1.   Which of the following would result in an increase in cash flow and a source of cash? 

     

  A. A decrease in accounts payable 

  B. A decrease in long-term debt 

  C. A decrease in inventory 

  D. An increase in accounts receivable 

2.   The DuPont identity breaks down return on equity (ROE) into three parts, which are 

     

  A. overall efficiency (as measured by profit margin), asset-use efficiency (as measured by current asset turnover), and financial leverage (as measured by long-term debt ratio). 

  B. operating efficiency (as measured by inventory turnover), asset use efficiency (as measured by total asset turnover), and short-term solvency (as measured by the current ratio). 

  C. operating efficiency (as measured by profit margin), asset use efficiency (as measured by total asset turnover), and financial leverage (as measured by the equity multiplier). 

  D. operating efficiency (as measured by inventory turnover), customer reach (as measured by total customers served), and short-term solvency (as measured by the current ratio).

3.   What’s the most likely reason a firm would decide to go public? 

     

  A. To increase the total liability of the firm 

  B. To increase the value of the firm 

  C. As an inexpensive way to raise new capital 

  D. As an exit strategy for venture capital investors 

4.   In corporate finance, the term dilution is used to 

     

  A. determine when cash flows can be distributed to shareholders as dividends. 

  B. determine when and how to go public. 

  C. discuss the effects of liquidity, solvency, and bankruptcy. 

  D. determine the loss in existing shareholder value. 

5.   RJ’s has a fixed asset turnover rate of 1.26 and a total asset turnover rate of .97. Sam’s has a fixed asset turnover rate of 1.31 and a total asset turnover rate of .94. Both companies have similar operations. Based on this information, RJ’s must be 

     

  A. using its total assets more efficiently than Sam’s. 

  B. using its fixed assets more efficiently than Sam’s. 

  C. generating $1 in sales for every $1.26 in net fixed assets. 

  D. generating $1.26 in net income for every $1 in net fixed assets. 

6.   A.K. Stevenson wants to raise $10.2 million through a rights offering. The subscription price is set at $16 a share. Currently, the company has 1.7 million shares outstanding with a current market price of $25 a share. Shareholders will receive one right for each share of stock they currently own. How many rights will be needed to purchase one new share of stock in this offering? 

     

  A. 2.40 rights 

  B. 2.75 rights 

  C. 2.82 rights 

  D. 2.67 rights 

7.   A firm generated net income of $911. The depreciation expense was $47, and dividends were paid in the amount of $25. Accounts payables increased by $15, accounts receivables increased by $28, inventory decreased by $14, and net fixed assets decreased by $8. There was no interest expense. What was the net cash flow from operating activity? 

     

  A. $922 

  B. $865 

  C. $776 

  D. $959 

8.   The PE ratio falls within which of the following classifications of financial ratios? 

     

  A. Market value measures 

  B. Asset management or turnover measures 

  C. Profitability measures 

  D. Short-term solvency ratios 

9.   Bonner Automotive has shareholders’s equity of $218,700. The firm owes a total of $141,000, of which 40 percent is payable within the next year. The firm has net fixed assets of $209,800. What’s the amount of the net working capital? 

     

  A. $125,600 

  B. $56,500 

  C. $149,900 

  D. $93,500 

10.   Shareholders’s equity can best be described as 

     

  A. decreasing whenever new shares of stock are issued. 

  B. representing the residual value of a firm. 

  C. including patents, preferred stock, and common stock. 

  D. a firm’s financial leverage. 

11.   A firm has total debt of $4,850 and a debt-equity ratio of .57. What’s the value of the total assets? 

     

A. $13,358.77 

  B. $7,253.40 

  C. $11,034.00 

  D. $6,128.05 

12.   Earnings before interest and taxes (EBIT) would equal operating cash flow (OCF) if 

     

  A. there was no depreciation, no amortization, and no other noncash expenses. 

  B. cash flow from assets equaled cash flow from creditors plus cash flow to stockholders. 

  C. any factors applied; EBIT is always equal to operating cash flows. 

  D. depreciation was equal to taxes, and if there was no amortization. 

  

13.   A firm has an interval measure of 48. This means that the firm has sufficient liquid assets to 

     

  A. cover its operating costs for the next 48 days. 

  B. pay all of its debts that are due within the next 48 hours. 

  C. cover its operating costs for the next 48 hours. 

  D. pay all of its debts that are due within the next 48 days. 

 

14.   What type of financial statement starts by taking the cash balance of a firm at the beginning of the year, and reconciles any changes in account balances? 

     

  A. Balance sheet 

  B. Income statement 

  C. Statement of cash flows 

  D. Statement of owners’s equity 

 

15.   Which term relates to the cash flow that results from a firm’s ongoing, normal business activities? 

     

  A. Net working capital 

  B. Cash flow from assets 

  C. Capital spending 

   D. Operating cash flow 

 

16.   What’s the best description of a prospectus? 

     

  A. A report stating that the SEC recommends a new security to investors 

  B. A document that describes the details of a proposed security offering along with relevant information aboutthe issuer 

  C. An advertisement in a financial newspaper that describes a security offering 

  D. A letter issued by the SEC that outlines the changes required for a registration statement to be approved 

 

17.   A firm has total assets of $310,100 and net fixed assets of $168,500. The average daily operating costs are $2,980. What’s the value of the interval measure? 

     

  A. 31.47 days 

  B. 47.52 days 

  C. 68.05 days 

  D. 56.22 days 

 

 

 

18.   Business Aid is funded by a group of wealthy investors for the sole purpose of providing funding for individuals and small firms that are trying to convert their new ideas into viable products. This type of funding is called 

     

  A. green shoe funding. 

  B. red herring funding. 

  C. venture capital. 

  D. life-cycle capital. 

19.   If a firm has a notes payable balance of $42,400 at the end of 2014, and $30,100 at the end of 2015, which of the following statements about accounts payable is correct? 

     

  A. Notes payable increased by $12,300 and represented a use of cash. 

  B. Notes payable decreased by $12,300 and represented a use of cash. 

  C. Notes payable decreased by $12,300 and represented a source of cash. 

  D. Notes payable increased by $12,300 and represented a source of cash. 

20.   What’s the definition of a syndicate?

     

  A. A group of underwriters sharing the risk of selling a new issue of securities 

  B. A block of investors who control a firm 

  C. A bank that loans funds to finance the start-up of a new firm 

  D. A group of attorneys providing services for an IPO