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50 Cards in this Set

  • Front
  • Back
Corporations receive money from investors with:
A. seasoned new issues.
B. initial public offerings.
C. primary market transactions.
D. A and B.
E. All of the above.
The goal of the firm should be:
A. Maximization of profits.
B. Maximization of consumer satisfaction.
C. Maximization of shareholder wealth.
D. Maximization of sales.
If one security has a greater risk than another security, how will investors respond?
A. They will require a higher rate of return for the investment that has greater risk.
B. They will require a lower rate of return for the investment that has greater risk.
C. They would be indifferent regarding their expectation of rates of return for either investment.
D. None of the above.
Diversification increases when __________ decreases.
A. variability
B. return
C. risk
D. A and C
E. All of the above.
Which of the following reasons is most responsible for corporations being the most important form of business organization in the United States?
A. Corporations have limited life.
B. Stockholders have unlimited liability.
C. Corporations are subjected to less taxation than the other forms of business organization.
D. Corporations have the ability to raise larger sums of capital than the other forms of business organization.
E. Corporations are subject to less government regulation than the other forms of business organization.
Which of the following goals is in the best long-term interest of stockholders?
A. Risk minimization
B. Maximizing sales revenues
C. Maximizing of the market value of the existing shareholders’ common stock
D. Profit maximization
Dorning Shade Company will use an estimated 50,000 gumbands in its manufacturing process next year. The carrying cost of gumband inventory is $.04 per unit, and the cost of reordering gumbands is $50 per order. What is Dorning Shade’s economic ordering quantity for gumbands (round to the nearest 100 gumbands)?
A. 8,100
B. 10,700
C. 9,700
D. 11,200

sq rt: 2so/c

s=total demand
o=ordering cost/order
c=carrying cost/order
Which of the statements below is true?
A. It is very complicated (legally) to establish a corporation.
B. No legal criterion exists for a general partnership.
C. The sole proprietorship and the general partnership both feature unlimited liability.
D. All of the above are true.
Which of the following is not true for limited partnerships?
A. Only the name of general partners can appear in the name of the firm.
B. One general partner must exist who has unlimited liability.
C. Limited partners may sell their interest in the company.
D. Limited partners can only manage the business.
Trade credit is an example of which of the following sources of financing?
A. Temporary
B. Spontaneous
C. Permanent
D. Both A and B
Which of the following is considered to be a permanent source of financing?
A. Long-term debt
B. Accounts receivable
C. Trade credit
D. All of the above
E. None of the above
Spontaneous sources of financing include:
A. bonds.
B. accruals.
C. marketable securities.
D. both A and B.
E. All of the above.
The cost of trade credit varies with the:
A. size of the cash discount.
B. length of time between the end of the discount period and when the firm purchased from the supplier.
C. length of time between the end of the discount period and the final due date.
D. Both A and C.
A quite risky working capital management policy would have a high ratio of:
A. short-term debt to equity.
B. bonds to property, plant, and equipment.
C. short-term debt to total debt.
D. short-term debt to bonds and equity.
Which of the following is considered to be a spontaneous source of financing?
A. Common stock
B. Bonds
C. Trade credit
D. All of the above
E. None of the above
Which of the following is most consistent with the hedging principle in working capital management?
A. Inventory should be financed with preferred stock.
B. Accounts receivable should be financed with short-term lines of credit.
C. Fixed assets should be financed with short-term notes payable.
D. Borrow on a floating rate basis to finance investments in permanent assets.
The inventory loan arrangement in which all of the borrower’s inventories are used as collateral is termed a:
A. chattel mortgage agreement.
B. floating lien agreement.
C. terminal warehouse agreement.
D. field warehouse financial agreement.
Which of the following are short-term, unsecured promissory notes sold by large businesses?
A. Negotiable CD
B. Repurchase agreements
C. Commercial paper
D. Money market mutual funds
Businesses hold cash in order to:
A. make accrual payments.
B. improve cash flow.
C. take advantage of potential profit-making situations.
D. make depreciation payments when they become due.
__________ float is caused by the time necessary for a deposited check to clear through the commercial banking system.
A. Mail
B. Disbursing
C. Transit
D. Processing
Which of the following can be used to decrease a firm’s processing float?
A. Lock box arrangement
B. Zero balance account
C. Wire transfer
D. Payable-Through drafts
Cash held in order to take advantage of potential profit-making situations is referred to as the __________ motive for holding cash.
A. precautionary
B. speculative
C. transaction
D. liquidity
If a firm offers credit terms of 2/10 net 30, the annualized opportunity cost to its customers of foregoing the discount is: (assume a 360-day year)
A. 20.04%.
B. 36.73%.
C. 24.49%.
D. 18.31%.

2% discount if payment in 10 days.

.02/.98 * 1/(20/360)
Which of the following is not a principle of basic financial management?
A. Risk / return tradeoff
B. Profit is king
C. Incremental cash flow counts
D. Efficient capital markets
A limited liability company (LLC) is:
A. able to retain limited liability for owners .
B. taxed like a corporation.
C. a cross between a partnership and a corporation.
D. A and C.
E. All of the above.
Once a cash discount period has passed:
A. one should pay immediately.
B. one should pay after the final due date.
C. there is no financial incentive to pay before the final due date.
D. cannot be determined from the information.
Georgia Peaches Corporation (GPC) has a line of credit with Trust Company Bank that allows GPC to borrow up to $300,000 at an annual interest rate of 11%. However, GPC must keep a compensating balance of 20% of any amount borrowed on deposit at the Trust Company Bank. GPC does not normally have a cash balance account with the Trust Company. What is the effective annual cost of credit?
A. 13.75%
B. 14.15%
C. 13.95%
D. 15.55%

.11 * 300,000
300000 - (.20 * 300000)
What is a “CD?”
A. A certified disbursement
B. A negotiable certificate of deposit
C. A commercial demand deposit
D. A corporate controlled disbursement account
What does the agency problem refer to?
A. The conflict that exists between stockbrokers and investors.
B. The conflict that exists between the board of directors and the employees of the firm.
C. The problem associated with financial managers and Internal Revenue agents.
D. The problem that results from potential conflicts of interest between the manager of a business and the stockholders.
E. None of the above.
The true owners of the corporation are the:
A. holders of debt issues of the firm.
B. common stockholders.
C. board of directors of the firm.
D. preferred stockholders.
The 2005 days Sales in Inventory (Inventory period) is:
A. 18 days.
B. 30 days.
C. 50 days.
D. 20 days.
E. 15 days.
The 2005 Operating Cycle is:
A. 24.5 days.
B. 60 days.
C. 88 days.
D. 70 days.
E. 75 days.
The 2005 Cash Conversion Cycle (Cash Cycle) is:
A. 45 days.
B. 13.5 days.
C. 63 days.
D. 22 days.
E. 42 days.
Which of the following statements are true:
A. The change in Accounts Receivable, Inventory, and Net Property & Equipment are a use of funds.
B. The change in Inventory and Accounts Payable are a source of funds.
C. The change in Accounts Receivable is a use of funds.
D. B and C are true.
E. None of the above are true.
Assuming no Property & Equipment was sold in 2005 and the 2005 depreciation expense was $500,000, how much were the firm’s 2005 purchases of Property & Equipment?
A. $2,000,000
B. $1,500,000
C. $2,500,000
D. $2,750,000
E. Not enough information to answer the question
A business plan for a small business typically contains all of the following except:
A. a statement of the company’s goals.
B. a detailed time frame for achieving goals.
C. projections of money flows.
D. a time frame for selling stock to investors.
Sole proprietorships have all of the following advantages except:
A. ease of formation
B. unlimited life
C. easy to dissolve
D. profits subject only to a single tax
The board of directors of a corporation is elected by the __________.
A. corporation’s employees
B. bondholders and other creditors
C. corporate officers
D. stockholders
Corporations have all of the following advantages except:
A. favorable tax treatment.
B. limited liability.
C. expanded financial capacity.
D. unlimited life.
The rules followed by accountants when preparing financial statements are referred to as __________.
A. Generally Accepted Accounting Practices (GAAP).
B. Financial Accounting Standards Board (FASB).
C. the accounting process.
D. the accounting system.
All of the following are tangible assets except:
A. cash.
B. inventory.
C. building.
D. patents.
Milwaukee Fabrication has $50 million in assets and $30 million in owner’s equity. How much does the firm have in liabilities?
A. $20 million
B. $30 million
C. $50 million
D. $80 million
All of the following are liabilities except:
A. accounts payable.
B. accumulated profits not paid in dividends.
C. bank loans.
D. wages payable.
Camden Products buys a $500,000 machine by taking out a bank loan. The company’s assets will __________ by $500,000 while its liabilities will __________ by $500,000.
A. rise; fall
B. fall; rise
C. rise; rise
D. fall; fall
Pittsburgh Manufacturing pays several bills from suppliers. On the company’s balance sheet, __________ would __________.
A. accounts payable; increase
B. accounts payable; decrease
C. accounts receivable; increase
D. accounts receivable; decrease
At the end of last year, Tri-Cities, Ltd. had $125 million in retained earnings. During the year, the firm reported net income of $30 million and paid $5 million in dividends to shareholders. At the end of this year, Tri-Cities will have __________ in retained earnings.
A. $125 million
B. $130 million
C. $150 million
D. $155 million
Akron Properties has revenues of $50 million, cost of goods sold of $35 million, operating expenses of $5 million, depreciation of $2 million, and taxes of $3 million. How much is the company’s gross income?
A. $5 million
B. $7 million
C. $10 million
D. $15 million
All of the following are cash flows from operating activities except:
A. net income.
B. depreciation.
C. cash dividends.
D. increase in accounts receivable.
Which of the following is a noncash expense?
A. Depreciation
B. Cost of goods sold
C. Income taxes
D. Operating costs
The 2005 days Sales Outstanding (Accounts Receivable period) is:
A. 55 days.
B. 73 days.
C. 50 days.
D. 30 days.
E. 6.5 days.