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Finc400 quiz 1-8
art 1 of 1 – Week 1 Quiz
Question 1 of 25
The firm’s price-earnings (P/E) ratio is influenced by its
C.sales, profit margins, and earnings.
D.all of these.
Question 2 of 25
The primary disadvantage of accrual accounting is that
A.it does not match revenues and expenses in the period in which they are incurred.
B.it does not appropriately measure accounting profit.
C.it does not recognize accounts receivable.
D.it does not adequately show the actual cash flow position of the firm
Question 3 of 25
Total assets of a firm are financed with liabilities and stockholders’ equity.
Question 4 of 25
Gross profit is equal to
A.sales minus cost of goods sold.
B.sales minus (selling and administrative expenses).
C.sales minus (cost of goods sold and selling and administrative expenses).
D.sales minus (cost of goods sold and depreciation expense).
Question 5 of 25
The higher the profit of a firm, the higher the value the firm is assured of receiving in the market.
uestion 6 of 25
Ratios are used to compare different firms in the same industry.
Question 7 of 25
The Sarbanes-Oxley Act was passed in an effort to
A.protect small business from large corporations dominating the market.
B.ensure that partnerships divide profits among partners in a fair manner.
C.guarantee outside auditors can control corporate accounting practices.
D.control corrupt corporate behavior.
uestion 8 of 25
Which of the following is not subtracted out in arriving at operating income?
B.cost of goods sold
D.selling and administrative expense
Question 9 of 25
Which of the following is not a primary source of capital to the firm?
Question 10 of 25
A firm has $1,500,000 in its common stock account and $1,000,000 in its paid-in capital account. The firm issued 100,000 shares of common stock. What was the original issue price if only one stock issue has ever been sold?
A.$35 per share
B.$25 per share
C.$15 per share
D.Not enough information to tell
Question 11 of 25
Debt utilization ratios are used to evaluate the firm’s debt position with regard to its asset base and earning power.
uestion 12 of 25
A firm with earnings per share of $3 and a price-earnings ratio of 20 will have a stock price of
D.the market assigns a stock price independent of EPS and the P/E ratio.
Question 13 of 25
The P/E ratio is strongly related to the past performance of the firm.
Question 14 of 25
Money markets would include which of the following securities?
A.common stock and corporate bonds.
B.treasury bills and commercial paper.
C.certificates of deposit and preferred stock.
D.all of these.
uestion 15 of 25
Agency theory assumes that corporate managers act to increase the wealth of corporate shareholders.
Question 16 of 25
Preferred stock is excluded from stockholders equity because it does not have full voting rights.
Question 17 of 25
Sales minus cost of goods sold is equal to earnings before taxes.
Question 18 of 25
Asset utilization ratios
A.relate balance sheet assets to income statement sales.
B.measure how much cash is available for reinvestment into current assets.
C.are most important to stockholders.
D.measures the firm’s ability to generate a profit on sales.
Question 19 of 25
The P/E ratio provides no indication of investors’ expectations about the future of a company.
Question 20 of 25
Asset utilization ratios relate balance sheet assets to income statement sales.
Question 21 of 25
Financial markets exist as a vast global network of individuals and financial institutions that may be lenders, borrowers, or owners of public companies worldwide.
Question 22 of 25
Which of the following is an outflow of cash?
B.the sale of equipment
C.the sale of the company’s common stock
D.the payment of cash dividends
uestion 23 of 25
The Bubba Corp. had earnings before taxes of $400,000 and sales of $2,000,000. If it is in the 40% tax bracket its after-tax profit margin is:
Question 24 of 25
The income statement is the major device for measuring the profitability of a firm over a period of time.
Question 25 of 25
Which of the following is an inflow of cash?
A.funds spent in normal business operations
B.the purchase of a new factory
C.the sale of the firm’s bonds
D.the retirement of the firm’s bonds
Question 1 of 25 4.0 Points
A lower price for the firm’s product will reduce the firm’s breakeven point.
Question 2 of 25 4.0 Points
(point) Profit is generally adequate to finance significant growth.
Question 3 of 25 4.0 Points
If a firm has a break-even point of 40,000 units and the contribution margin on the firm’s single product is $4.00 per unit and fixed costs are $60,000, what will the firm’s operating profit be at sales of 40,000 units?
Question 4 of 25 4.0 Points
(point) The break-even point can be calculated as
A.variable costs divided by contribution margin.
B.total costs divided by contribution margin.
C.variable cost times contribution margin.
D.fixed cost divided by contribution margin.
Question 5 of 25 4.0 Points
The degree of combined leverage is the sum of the degree of operating leverage and the degree of financial leverage.
Question 6 of 25 4.0 Points
If fixed costs rise while other variables stay constant
A.the breakeven point rises.
B.degree of operating leverage increases.
C.total profit declines.
D.all of these
Question 7 of 25 4.0 Points
Operating leverage emphasizes the impact of using fixed assets in the business.
Question 8 of 25 4.0 Points
(point) In financial statements, the number of units shown in cost of goods sold as compared to the number of the units actually produced
C.is the same.
D.can be either higher or lower.
Question 9 of 25 4.0 Points
The contribution margin is equal to price per unit minus total costs per unit.
Question 10 of 25 4.0 Points
(point) Which of the following is most likely to increase the final number for notes payable in the pro forma balance sheet?
A.decrease in inventory.
B.increase in retained earnings.
C.decrease in accounts payable.
D.decrease in accounts receivable.
Question 11 of 25 4.0 Points
An increase in sales and profits generates the necessary cash required for economic growth.
Question 12 of 25 4.0 Points
The percent-of-sales forecast is likely to be most accurate when used with cyclical companies.
Question 13 of 25 4.0 Points
Pro forma financial statements are
A.the most comprehensive means of financial forecasting.
B.often required by prospective creditors.
C.projections of financial statements for a future period.
D.all of these.
Question 14 of 25 4.0 Points
(point) When the cost of raw materials is increasing, FIFO accounting
A.yields higher ending inventory values than LIFO.
B.produces higher unit sales than using LIFO.
C.yields higher cost of goods sold than LIFO.
D.All of these.
Question 15 of 25 4.0 Points
(point) If sales volume exceeds the break-even point, the firm will experience
A.an operating loss.
B.an operating profit.
C.an increase in plant and equipment.
D.an increase in stock price.
Question 16 of 25 4.0 Points
The value of ending inventory should be equal to beginning inventory plus total production costs minus cost of goods sold.
Question 17 of 25 4.0 Points
(point) Leverage works best when volume is increasing.
Question 18 of 25 4.0 Points
(point) The percent-of-sales method would be more accurate under a steady sales assumption than cyclical sales.
Question 19 of 25 4.0 Points
If the price per unit decreases because of competition but the cost structure remains the same
A.the breakeven point rises.
B.the degree of combined leverage declines.
C.the degree of financial leverage declines.
D.All of these
Question 20 of 25 4.0 Points
Sales (100,000 units) $ 1,000,000
Variable costs 300,000
Contribution margin 700,000
Fixed manufacturing costs 200,000
Operating income 500,000
Earnings before taxes 425,000
Taxes (30%) 127,500
Net Income $ 297,500
Refer to the figure above. The Degree of Operating Leverage is
Question 21 of 25 4.0 Points
(point) The percent-of-sales method for financial forecasting assumes that balance sheet accounts maintain a constant relationship to sales.
Question 22 of 25 4.0 Points
(point) As the contribution margin rises, the breakeven point goes down.
Question 23 of 25 4.0 Points
(point) In the percent-of-sales method, an increase in dividends
A.will increase required new funds.
B.will decrease required new funds.
C.has no effect on required new funds.
D.more information is needed.
Question 24 of 25 4.0 Points
Which of the following is not true about leverage?
A.operating leverage influences the top half of the income statement, determining EBIT.
B.financial leverage deals with the bottom half of the income statement, determining EPS
C.combined leverage utilizes the entire income statement, showing the impact of change in volume on EBIT.
D.none of these
Question 25 of 25 4.0 Points
The finance department should work independently without the input of other departments because there may be significant biases when creating proformas.
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