following statements about a limited partnership is correct?

All partners have their losses limited to their capital investment in the partnership.

A corporation:

is a legal entity separate from its owners.

One advantage of the corporate form of organization is the:

ability to raise larger sums of equity capital than other organizational forms.
double taxation of profits.
unlimited liability for its shareholders.
taxation of the corporate profits.
ease of formation compared to other organizational forms.

ability to raise larger sums of equity capital than other organizational forms.

Corporate shareholders:

have the ability to change the corporation's bylaws.
are protected from all financial losses.
have basically no control over the actual corporation.
receive tax-free distributions since all profits are taxed at the corporate level.
are proportionately liable for the firm's debts.

have the ability to change the corporation's bylaws.

A limited liability company (LLC):

cannot be created for professional service firms, such as accountants and attorneys.
is a hybrid between a sole proprietorship and a partnership.
prefers its profits be taxed as personal income to its owners.
that meets the IRS criteria to be an LLC will be taxed like a corporation.
provides limited liability for some, but not all, of its owners.

prefers its profits be taxed as personal income to its owners.

Limited liability companies are primarily designed to:

provide limited liability while avoiding double taxation.
allow companies to reorganize themselves through the bankruptcy process.
provide the benefits of the corporate structure only to foreign-based entities.
allow a portion of their owners to enjoy limited liability while granting the other portion of their owner's control over the entity.
spin off a wholly owned subsidiary.

provide limited liability while avoiding double taxation.

The primary goal of financial management is to maximize:

The market value of existing stock

The primary goal of financial management is most associated with increasing the:

Firm's liquidity
Traffic flow within the firm's stores
Dollar amount of each sale
The fixed costs while lowering the variable costs.
Market value of the firm

Market value of the firm

Which one of the following situations is most apt to create an agency conflict?

Hiring an independent consultant to study the operating efficiency of the firm
Laying off employees during a slack period
Basing management bonuses on the length of employment
Giving all employees a bonus if a certain level of efficiency is maintained
Compensating a manager based on his or her division's net income

Basing management bonuses on the length of employment

Margie opened a used bookstore and is both the 100 percent owner and the store's manager. Which type of business entity does Margie own if she is personally liable for all the store's debts?

General partnership
Joint stock company
Sole proprietorship
Limited partnership
Corporation

Sole proprietorship

An agency issue is most apt to develop when:

A firm downsizes.
A firm encounters a period of stagnant growth.
The control of a firm is separated from the firm's ownership.
A firm is structured as a general partnership.
The firm's owner is also its key manager.

The control of a firm is separated from the firm's ownership.

Matt and Alicia created a firm that is a separate legal entity and will share ownership of that firm on a 75/25 basis. Which type of entity did they create if they have no personal liability for the firm's debts?

Public company
Sole proprietorship
Limited partnership
Corporation
General partnership

Corporation

The shareholders of Weil's Markets would benefit if the firm were to be acquired by Better Foods. However, Weil's board of directors rejects the acquisition offer. This is an example of:

a compensation issue.
a capital structure issue.
a corporate takeover.
a working capital decision.
an agency conflict.

an agency conflict.

Jamie is employed as a currency trader in the Japanese yen market. Her job falls into which one of the following areas of finance?

Capital management
Personal finance
Financial institutions
Corporate finance
International finance

International finance

If you accept a job as a domestic security analyst for a brokerage firm, you are most likely working in which one of the following financial areas?

Investments
International finance
Corporate finance
Capital management
Private placements

Investments

Sole proprietorship:

has an unlimited life.
has its profits taxed as personal income.
involves significant legal costs during the formation process.
can generally raise significant capital from non-owner sources
provides limited financial liability for its owner

has its profits taxed as personal income.

Which one of the following forms of business organization offers liability protection to some of its owners but not to all of its owners?

Sole proprietorship
Corporation
General partnership
Limited partnership
Limited liability company

Limited partnership

Which one of the following statements correctly applies to a sole proprietorship?

The business entity has an unlimited life.
The owner enjoys limited liability for the firm's debts.
Obtaining additional equity is dependent on the owner's personal finances.
Debt financing is easy to arrange in the firm's name.
The ownership can easily be transferred to another individual.

Obtaining additional equity is dependent on the owner's personal finances.

The five basic principles of finance include all of the following EXCEPT:

money has a time value
incremental profits determine value
risk requires a reward
cash flow is what matters

incremental profits determine value
risk requires a reward

To measure value, the concept of time value of money is used

to bring the future benefits and costs of a project, measured by its cash flows, back to the present.
to bring the future benefits and costs of a project, measured by its expected profits, back to the present.
to determine the interest rate paid on corporate debt.
to ensure that expected future profits exceed current profits today.

to bring the future benefits and costs of a project, measured by its cash flows, back to the present.

Working capital management is concerned with

what long-term investments a firm should undertake.
managing a firm's capital stock.
how a firm should raise money to fund its investments.
how a firm can best manage its cash flows as they arise in its day-to-day operations.

how a firm can best manage its cash flows as they arise in its day-to-day operations

S-type corporations have all of the following advantages EXCEPT

they are taxed as partnerships.
all owners must be people, no corporations.
the owners have limited liability.
distributions are taxed twice, similar to corporate dividend payments.

distributions are taxed twice, similar to corporate dividend payments.

General Electric (GE) has been a public company for many years with its common stock traded on the New York Stock Exchange. If GE decides to sell 500,000 shares of new common stock, the transaction will be described as

a money-market transaction because GE raises new money to fund its business.
a seasoned equity offering because GE has sold common stock before.
an initial public offering.
a secondary market transaction because GE common stock has been trading for years.

a seasoned equity offering because GE has sold common stock before.

Money-market instruments include

common stock.
preferred stock.
T-bonds.
T-bills.

T-bills.

Three ways that savings can be transferred through the financial markets include all of the following EXCEPT

indirect transfer using the financial intermediary.
indirect transfer using the venture capital firm.
direct transfer of funds.
indirect transfer using the investment banker.

indirect transfer using the venture capital firm.

John calls his stockbroker and instructs him to purchase 100 shares of Microsoft Corporation common stock. This transaction occurs in the

futures market.
secondary market.
primary market.
credit market.

secondary market.

Which of the following is an example of both a capital market and a primary market transaction?

The U.S. Government sells 3-month Treasury bills.
Ford Motor Company sells a new issue of common stock to raise funds through a public offering.
No transactions occur in both primary and capital markets at the same time.
Microsoft common stock owned by an individual investor is sold to another investor.

Ford Motor Company sells a new issue of common stock to raise funds through a public offering.

Capital market instruments include

commercial paper.
Treasury bills.
corporate equities.
negotiable certificates of deposit.

corporate equities.

An example of a primary market transaction is

all of the above
a new issue of common stock by AT&T.
AT&T repurchasing its own stock from a stockholder.
a sale of some outstanding common stock of AT&T by an investor.

a new issue of common stock by AT&T.

Financial intermediaries

offer indirect securities.
include the national and regional stock exchange.
usually are underwriting syndicates.
constitute the various secondary markets.

offer indirect securities.

The telecommunications system that provides a national information linkup among brokers and dealers operating in the over-the-counter market is called

NASDAQ.
NASQ.
NCIS.
NSQA.

NASDAQ.

Prices of securities that are traded on the organized exchanges are determined by

the sellers of the securities.
the Securities Exchange Commission.
a continuous auction process reflecting the sentiments of buyers and sellers.
a "bid" and "ask" negotiation process amongst brokers who hold these securities in their own account.

a continuous auction process reflecting the sentiments of buyers and sellers.

Prices of securities that are traded in the Over-the-Counter Markets are determined by

a "bid" and "ask" negotiation process of broker-dealers of these securities.
a continuous modified auction process.
the buyers of these securities.
the Federal Trade Commission.

a "bid" and "ask" negotiation process of broker-dealers of these securities.

Investment firms, such as Goldman Sachs, assist the of capital by transfer

selling direct securities.
selling indirect securities to savers and using the funds to buy common stock for corporations needing funds.
facilitating indirect transfers from savers (investing public) to borrowers (corporations needing capital).
selling common stock for corporate clients in the secondary market.

facilitating indirect transfers from savers (investing public) to borrowers (corporations needing capital).

A corporation sells securities to an investment banking firm on January 1st. The next day an international oil crisis causes stock prices to drop dramatically. The corporation is immune from the drop in price of its stock due to which function of the investment banking firm?

underwriting
reinsurance
hedging
distributing

underwriting

Spandra Electronics wants to raise money by selling stock. After talking to several investment banking firms, Spandra decides to hire Goldman Sachs to sell 5 million shares of its common stock. Goldman sells 4.5 million shares and returns the rest to Spandra. This is an example of

a commission or best-efforts agreement.
a privileged subscription with a standby agreement.
a privileged subscription with a standby agreement.
a competitive bid purchase.

a commission or best-efforts agreement.

The investment banker performs what three basic functions?

underwriting, distributing, and advising
underwriting, distributing, and negotiating
underwriting, distributing, and regulating
underwriting, advising, and price-pegging

underwriting, distributing, and advising

A "Dutch auction" was used by Google to raise money in 2004. A Dutch auction involves
hiring a Dutch firm to sell a company's securities at auction.

allowing investors to submit bids saying how many shares they'd like to buy and at what price.
selling bonds in Europe.
allowing investment banking firms to submit bids on how many shares they are willing to sell and at what price.

allowing investors to submit bids saying how many shares they'd like to buy and at what price.

Private placements usually have several advantages associated with them, but also tend to suffer from specific disadvantages. Which of the following is a disadvantage of a private placement when compared to other methods of selling new securities?

avoidance of registration with the SEC
higher interest costs
reduced flotation costs
strictly standardized features/terms

higher interest costs

Which of the following securities will likely have the highest liquidity premium?

Aaa-rated corporate bond maturing in 2019 not actively traded
Bbb-rated corporate bond maturing in 2023 actively traded on a major exchange
U.S. Treasury bill
U.S. Treasury bond maturing in 2030

Aaa-rated corporate bond maturing in 2019 not actively traded

Which of the following securities will likely have the highest default risk premium?

U.S. Treasury bond maturing in 2030
U.S. Treasury bill
Aaa-rated corporate bond maturing in 2019 not actively traded
Bbb-rated corporate bond maturing in 2023 actively traded on a major exchange

Bbb-rated corporate bond maturing in 2023 actively traded on a major exchange

Suppose the following rates are averages for banks in your area: interest checking accounts pay 1%, savings accounts pay 2%, and one-year certificates of deposit pay 3%. All accounts are federally insured by the FDIC. The difference in rates can be explained mainly by

liquidity premiums.
inflation risk premiums.
maturity premiums.
default risk premiums.

liquidity premiums.

The basic format of an income statement is

Income - Expenses \= EBIT.
Sales - Liabilities \= Profits.
Sales - Expenses \= Profits.
Assets - Liabilities \= Profits.

Sales - Expenses \= Profits.

Rogue Industries reported the following items for the current year: Sales \= $3,000,000; Cost of Goods Sold \= $1,500,000; Depreciation Expense \= $170,000; Administrative Expenses \= $150,000; Interest Expense \= $30,000; Marketing Expenses \= $80,000; and Taxes \= $300,000. Rogue's gross profit is equal to

$1,500,000.

Rogue Industries reported the following items for the current year: Sales \= $3,000,000; Cost of Goods Sold \= $1,500,000; Depreciation Expense \= $170,000; Administrative Expenses \= $150,000; Interest Expense \= $30,000; Marketing Expenses \= $80,000; and Taxes \= $300,000. Rogue's operating income is equal to

$1,100,000.

Rogue Industries reported the following items for the current year: Sales \= $3,000,000; Cost of Goods Sold \= $1,500,000; Depreciation Expense \= $170,000; Administrative Expenses \= $150,000; Interest Expense \= $30,000; Marketing Expenses \= $80,000; and Taxes \= $300,000; Rogue's operating profit margin is equal to

36.67%.

Which of the following statements concerning net income is MOST correct?

Net income represents cash available to pay dividends.
Net income represents income that may be reinvested in the firm or distributed to its owners.
Negative net income reduces a company's cash balance.
Net income represents sales minus operating expenses at a specific point in time.

Net income represents income that may be reinvested in the firm or distributed to its owners.

Two companies have identical assets and operating activities. Which of the follow statements is true?

The company with more debt will have higher operating income due to leverage.
Both companies have the same net income.
The company with more debt will have lower operating income due to interest expense.
The company with more debt will have lower net income due to interest expense.

The company with more debt will have lower net income due to interest expense.

The December 31, 2009 balance sheet shows net fixed assets of $150,000 and the December 31, 2010 balance sheet shows net fixed assets of $250,000. Depreciation expense for 2009 is $25,000 and depreciation expense for 2010 is $35,000. Based on this information, the cost of fixed assets purchased during 2010 is

$135,000.

All of the following would result in an increase in stockholders equity EXCEPT

the company purchased treasury stock.
the company sold common stock at par value.
the company sold common stock above par value.
the company had positive net income greater than dividends paid.

the company purchased treasury stock.

The two principal sources of financing for corporations are

common equity and preferred equity.
debt and equity.
debt and accounts payable.
cash and common equity.

debt and equity.

Net working capital is equal to

total assets minus total liabilities.
total operating capital minus net income.
current assets minus current liabilities.
current assets minus total liabilities.

current assets minus current liabilities.

All of the following statements about balance sheets are true EXCEPT

balance sheets show average asset balances over a one-year period.
a balance sheet reports a company's financial position at a specific point in time.
Assets - Liabilities \= Shareholders' Equity.
assets are reported at historical cost.

balance sheets show average asset balances over a one-year period.

What information does a firm's balance sheet provide to the viewing public?

an itemization of all of a firm's assets, liabilities, and equity as of the balance sheet date
a complete listing of all of a firm's cash receipts and cash expenditures for a defined period of time
a report of revenues and expenses for a defined period of time
a report of investments made and their cost for a specific period of time

an itemization of all of a firm's assets, liabilities, and equity as of the balance sheet date

Universal Financial, Inc. has total current assets of $1,200,000; long-term debt of $600,000; total current liabilities of $500,000; and long-term assets of $800,000. How much is the firm's net working capital?

$700,000

Siskiyou Corp. has cash of $75,000; short-term notes payable of $100,000; accounts receivables of $275,000; accounts payable of $135,000: inventories of $350,000; and accrued expenses of $75,000. What is the firm's net working capital?

$390,000

Siskiyou, Inc. has total current assets of $1,200,000; total current liabilities of $500,000; long-term assets of $800,000; and long-term debt of $600,000. How much is the firm's total equity?

$900,000

Jones Company
Based on the information in Table 3-1, the change in cash for 2010 is

$5,800.

A company borrows $2,000,000 and uses the money to purchase high technology machinery for its operations. These are examples of

cash flow from investing and cash flow from operations.
cash flow from investing and cash flow from financing.
cash flow from financing and cash flow from operations.
cash flow from financing and cash flow from investing.

cash flow from financing and cash flow from investing.

Given the following financial statements for ARGON Corporation, what is the company's after-tax cash flow from operations?

$270,000

Given the following financial statements for ARGON Corporation, and assuming that ARGON paid a common dividend of $80,000 in 2010, what is the company's financing cash flow for 2010?

-$20,000

What information does a firm's statement of cash flows provide to the viewing public?

a report of investments made and their cost for a specific period of time
a report documenting a firm's cash inflows and cash outflows from operating, financing, and investing activities for a defined period of time
a report of revenues and expenses for a defined period of time
an itemization of all of a firm's assets, liabilities, and equity for a defined period of time

a report documenting a firm's cash inflows and cash outflows from operating, financing, and investing activities for a defined period of time

A firm has after-tax cash flow from operations equal to $100,000. Operating working capital increased by $20,000, and the firm purchased $30,000 of fixed assets. The firm's free cash flow was

$50,000.

All of the following measure liquidity EXCEPT

current ratio.
inventory turnover.
acid-test ratio.
operating return on assets.

operating return on assets.

Jones, Inc. has a current ratio equal to 1.40. Which of the following transactions will increase the company's current ratio?

The company collects $500,000 of its accounts receivable.
The company sells $1 million of inventory on credit.
The company pays back $50,000 of its long-term debt.
The company writes a $30,000 check to pay off some existing accounts payable.

The company writes a $30,000 check to pay off some existing accounts payable.

For a retailer with inventory to sell, the acid-test ratio will be

less than the current ratio, thus providing a more stringent measure of liquidity.
greater than the current ratio, thus providing a more stringent measure of liquidity.
greater than the current ratio, thus providing a less stringent measure of liquidity.
unimportant because it doesn't include inventory.

less than the current ratio, thus providing a more stringent measure of liquidity.

Company A has a higher days sales outstanding ratio than Company B. Therefore,

Company A sells more on credit than Company B.
Company A has a higher percentage of cash to credit sales than Company B.
Company A must be collecting its accounts receivable faster than Company B, on average.
other things being equal, Company B has a cash flow advantage over Company A.

other things being equal, Company B has a cash flow advantage over Company A.

When comparing inventory turnover ratios, other things being equal,

a lower inventory turnover is preferred in order to keep inventory costs low.
a higher inventory turnover is preferred to improve liquidity.
higher inventory turnover results from old or obsolete inventory increasing the inventory balance on the balance sheet.
higher inventory turnover results from an increase in the selling price of the product.

a higher inventory turnover is preferred to improve liquidity.

Based on the information in Table 4-1, the current ratio is

1.98.

Based on the information in Table 4-1, the acid-test ratio is

1.02.

Based on the information in Table 4-1, the accounts receivable turnover is

11.11.

Based on the information in Table 4-1, the debt ratio is

45.0%.

Based on the information in Table 4-1, the OROA is

52.78%.

Based on the information in Table 4-1, the times interest earned ratio is

23.75 times.

Based on the information in Table 4-1, assuming that no preferred dividends were paid, the return on common equity is

55.15%.

Based on the information in Table 4-1, the total asset turnover ratio is

1.11.

Based on the information in Table 4-1, and assuming the company's stock price is $30 per share, the P/E ratio is

10.99.

Which of the following ratios would be the poorest indicator of how rapidly the firm's credit accounts are being collected?

times interest earned
average collection period
accounts receivable turnover ratio
cash conversion cycle

times interest earned

Which of the following does NOT provide an indication of liquidity?

quick ratio
debt ratio
inventory turnover
average collection period

debt ratio

An inventory turnover ratio of 7.2 compared to an industry average of 5.1 is likely to indicate that

the firm has higher sales than the industry average.
the firm is selling a product mix that includes more high margin items.
the firm is managing its inventory inefficiently.
the firm's products are in inventory for fewer days before they are sold than is average for the industry.

the firm's products are in inventory for fewer days before they are sold than is average for the industry.

A firm that wants to know if it has enough cash to meet its bills would be most likely to use which kind of ratio?

liquidity
leverage
efficiency
profitability

liquidity

Which of the following ratios would be the most useful to assess the risk associated with a firm being able to pay off its short-term line of credit?

return on equity
the acid test ratio
the operating profit margin
the fixed asset turnover

the acid test ratio

Which of the following ratios would be the best way to determine how customers are paying for their purchases?

inventory turnover
total asset turnover
current ratio
average collection period

average collection period

SNL has sales of $2,250,000; a gross profit of $825,000; total operating costs of $620,000; income taxes of $74,800; total assets of $995,000; and interest expense of $18,000. What is SNL's times-interest-earned ratio?

11.4

Which of the following is true if a firm wishes to collect its accounts faster by imposing stricter credit terms on its customers?

The firm's average collection period is likely to fall.
The firm's accounts receivable turnover might rise.
The firm's sales might decrease.
all of the above

all of the above

All of the following will improve a firm's liquidity position EXCEPT

increase accounts receivable turnover.
increase inventory turnover.
increase the average collection period.
increase long-term debt and invest the money in marketable securities.

increase the average collection period.

The present value of a single future sum

increases as the number of discount periods increases.
is generally larger than the future sum.
depends upon the number of discount periods.
increases as the discount rate increases.

depends upon the number of discount periods.

The present value of $1,000 to be received in 5 years is \________ if the discount rate is 12.78%.

$548

You decide you want your child to be a millionaire. You have a son today and you deposit $10,000 in an investment account that earns 7% per year. The money in the account will be distributed to your son whenever the total reaches $1,500,000. How old will your son be when he gets the money (rounded to the nearest year)?

74 years

At what rate must $287.50 be compounded annually for it to grow to $650.01 in 14 years?

6 percent

How much money must be put into a bank account yielding 6.42% (compounded annually) in order to have $1,671 at the end of 11 years (round to the nearest $1)?

$843

You plan to go to Asia to visit friends in three years. The trip is expected to cost a total of $10,000 at that time. Your parents have deposited $5,000 for you in a Certificate of Deposit paying 6% interest annually, maturing three years from now. Uncle Lee has agreed to pay for all remaining expenses. If you are going to put Uncle Lee's gift in an investment earning 10% over the next three years, how much must he deposit today, so you can visit your friends three years from today?

$3,039

Two sisters each open IRAs in 2011 and plan to invest $3,000 per year for the next 30 years. Mary makes her first deposit on January 1, 2011, and will make all future deposits on the first day of the year. Jane makes her first deposit on December 31, 2011, and will continue to make her annual deposits on the last day of each year. At the end of 30 years, the difference in the value of the IRAs (rounded to the nearest dollar), assuming an interest rate of 7% per year, will be

$19,837.

Mary:
N\= 30
PMT\= 3000
i/y\= 7
PV\=0
FV\= ? 303,219.12
begin

Jane:
N\= 30
PMT\= 3000
i/y\= 7
PV\=0
FV\= ? 283,382.36
end

303,219.12-283,382.36\= 19,837

D'Anthony borrowed $50,000 today that he must repay in 15 annual end-of-year installments of $5,000. What annual interest rate is D'Anthony paying on his loan?

5.556%

You deposit $5,000 per year at the end of each of the next 25 years into an account that pays 8% compounded annually. How much could you withdraw at the end of each of the 20 years following your last deposit if all withdrawals are the same dollar amount? (The twenty-fifth and last deposit is made at the beginning of the 20-year period. The first withdrawal is made at the end of the first year in the 20-year period.)

$37,230

Your grandparents deposit $2,000 each year on your birthday, starting the day you are born, in an account that pays 7% interest compounded annually. How much will you have in the account on your 21st birthday, just after your grandparents make their deposit?

$98,016

A 65-year-old man is retiring and can take either $500,000 in cash or an ordinary annuity that promises to pay him $50,000 per year for as long as he lives. Which of the following statements is MOST correct?

Because of the time value of money, the man will always be better off taking the $500,000 upfront.

The higher the interest rate, the more likely the man will prefer the $500,000 lump sum.

If the man expects to live more than 10 years, then he will prefer the annuity.

If the man is certain the company will not default on its future payments, he should select the $50,000 per year.

The higher the interest rate, the more likely the man will prefer the $500,000 lump sum.

A financial advisor tells you that you can make your child a millionaire if you just start saving early. You decide to put an equal amount each year into an investment account that earns 7.5% interest per year, starting on the day your child is born. How much would you need to invest each year (rounded to the nearest dollar) to accumulate a million for your child by the time he is 35 years old? (Your last deposit will be made on his 34th birthday.)

$6,031

n\=35
i%\=7.5
pv\=0
pmt\=?
fv\=1,000,000
Begin
\=6,031

You are 21 years old today. Your grandparents set up a trust fund that will pay you $25,000 per year for 20 years, starting on your 65th birthday to supplement your retirement. If the trust can earn 7.5% per year, how much will your grandparents need to put in the trust fund today (rounded to the nearest $10)?

$11,370