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Which of the following statements best represents what finance is about?
 
A) How political, social, and economic forces affect corporations
B) Maximizing profits
C) Creation and maintenance of economic wealth
D) Reducing risk
   
The goal of the firm should be:
 
A) maximization of profits.
B) maximization of shareholder wealth.
C) maximization of consumer satisfaction.
D) maximization of sales.
   
Which of the following factors enable a public corporation to grow to a greater extent, and  perhaps at a faster rate,
than a partnership or a proprietorship?
 
A) Unlimited liability of shareholders
B) Access to the capital markets
C) Limited life
D) Elimination of double taxation on corporate income
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 subject to less government regulation 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 subjected to less taxation than the other forms of business organization.
   
Difficulty in finding profitable projects is due to:
 
A) social responsibility.
B) competitive markets.
C) ethical dilemmas.
D) opportunity costs.
   
Which of the following is NOT a principle of basic financial management?
 
A) Risk/return tradeoff
B) Incremental cash flow counts
C) Efficient capital markets
D) Profit is king
   
The corporation is the most effective form of organization in terms of raising capital.
 
TRUE
   
Ethical dilemmas frequently exist in finance.
 
TRUE
   
Which of the following is NOT an advantage of the sole proprietorship?
 
A) Limited liability
B) No time limit imposed on its existence
C) No legal requirements for starting the business
D) None of the above
   
What is the chief disadvantage of the sole proprietorship as a form of business organization  when compared to the corporate form?
 
A) Sole proprietorships are subject to double taxation of profits.
B) The cost of formation.
C) Inadequate profit sharing.
D) Owners have unlimited liability.
   
Which of the following is NOT true for limited partnerships?
 
A) Limited partners can only manage the business.
B) One general partner must exist who has unlimited liability.
C) Only the name of general partners can appear in the name of the firm.
D) Limited partners may sell their interest in the company.
   
The true owners of the corporation are the:
 
A) holders of debt issues of the firm.
B) preferred stockholders.
C) board of directors of the firm.
D) common stockholders.
   
Assume that you are starting a business. Further assume that the business is expected to grow very quickly,
and a great deal of capital will be needed soon. What type of business organization would you choose?
 
A) Corporation
B) General Partnership
C) Sole proprietorship
D) Limited partnership
   
Which one of the following categories of owners enjoys limited liability?
 
A) General partners in a limited partnership
B) Shareholders (common stock) of a corporation
C) Sole proprietors
D) Both A and B
   
Which of the following is a characteristic of a limited partnership?
 
A) It allows one or more partners to have limited liability.
B) It requires one or more of the partners to be a general partner to whom the privilege of limited liability does not apply.
C) It prohibits the limited partners from participating in the management of the partnership.
D) All of the above.
   
Which of the following categories of owners have limited liability?
 
A) General partners
B) Sole proprietors
C) Shareholders of a corporation
D) Both A and B
   
Which of the following types of business forms is the most ideal in terms of attracting new capital?
 
A) Sole proprietorship
B) Limited partnership
C) General partnership
D) A public corporation
   
Corporations receive money from investors with:
 
A) initial public offerings.
B) seasoned new issues.
C) primary market transactions.
D) A and B.
E) all of the above.
   
IBM issuing new shares of common stock would be classified as:
 
A) a new seasoned issue.
B) an initial public offering.
C) a secondary market transaction.
D) A and B.
   
The sole proprietorship is the same as the individual for liability purposes.
TRUE
   
In a general partnership,
all partners have unlimited liability for the actions of any one partner when that partner is conducting business for the firm.
 
TRUE
   
There is no legal distinction made between the assets of the business and the personal assets
of the owners in the limited partnership.
 
FALSE
   
The owners of a corporation are liable for the corporation's obligations up to the  amount of their investment.
 
TRUE
   
General partners have unrestricted transferability of ownership,
while limited partners must  have the consent of all partners to transfer their ownership.
 
FALSE
   
Limited partners may actively manage the business.
 
FALSE
   
The life of a corporation is not dependent upon the status of the investors.
 
TRUE
   
A sole proprietorship is the most desirable business form in all circumstances.
 
FALSE
   
In a sole proprietorship, the owner is personally responsible without limitation for the  liabilities incurred.
 
TRUE
   
In a limited partnership, at least one general partner must remain in the association; the  privilege of limited liability still applies to this partner.
 
FALSE
   
In a general partnership, each partner is liable for the partnership's obligations only up to a  percentage of the obligation
equal to that partner's percentage of ownership of the partnership.
 
FALSE
   
Maximization of shareholder wealth as a goal is superior to profit maximization because:
 
A) it considers the time value of the money.
B) following the shareholder wealth maximization goal will ensure high stock prices.
C) it considers uncertainty.
D) A and C.
 
   
Which of the following best describes the goal of the firm?
A) The maximization of the total market value of the firm's common stock
B) Profit maximization
C) Risk minimization
D) None of the above
   
Profit maximization does not adequately describe the goal of the firm because:
 
A) profit maximization does not require the consideration of risk.
B) profit maximization ignores the timing of a project's return.
C) maximization of dividend payout ratio is a better description of the goal of the firm.
D) A and B.
  What is the primary goal of financial management?
a. Increase earnings
b. Maximizing cash flow
c. Maximizing shareholders’ wealth
d. Minimizing risk of the firm
   
The use of borrowing by an individual to adjust his or her overall exposure to financial leverage is referred to as:
 
A. M&M Proposition I.
B. capital restructuring.
C. homemade leverage.
D. M&M Proposition II.
E. financial risk management.
   
Which one of the following statements matches M&M Proposition I?
 
A. The cost of equity capital has a positive linear relationship with a firm's capital structure.
B. The dividends paid by a firm determine the firm's value.
C. The cost of equity capital varies in response to changes in a firm's capital structure.
D. The value of a firm is independent of the firm's capital structure.
E. The value of a firm is dependent on the firm's capital structure.
   
Which one of the following states that a firm's cost of equity capital is a positive linear function of the firm's capital structure?
 
A. Static theory of capital structure
B. M&M Proposition I
C. M&M Proposition II
D. Homemade leverage theory
E. WACC
   
Which one of the following is the equity risk arising from the daily operations of a firm?
 
A. Strategic risk
B. Financial risk
C. Liquidity risk
D. Industry risk
E. Business risk
   
Which one of the following is the equity risk arising from the capital structure selected by a firm?
 
A. Strategic risk
B. Financial risk
C. Liquidity risk
D. Industry risk
E. Business risk
   
Paying interest reduces the taxes owed by a firm. Which one of the following terms applies to this relationship?
 
A. Static theory of interest rates
B. M&M Proposition I
C. Financial risk
D. Interest tax shield
E. Homemade leverage
   
Which one of the following is a direct bankruptcy cost?
 
A. Loss of customer goodwill resulting from a bankruptcy filing
B. Legal and accounting fees related to a bankruptcy proceeding
C. Management time spent on a bankruptcy proceeding
D. Any financial distress cost
E. Costs a firm spends trying to avoid bankruptcy
   
Which one of the following terms applies to the costs incurred by a firm which is trying to avoid filing for bankruptcy?
 
A. Indirect bankruptcy costs
B. Direct bankruptcy costs
C. Static theory cost
D. Optimal capital structure cost
E. Reorganization costs
   
Which one of the following terms is inclusive of both direct and indirect bankruptcy costs?
 
A. Financial distress costs
B. Capital structure costs
C. Financial leverage
D. Homemade leverage
E. Cost of capital
   
Which one of the following is the theory that a firm should borrow up to the point where the additional tax benefit
from an extra dollar of debt equals the additional costs associated with financial distress from that additional debt?
 
A. M&M Proposition I, with taxes
B. M&M Proposition II, with taxes
C. M&M Proposition I, without taxes
D. Homemade leverage proposition
E. Static theory of capital structure
   
Which one of the following best defines legal bankruptcy?
 
A. Negotiating new payment terms with a firm's creditors
B. A temporary technical insolvency
C. A legal proceeding for liquidating or reorganizing a business
D. The internal process of revising the capital structure of a firm
E. The failure of a firm to meet its financial obligations in a timely manner
   
Which one of the following terms refers to the termination of a firm as a going concern?
 
A. Insolvency
B. Reorganization
C. Chapter 11 bankruptcy
D. Prepack
E. Liquidation
   
Greenwood Motels has filed a petition for bankruptcy but hopes to continue its operations both during and after the bankruptcy process.
Which one of the following terms best applies to this situation?
 
A. Chapter 7 bankruptcy
B. Liquidation
C. Technical insolvency D. Accounting insolvency
E. Reorganization
   
In the process of liquidation, some types of claims receive preference over other claims.
Which one of the following determines which type of claim is paid first?
 
A. Technical insolvency definition
B. Absolute priority rule
C. Accounting insolvency definition
D. Chapter 7 of the Federal Bankruptcy Reform Act of 1978
E. Securities and Exchange Commission
   
Which one of the following is minimized when the value of a firm is maximized?
 
A. Return on equity
B. WACC C. Debt
D. Taxes
E. Bankruptcy costs
B. WACC C. Debt
   
Assume you are comparing two firms that are identical in every aspect, except one is levered and one is unlevered.
Which one of the following statements is correct regarding these two firms?
 
A. The levered firm has higher EPS than the unlevered firm at the break- even point.
B. The levered firm will have higher EPS than the unlevered firm at all levels of EBIT.
C. The unlevered firm will have higher EPS than the levered firm at relatively high levels always exceed those of the levered firm.
D. Taxes
E. The unlevered firm will have higher EPS at relatively low levels of EBIT.
   
Which one of the following statements concerning financial leverage is correct?
 
A. Financial leverage increases profits and decreases losses.
B. Financial leverage has no effect on a firm's return on equity.
C. Financial leverage refers to the use of common stock.
D. Financial leverage magnifies both profits and losses.
E. Increasing financial leverage will always decrease the earnings per share.
   
You are comparing two possible capital structures for a firm. The first option is an all-equity firm.
The second option involves the use of $3.8 million of debt. The break-even point between these two financing options occurs
when the earnings before interest and taxes (EBIT) are $428,000. Given this, you know that leverage is beneficial to the firm:
 
A. whenever EBIT is less than $428,000.
B. only when EBIT is $428,000.
C. whenever EBIT exceeds $428,000.
D. only if the debt is decreased by $428,000.
E. only if the debt is increased by $428,000.
   
Which one of the following statements concerning financial leverage is correct?
 
A. The benefits of leverage are unaffected by the amount of a firm's earnings.
B. The use of leverage will always increase a firm's earnings per share.
C. The shareholders of a firm are exposed to less risk anytime a firm uses financial leverage.
D. Changes in the capital structure of a firm will generally change the firm's earnings per share.
E. Financial leverage is beneficial to a firm only when the firm has negative earnings.
   
T.L. C. Enterprises just revised its capital structure from a debt- equity ratio of 0.30 to a debt-equity ratio of 0.45.
The firm's shareholders who prefer the old capital structure should:
 
A. sell some shares and hold the sale proceeds in cash.
B. sell all of their shares and loan out the entire sale proceeds.
C. do nothing.
D. sell some shares and loan out the sale proceeds.
E. borrow funds and purchase more shares.
   
Which one of the following statements is the core principle of M&M Proposition I, without taxes?
 
A. A firm's cost of equity is directly related to the firm's debt-equity ratio.
B. A firm's WACC is directly related to the firm's debt-equity ratio.
C. The interest tax shield increases the value of a firm.
D. The capital structure of a firm is totally irrelevant.
E. Levered firms have greater value than unlevered firms
   
Which one of the following supports the theory that the value of a firm increases as the firm's level of debt increases?
 
A. M&M Proposition I, without taxes
B. M&M Proposition II, without taxes
C. M&M Proposition I, with taxes
D. Static theory of capital structure
E. No theory suggests this.
   
Which one of the following is an implication of M&M Proposition II, without taxes?
A. A firm's optimal capital structure is 100 percent debt.
B. WACC is unaffected by the capital structure of a firm. C. WACC decreases as the debt-equity ratio increases.
D. A firm's capital structure is irrelevant.
E. The risk of equity depends on both the degree of financial leverage and the riskiness of the firm's operations.
   
M&M Proposition II, without taxes, states that the:
A. capital structure of a firm is highly relevant.
B. weighted average cost of capital decreases as the debt-equity ratio decreases.
C. cost of equity increases as a firm increases its debt- equity ratio.
D. return on equity is equal to the return on assets multiplied by the debt-equity ratio.
E. return on equity remains constant as the debt-equity ratio increases.
   
The level of financial risk to which a firm is exposed is dependent upon the firm's:
A. tax rate.
B. debt-equity ratio.
C. return on assets.
D. level of earnings before interest and taxes.
E. operational level of risk.
   
Which one of the following represents the present value of the interest tax shield?
 
A. D × (1 - Tc)
B. D/(1 - Tc)
C. D/Tc
D. D - D(Tc)
E. TC × D
E. TC × D
   
Which of the following will increase the value of a levered firm according to M&M Proposition I, with taxes?
I. decrease in the amount of the debt
II. increase in the value of the unlevered firm
III. decrease in the tax rate
IV. increase in the interest rate on the debt
 
A. II only
B. I and IV only C. II and III only
D. II and IV only
E. II, III, and IV only
   
Which of the following statements correctly relate to M&M Proposition I, with taxes?
I. Debt decreases the value of a firm.
II. The levered value of a firm exceeds the firm's unlevered value.
III. The weighted average cost of capital (WACC) is constant.
IV. The optimal capital structure is zero debt.
 
A. I only
B. II only
C. II and III only
D. I and IV only
E. I, III, and IV only
   
Which one of the following is an example of a direct bankruptcy cost?
 
A. Operating at a debt-equity ratio that is less than the optimal ratio
B. Reducing the dividend payout ratio as a means of increasing a firm's equity
C. Forgoing a positive net present value project to conserve current cash
D. Incurring legal fees for the preparation of bankruptcy filings
E. Losing a key customer due to concerns over a firm's financial viability
   
The static theory of capital structure assumes a firm:
 
A. maintains a constant debt-equity ratio.
B. has an all-equity structure.
C. is fixed in terms of its assets.
D. pays no taxes.
E. is operating at the point where financial distress costs are eliminated.
   
Which one of the following conditions exists at the point where a firm maximizes its value?
 
A. The tax benefit from an additional dollar of debt is zero.
B. Financial distress costs are equal to zero.
C. The debt-equity ratio is 1.0.
D. WACC is minimized.
E. The cost of equity is minimized.
   
Which one of the following statements related to the static theory of capital structure is correct?
 
A. A firm begins to lose value as soon as the first dollar of debt is incurred.
B. The actual value of a firm continually rises in direct proportion to the increased use of debt.
C. The linear function of a firm's value has a constant positive slope.
D. A firm's value is maximized when a firm operates at its optimal debt level.
E. The value of a firm will automatically decrease whenever the debt- equity ratio is decreased.
   
Which one of the following is correct based on the static theory of capital structure?
 
A. A firm receives the greatest benefit from debt financing when its tax’rate is relatively low.
B. A debt-equity ratio of 1 is considered to be the optimal capital structure.
C. The costs of financial distress decrease the value of a firm.
D. The more debt a firm assumes, the greater the incentive to acquire even more debt.
E. At the optimal level of debt a firm also optimizes its tax shield on debt.
   
Assume both corporate taxes and financial distress costs apply to a firm.
Given this, the static theory of capital structure illustrates that:
 
A. a firm's value and its weighted average cost of capital are inversely related.
B. a firm's value and its tax rate are inversely related.
C. the maximum value of a firm is obtained when a firm is financed solely with debt.
D. the value of a firm rises as the interest rate on debt rises.
E. the value of a firm rises as both the interest rate on debt and the tax rate rise.
   
When is a firm insolvent from an accounting perspective?
 
A. When the firm is unable to meet its financial obligations in a timely manner
B. When the firm's debt exceeds the value of the firm's equity
C. When the firm has a negative net worth
D. When the firm's revenues cease
E. When the market value of the firm's equity equals zero
   
Peterboro recently defaulted on a bank loan. To avoid a bankruptcy proceeding, the bank agreed to a composition.
This composition would do which one of the following?
 
A. Forgive the loan payment in its entirety
B. Extend the due date on the missed loan payment
C. Reduce the amount of the loan payments so Peterboro can pay timely
D. Transfer some of Peterboro's assets to the bank in lieu of the loan payment
E. Transfer all the equity shares in Peterboro to the lending bank
   
Which one of the following will generally receive the highest priority in a bankruptcy liquidation,
assuming the absolute priority rule is followed?
 
A. Claims by unsecured creditors
B. Employee wages
C. Government tax claims
D. Contributions to employee retirement plans
E. Bankruptcy administrative expenses
   
Which one of the following is a key provision of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005?
 
A. Disallowance of bankruptcy prepacks
B. Right granted to creditors to file their own reorganization plan once a firm is in bankruptcy for 18 months
C. Disallowance of all management bonus payments while a firm is in bankruptcy
D. Requirement that only creditors can file reorganization plans for a bankrupt firm
E. Requirement for all Chapter 11 bankruptcies to be converted to Chapter 7 bankruptcies after 18 months
B. Right granted to creditors to file their own reorganization plan once a firm is in bankruptcy for 18 months
   
Which one of the following statements is correct?
 
A. A prepack is a plan of liquidation used to distribute a firm's assets.
B. Bankruptcy courts have "cram-down" powers.
C. The absolute priority rule must be strictly followed in all bankruptcy proceedings.
D. Creditors cannot force a firm into bankruptcy even though they might like to do so.
E. A reorganization plan can only be approved if the firm's creditors all agree with the plan.
   
A prepack:
 
A. guarantees full payment to all creditors but lengthens the time span of the debt.
B. is the joint filing of both a bankruptcy filing and a creditor- approved reorganization plan.
C. protects the interests of both the current creditors and the existing shareholders.
D. applies only if a firm files under Chapter 7 of the bankruptcy code.
E. extends the time that a firm is protected by the bankruptcy process.
   
Which one of the following statements is correct?
 
A. All Chapter 7 bankruptcy filings must include a "workout" agreement.
B. Firms must remain in bankruptcy for at least 18 months.
C. Key employee retention plans (KERPS) are no longer legal.
D. Labor contracts cannot be modified through the bankruptcy process.
E. A firm can file for Chapter 11 bankruptcy even if the firm is solvent.
   
Glass Ornaments, Inc. is an all-equity firm with a total market value of $386,000 and 15,000 shares of stock outstanding.
Management is considering issuing $75,000 of debt at an interest rate of 8 percent and using the proceeds on a stock repurchase.
As an all-equity firm, management believes the earnings before interest and taxes (EBIT) will be $31,000 if the economy is normal,
$11,000 if it is in a recession, and $37,000 if the economy booms. Ignore taxes. What will the earnings per share (EPS) be if
the economy falls into a recession and the firm maintains its all-equity status?
 
A. $0.68
B. $0.73
C. $1.21
D. $1.67
E. $2.07
   
The Green Briar is an all-equity firm with a total market value of $418,000 and 20,000 shares of stock outstanding.
Management is considering issuing $120,000 of debt at an interest rate of 9 percent and using the proceeds on a
stock repurchase. Ignore taxes. How many shares will the firm repurchase if it issues the debt securities?
 
A. 2,871 shares
B. 3,516 shares
C. 3,921 shares
D. 4,607 shares
E. 5,742 shares
   
Charleston Mills is an all-equity firm with a total market value of $221,000.
The firm has 8,000 shares of stock outstanding. Management is considering issuing $50,000 of
debt at an interest rate of 7 percent and using the proceeds on a stock repurchase.
Ignore taxes. How many shares can the firm repurchase if it issues the debt securities?
 
A. 1,810 shares
B. 1,818 shares
C. 1,847 shares
D. 1,856 shares
E. 1,899 shares
   
Northern Wood Products is an all-equity firm with 16,000 shares of stock outstanding and a total market value of $352,000.
Based on its current capital structure, the firm is expected to have earnings before interest and taxes of $26,000 if the economy
is normal, $3,000 if the economy is in a recession, and $33,000 if the economy booms. Ignore taxes. Management is considering
issuing $88,000 of debt with a 6 percent coupon rate. If the firm issues the debt, the proceeds will be used to repurchase stock.
What will the earnings per share be if the debt is issued and the economy is in a recession?
 
A. -$0.27
B. -$0.19
C. $0.03
D. $0.26
E. $0.31
   
The pro forma income statement is important to the overall process of constructing pro forma statements because
it allows us to determine a value for: change in retained earnings.
If projected net cash flow for January is ($6,500);
 
beginning cash balance is $16,000;
minimum cash balance is $5,000;
beginning loan balance is $4,500
 
what will be the cash balance on the pro forma cash budget at the end of January?
 
$5,000
 
-6500 + 16000 + 9500 + -4500 + 0 + 5500 = $5,000
   
XYZ Co. has forecasted June sales of 400 units and July sales of 700 units.
The company maintains ending inventory equal to 125% of next month's sales. June beginning inventory reflects this policy.
What is June's required production?
 
775 units
 
400 + [875 (1.25 × 700)] - [500 (1.25 × 400)] = 775 units
   
ABC Co. has forecasted June sales of 600 units and July sales of 900 units.
The company maintains ending inventory equal to 130% of next month's sales.
June beginning inventory reflects this policy. What is June's required production?
 
990 units
   
In using a systems approach to financial planning, it is not necessary to develop a:
contingent liability plan.
   
A firm has forecasted sales of $4,000 in January, $6,000 in February, and $5,500 in March.
All sales are on credit. 40% is collected the month of sale and the remainder the following month.
How much is collected from accounts receivable in February?
 
$4,800
   
The financial markets allocate capital to corporations by:
 
reflecting expectations of the market participants in the corporation's share price.
   
The statement of cash flows does not include which of the following sections?
 
Cash flows from sales activities
   
In the percent-of-sales method:
 
as the dividend payout ratio goes up, the required new funds also rise.
   
The pro forma income statement is important to the overall process of constructing the pro forma balance sheet
because it allows us to determine a value for
 
change in retained earnings.
   
XYZ Co. has forecasted June sales of 600 units and July sales of 1000 units.
The company maintains ending inventory equal to 125% of next month's sales. June beginning inventory reflects this policy.
What is June's required production?
 
1,100 units
   
Ideally, sales projections should be derived from:
both internal and external viewpoints.
 
   
In developing the pro forma income statement, we follow four important steps:
1) compute other expenses,
2) determine a production schedule,
3) establish a sales projection,
4) determine profit by completing the actual pro forma statement.
 
What is the correct order for these four steps?
 
3, 2, 1, 4
   
BHS Inc. determines that sales will rise from $300,000 to $700,000 next year.
Spontaneous assets are 70% of sales and spontaneous liabilities are 30% of sales.
BHS has a 10% profit margin and a 40% dividend payout ratio. What is the level of required new funds?
 
$118,000
   
Disinflation may cause:
 
a reduced required return demanded by investors on financial assets
   
Maximization of shareholder wealth is a concept in which:
 
optimally increasing the long-term value of the firm is emphasized.
   
Which of the following is most likely to decrease the final number for notes payable in the pro forma balance sheet?
 
Increase in accounts payable.
   
A rapid rate of growth in sales may require
 
increased borrowing by the firm to support the sales increase.
   
A firm has beginning inventory of 300 units at a cost of $11 each. Production during the period was 650 units at $12 each.
If sales were 800 units, what is the value of the ending inventory using FIFO?
 
$1,800
   
In forecasting a firm's cash needs for some future period:
 
a cash budget approach can deal effectively with both level and seasonal production schedules.
   
The percent-of-sales method of financial forecasting:
 
assumes that balance sheet accounts maintain a constant relationship to sales.
   
Increased use of technology has increased corporate efficiency by:
creating electronic communication networks.
 
   
The orientation of book value per share is __________, while the orientation of market value per share is ___________.
 
historical; future
   
A firm has beginning inventory of 300 units at a cost of $11 each.
Production during the period was 650 units at $12 each. If sales were 700 units, what is the value of the ending inventory using FIFO?
 
$3,000
   
Firms that successfully increase their rates of inventory turnover will, among other things:
 
be able to reduce their borrowing needs.
   
When developing a pro forma income statement, which of the following steps are not used?
 
Establish a marketing projection.
   
Return on assets (ROA) can be distorted by:
 
bond interest payments.
   
A quick ratio much smaller than the current ratio reflects:
 
a large portion of current assets is in inventory.
   
When using the percent-of-sales method in forecasting funds needed, which of the following is not true?
 
Required new funds increase as accumulated amortization increases.
   
In general, a firm with higher amounts of sales on credit has
 
higher needs to borrow
   
Which of the following is not a major area of concern and emphasis in modern financial management and in this text?
Commodity Trading
   
Amortization tends to:
increase cash flow and decrease income.
   
A firm has forecasted sales of $3,000 in April, $4,500 in May, and $12,000 in June.
All sales are on credit. 30% is collected the month of sale and the remainder the following month.
What will be the balance in accounts receivable at the end of June?
 
$8,400
   
To estimate production requirements, we:
 
add projected sales in units to desired ending inventory and subtract beginning inventory.
   
A firm has targeted a 40% growth in sales this year. Last year's cash as a percent of sales was 15%,
accounts receivable 30%, and inventory 35%. What percentage growth in current assets is required to support the
 
growth in sales under the percent-of-sales forecasting method?
32%
   
In financial statements, the number of units shown to be sold is ________ than the number of the units produced.
 
either higher or lower
   
If XYZ's receivables turnover is 4x, what does that mean?
 
XYZ is able to collect its receivables every 90 days, or 4 times a year.
   
When a firm's earnings are falling more rapidly than its stock price, its P/E ratio will:
 
go up.
   
Firms that decrease their rates of inventory turnover will, among other things:
 
must increase their borrowing needs.
   
Which of the following is most likely to increase the final number for notes payable in the pro forma balance sheet?
 
Decrease in accounts payable.
   
Pro forma financial statements are not:
part of the year end filing with the securities regulator.
   
A firm only has current assets and fixed assets. Its current assets are $100,000 and total assets are $300,000.
The firm's sales are $900,000. The firm's fixed asset turnover is
 
4.5x.
   
The major limitation of financial statements is:
 
in their use of historical cost accounting.