# 1) Regarding risk levels, financial managers should

1) Regarding risk levels, financial managers should A. focus primarily on market fluctuations B. evaluate investor’s desire for risk C. avoid higher risk projects because they destroy value D. pursue higher risk projects because they increase value

2) Maximization of shareholder wealth is a concept in which A. virtually all earnings are paid as dividends to common stockholders. B. optimally increasing the long-term value of the firm is emphasized. C. profits are maximized on a quarterly basis. D. increased earnings is of primary importance.

3) Insider trading occurs when A. lawyers, investment bankers, and others buy common stock in companies represented by their firms. B. someone has information not available to the public which they use to profit from trading in stocks. C. any stock transactions occur in violation of the Federal Trade Commissions restrictions on monopolies. D. corporate officers buy stock in their company.

4) The statement of cash flows does NOT include which of the following sections? A. cash flows from investing activities B. cash flows from operating activities C. cash flows from financing activities D. cash flows from sales activities

5) Which of the following is an inflow of cash? A. the sale of the firm’s bonds B. funds spent in normal business operations C. the retirement of the firm’s bonds D. the purchase of a new factory

6) An increase in investments in long-term securities will: A. increase cash flow from financing activities. B. increase cash flow from investing activities. C. decrease cash flow from financing activities. D. decrease cash flow from investing activities.

7) In examining the liquidity ratios, the primary emphasis is the firm’s A. ability to pay short-term obligations on time. B. ability to effectively employ its resources. C. ability to earn an adequate return. D. overall debt position.

8) For a given level of profitability as measured by profit margin, the firm’s return on equity will A. increase as its debt-to assets ratio increases. B. increase as its debt-to-assets ratio decreases. C. decrease as its times-interest-earned ratio decreases. D. decrease as its current ratio increases.

9) If a firm has both interest expense and lease payments, A. times interest earned will be the same as fixed charge coverage. B. times interest earned will be smaller than fixed charge coverage. C. fixed charge coverage cannot be computed. D. times interest earned will be greater than fixed charge coverage.

Refer to the figure above. The firm’s debt to asset ratio is A. 25%. B. 58%. C. 48%. D. 33%.

11) Refer to the figure above. Megaframe’s current ratio is A. 1.5:1 B. 1.9:1 C. 3.2:1 D. 1.625:1

12) A firm’s long term assets = \$75,000, total assets = \$200,000, inventory = \$25,000 and current liabilities = \$50,000. A. current ratio = 1.5; quick ratio = 2.0 B. current ratio = 0.5; quick ratio = 1.5 C. current ratio = 2.5; quick ratio = 2.0 D. current ratio = 1.0; quick ratio = 2.0

13) The need for an increase or decrease in short-term borrowing can be predicted by A. a cash budget. B. ratio analysis. C. an income statement. D. trend analysis.

14) In order to estimate production requirements, we A. add beginning inventory to desired ending inventory and divide by two. B. add beginning inventory to projected sales in units and subtract desired ending inventory. C. add beginning inventory to desired ending inventory and subtract projected sales in units. D. add projected sales in units to desired ending inventory and subtract beginning inventory.

15) The percent-of-sales method of financial forecasting A. assumes that balance sheet accounts maintain a constant relationship to sales. B. is more detailed than a cash budget approach. C. provides a month-to-month breakdown of data. D. requires more time than a cash budget approach.

16) 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: A. interest expense. B. change in retained earnings. C. prepaid expenses. D. gross profit.

17) The key initial element in developing pro forma statements is A. a sales forecast. B. an income statement. C. a cash budget. D. a collections schedule.

18) 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? A. 2,1,3,4 B. 3,2,4,1 C. 1,2,3,4 D. 3,2,1,4

19) The concept of operating leverage involves the use of __________ to magnify returns at high levels of operation. A. marginal costs B. variable costs C. fixed costs D. semi-variable costs

20) The degree of operating leverage is computed as A. percent change in EPS divided by percent change in operating income. B. percent change in volume divided by percent change in operating profit. C. percent change in operating profit divided by percent change in net income. D. percent change in operating income divided by percent change in volume.

21) Financial leverage deals with: A. the entire income statement. B. the relationship of debt and equity in the capital structure. C. the relationship of fixed and variable costs. D. the entire balance sheet.

22) If TechCor has fixed costs of \$80,000, variable costs of \$1.20/unit, sales price/unit of \$6, and depreciation expense of \$25,000, what is their cash breakeven in units? A. 21,875 B. 11,458 C. 9,167 D. 45,833

23) The break-even point can be calculated as A. variable cost times contribution margin. B. total costs divided by contribution margin. C. variable costs divided by contribution margin. D. fixed cost divided by contribution margin.

24) In break-even analysis, the contribution margin is defined as A. variable cost minus fixed cost. B. price minus fixed cost. C. price minus variable cost. D. fixed cost minus variable cost.

25) Normally, permanent current assets should be financed by A. borrowed funds. B. short-term funds. C. long-term funds. D. internally generated funds.

26) When the yield curve is upward sloping, generally a financial manager should: A. wait for future financing B.utilize short-term financingC. utilize long-term financing D. lease

27) A conservatively financed firm would A. use equity to finance fixed assets, long-term debt to finance permanent assets, and short-term debt to finance fluctuating current assets. B. finance a portion of permanent assets and short-term assets with short-term debt. C. use long-term financing for all fixed assets and short-term financing for all other assets. D. use long-term financing for permanent current assets and fixed assets and a portion of the short-term fluctuating assets and use short-term financing for all other short-term assets

28) Which of the following combinations of asset structures and financing patterns is likely to create the most volatile earnings? A. Liquid assets and heavy long-term borrowing B. Illiquid assets and heavy long-term borrowing C. Illiquid assets and heavy short-term borrowing D. Liquid assets and heavy short-term borrowing

29) An aggressive working capital policy would have which of following characteristics? A. A high ratio of short-term debt to long-term sources of funds. B. A low ratio of short-term debt to fixed assets. C. A high ratio of long-term debt to fixed assets. D. A short average collection period.

30) Which of the following combinations of asset structures and financing patterns is likely to create the least volatile earnings? A. Liquid assets and heavy long-term borrowing B. Illiquid assets and heavy long-term borrowing C. Illiquid assets and heavy short-term borrowing D. Liquid assets and heavy short-term borrowing

31) The system whereby funds are moved between computer terminals without use of checks is A. a lock-box system. B. float. C. electronic funds transfer. D. magnetic character recognition.

32) “Float” takes place because A. a lag exists between writing a check and clearing it through the banking system. B. the level of cash on the firm’s books is equal to the level of cash in the bank. C. a firm is early in paying its bills. D. a customer writes “hot” checks.

33) In managing cash and marketable securities, what should be the manager’s primary concern? A. Acceptable return on investment B. Maximization of liquid assets C. Maximization of profit D. Liquidity and safety

34) Dun & Bradstreet is known for providing A. cash management systems to corporate treasurers. B. credit scoring reports that rank a company’s payment habits relative to its peer group. C. interest rate information to cash managers. D. consumer credit reports to credit card companies.

35) Variables important to credit scoring models include A. facility ownership. B. negative public records. C. age of company in years. D. all of these variables apply.

36) Which of the following is not a valid quantitative measure for accounts receivable collection policies? A. ratio of debt to equity B. aging of accounts receivables C. average collection period D. ratio of bad debts to credit sales

37) What is generally the largest source of short-term credit small firms? A. Installment loans B. Commercial paper C. Bank loans D. Trade credit

38) Commercial paper that is sold without going through a broker or dealer is known as A. book-entry transactions. B. dealer paper. C. direct paper. D. term paper.

39) Compensating balances A. generate returns to customers from interest bearing accounts. B. are created by having a sweep account. C. are used by banks as a substitute for charging service fees. D. are used to reward new accounts.

40) Firms exposed to the risk of interest rate changes may reduce that risk by A. hedging in the commodities market. B. hedging in the financial futures market. C. obtaining a Eurodollar loan. D. pledging or factoring accounts receivable.

41) General Rent-All’s officers arrange a \$50,000 loan. The company is required to maintain a minimum checking account balance of 10% of the outstanding loan. This practice is called A. a discounted loan. B. a compensating balance. C. an installment loan. D. a balloon payment.

42) A large manufacturing firm has been selling on a 3/10, net 30 basis. The firm changes its credit terms to 2/20, net 90. What change might be expected on the balance sheets of its customers? A. Increased payables and decreased bank loans B. Increased receivables and increased bank loans C. Decreased receivables and increased bank loans D. Increased payables and increased bank loans

43) An annuity may be defined as A. a series of yearly payments. B. a series of payments of unequal amount. C. a payment at a fixed interest rate. D. a series of consecutive payments of equal amounts.

44) Increasing the number of periods will increase all of the following except A. the future value of \$1. B. the present value of \$1. C. the present value of an annuity. D. the future value of an annuity.

45) In determining the future value of a single amount, one measures A. the future value of an amount allowed to grow at a given interest rate. B. the present value of periodic payments at a given interest rate. C. the present value of an amount discounted at a given interest rate. D. the future value of periodic payments at a given interest rate.

46) Ali Shah sets aside 2,000 each year for 5 years. He then withdraws the funds on an equal annual basis for the next 4 years. If Ali wishes to determine the amount of the annuity to be withdrawn each year, he should use the following two tables in this order: A. future value of an annuity of \$1; present value of a \$1 B. future value of an annuity of \$1; future value of a \$1 C. future value of an annuity of \$1; present value of an annuity of \$1 D. present value of an annuity of \$1; future value of an annuity of \$1

47) If you were to put \$1,000 in the bank at 6% interest each year for the next ten years, which table would you use to find the ending balance in your account? A. Present value of an annuity of \$1 B. Future value of an annuity of \$1 C. Future value of \$1 D. Present value of \$1

48) Mr. Blochirt is creating a college investment fund for his daughter. He will put in \$850 per year for the next 15 years and expects to earn an 8% annual rate of return. How much money will his daughter have when she starts college? A. \$24,003 B. \$23,079 C. \$12,263 D. \$11,250
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