Finance question – 50 questions

Question 1 Question

PDQ Corp. has sales of $3,000,000; the firm’s cost of goods sold is $1,425,000; and its total operating expenses are $700,000. The firm’s interest expense is $230,000, and the corporate tax rate is 40%. What is PDQ’s tax liability?

Question 1 answers

$258,000

$350,000

$387,000

$645,000

Question 2 text Question 2 Question

Benefits of an organized security exchange include:

Question 2 answers

helping companies raise new capital

establishing and publicizing fair security prices

providing a continuous market

all of the above

Question 3 text Question 3 Question

Roxbury Brothers has sales of $2,250,000; a gross profit of $825,000; total operating costs of $620,000; income taxes of $74,800; and total assets of $995,000. What is Roxbury’s Operating Income Return on Investment?

Question 3 answers

36.67%

14.32%

20.60%

4.99%

Question 4 text Question 4 Question

General partners have unrestricted transferability of ownership, while limited partners must have the consent of all partners to transfer their ownership.

Question 4 answers

True

False

Question 5 text Question 5 Question

Patti Corporation has current assets of $11,400, inventories of $4,000, and a current ratio of 2.6. What is Patti’s acid test ratio?

Question 5 answers

1.69

0.54

0.74

1.35

Question 6 text Question 6 Question

Which of the following has the most significant influence on return on equity?

Question 6 answers

Common dividends

Principal payments

Accruals

Operating income

Question 7 text Question 7 Question

A firm that wants to know if it has enough cash to meet its bills would be most likely to use which kind of ratio?

Question 7 answers

liquidity

leverage

efficiency

profitability

Question 8 text Question 8 Question

Which of the following represents the correct ordering of standard deviation of returns over the period 1926 to 2000 (from highest to lowest standard deviation of returns)?

Question 8 answers

T-bills, long-term corporate bonds, common stocks, Small firm common stocks

small firm common stocks, common stocks, long-term corporate bonds, T-bills

T-bills, common stocks, long-term corporate bonds, small firm common stocks

long-term corporate bonds, T-bills, common stocks, small firm common stocks

Question 9 text Question 9 Question

Which of the following goals of the firm are synonymous (equivalent) to the maximization of shareholder wealth?

Question 9 answers

profit maximization

risk minimization

maximization of the total market value of the firm’s common stock

none of the above

Question 10 text Question 10 Question

The investment banker does not underwrite the securities to be issued in which of the following?

Question 10 answers

initial public offering

primary market transaction

firm commitment

best efforts

Question 11 text Question 11 Question

A “normal” yield curve is ________.

Question 11 answers

Downward sloping.

Downward sloping, then upward sloping.

Upward sloping.

Upward sloping, then downward sloping.

Question 12 text Question 12 Question

If a firm has unused debt capacity and the general level of equity prices is depressed, financial executives will favor the issuance of debt securities over the issuance of new common stock.

Question 12 answers

True

False

Question 13 text Question 13 Question

Savings are generally transferred to business firms by:

Question 13 answers

direct transfer of funds

indirect transfer using the investment banker

indirect transfer using the financial intermediary

all of the above

Question 14 text Question 14 Question

Common stock is the most relied on financing method used by corporations.

Question 14 answers

True

False

Question 15 text Question 15 Question

A Cash Flow Statement can be used to answer a variety of questions. Which of the following would this statement not be likely to answer?

Question 15 answers

Why was money borrowed?

Where did profits go?

What is the current level of inventory?

How was the retirement of debt accomplished?

Question 16 text Question 16 Question

The quick ratio of a firm would be unaffected by which of the following?

Question 16 answers

land held for investment is sold for cash

equipment is purchased, financed by a long-term debt issue

inventories are sold for cash

inventories are sold on a short-term credit basis

Question 17 text Question 17 Question

Which of the following are tax deductible items to a corporation:

Question 17 answers

interest expenses

dividends to common stockholders

dividends to preferred stockholders

None of the above are tax deductible.

Question 18 text Question 18 Question

There is no legal distinction made between the assets of the business and the personal assets of any of the owners in the limited partnership.

Question 18 answers

True

False

Question 19 text Question 19 Question

Which of the following ratios would be the best way to determine how customers are paying for their purchases?

Question 19 answers

Inventory turnover.

Total asset turnover.

Current ratio.

Average collection period.

Question 20 text Question 20 Question

Management may use straight-line depreciation for reporting income to the shareholders while still using an accelerated method for calculating taxable income.

Question 20 answers

True

False

Question 21 text Question 21 Question

Financial intermediaries:

Question 21 answers

offer indirect securities

include the national and regional stock exchange

usually are underwriting syndicates

constitute the various secondary markets

Question 22 text Question 22 Question

“The markets are quick and the prices are right” describes a market that is:

Question 22 answers

effervescent

effective

efficient

effluent

Question 23 text Question 23 Question

All risk is not equal because:

Question 23 answers

Some can be diversified away and some cannot

Some risk is free while some is not

Some risk is too small to be considered

None of the above

Question 24 text Question 24 Question

DuPont analysis indicates that the return on assets equals the return on equity when total assets equals common equity.

Question 24 answers

True

False

Question 25 text Question 25 Question

In making financial decisions, the relevant tax rate is the:

Question 25 answers

marginal tax rate.

average (effective) tax rate.

previous year’s tax rate.

maximum allowable tax rate.

Question 26 text Question 26 Question

Margin requirements are set by:

Question 26 answers

the Chairman of the Federal Reserve.

the Board of Governors of the Federal Reserve.

the Secretary of the Treasury

the Securities and Exchange Commission

Question 27 text Question 27 Question

Based on the information in the table, calculate the after tax cash flow from operations for 2002 (no assets were disposed of during the year, and there was no change in interest payable or taxes payable):

Jones Company

Financial Information

December 2001 December 2002

Net income $1,500 $3,000

Accounts receivable 750 750

Accumulated depreciation 1,125 1,500

Common stock 4,500 5,250

Paid-in capital 7,500 8,250

Retained earnings 1,500 2,250

Accounts payable 750 750

Question 27 answers

$3,750

$3,375

$3,000

$2,250

Question 28 text Question 28 Question

The quick ratio of a firm would be increased by which of the following?

Question 28 answers

land held for investment is sold for cash

equipment is purchased, financed by a long-term debt issue

inventories are sold for cash

inventories are sold in exchange for a long-term note

both a and c above

Question 29 text Question 29 Question

Advantages of private placements do not include which of the following:

Question 29 answers

more financing flexibility

lower flotation costs

investor protection through extensive regulation

funds which are available more quickly than through a public offering

Question 30 text Question 30 Question

PDQ Corp. has sales of $3,000,000; the firm’s cost of goods sold is $1,425,000; and its total operating expenses are $700,000. The firm’s interest expense is $230,000, and the corporate tax rate is 40%. The firm paid dividends to preferred stockholders of $30,000, and the firm distributed $60,000 in dividend payments to common stockholders. What is PDQ’s “Addition to Retained Earnings?”

Question 30 answers

$297,000

$327,000

$387,000

$477,000

Question 31 text Question 31 Question

According to the SEC the correct sequence of events for a security issue is:

Question 31 answers

red herring, final prospectus, registration statement

registration statement, red herring, final prospectus

final prospectus, registration statement, red herring

red herring, registration statement, final prospectus

Question 32 text Question 32 Question

A firm has after-tax cash flow from operations equal to $100,000. Operating working capital increased by $20,000, and the firm purchased $30,000 of fixed assets. The firm’s free cash flow (asset perspective) was:

Question 32 answers

$50,000

$90,000

$110,000

$150,000

None of the above

Question 33 text Question 33 Question

A firm may use a capital loss to offset a capital gain in the current year only.

Question 33 answers

True

False

Question 34 text Question 34 Question

If a company’s average collection period is lower than the industry average, then the company may be:

Question 34 answers

offering credit terms to its customers that are too stringent

allowing its customers too much time to pay their bills

too tough in collecting its accounts

both a and c above

Question 35 text Question 35 Question

Byron, Inc. has total current assets of $800,000; total current liabilities of $450,000; long-term assets of $300,000; and long-term debt of $200,000. How much is the firm’s total equity?

Question 35 answers

$1,150,000

$ 150,000

$ 450,000

$ 750,000

Question 36 text Question 36 Question

The Securities and Exchange Commission is responsible for setting margin requirements.

Question 36 answers

True

False

Question 37 text Question 37 Question

Which of the following is not a deductible business expense for income tax purposes?

Question 37 answers

Cost of goods sold.

Dividends.

Depreciation.

Interest.

Question 38 text Question 38 Question

The corporation is a legal entity separate from it owners; thus it is possible for the corporation to continue even upon the death of one or more shareholders.

Question 38 answers

True

False

Question 39 text Question 39 Question

Which of the following relationships is true regarding the costs of issuing the following securities?

Question 39 answers

common stock > bonds > preferred stock

preferred stock > common stock > bonds

bonds > common stock > preferred stock

common stock > preferred stock > bonds

Question 40 text Question 40 Question

Byron, Inc. has total current assets of $800,000; long-term debt of $200,000; total current liabilities of $450,000; and long-term assets of $300,000. How much is the firm’s net working capital?

Question 40 answers

$ 75,000

$ 15,000

$225,000

$350,000

Question 41 text Question 41 Question

The investment banker does not underwrite the securities to be issued in which of the following?

Question 41 answers

competitive bid purchase

negotiated purchase

commission or best efforts basis

direct sale

Question 42 text Question 42 Question

An advantage of the OIROI ratio is that it:

Question 42 answers

ignores the firm’s financing policies.

uses net income to measure efficiency.

combines total asset turnover and gross profit margin.

simply assumes that a firm is financed 50% by equity and 50% by debt.

Question 43 text Question 43 Question

Which of the following best reflects the mix of corporate securities issued in the U.S.?

Question 43 answers

74% debt, 26% equity

55% debt, 45% equity

45% debt, 55% equity

26% debt, 74% equity

Question 44 text Question 44 Question

The SEC requires registration of a public issue in which of the following circumstances?

Question 44 answers

a railroad bond issue

an issue of commercial paper

a public utility issue

an issue of $5,000,000

Question 45 text Question 45 Question

The procedure by which significant changes may be made to a partnership, such as admission of a new partner or termination of the partnership, are governed by each state so no partnership agreement is needed.

Question 45 answers

True

False

Question 46 text Question 46 Question

In a general partnership there is a distinction between business and personal assets.

Question 46 answers

True

False

Question 47 text Question 47 Question

The effective legal definition of corporation is “an artificial being, invisible, intangible, and existing only in the contemplation of law.”

Question 47 answers

True

False

Question 48 text Question 48 Question

In a typical year, when new funds are being raised, corporate debt markets outweigh corporate equity markets in terms of dollar volume.

Question 48 answers

True

False

Question 49 text Question 49 Question

The U.S. tax system favors ________ as a means of raising capital.

Question 49 answers

common stock

preferred stock

debt

none of the above

Question 50 text Question 50 Question

If an investor is said to be “risk averse” then that investor:

Question 50 answers

cannot be induced to take on any risk.

will only take on additional risk if he/she expects to be compensated in the form of additional return.

will only take on the least risk possible.

is not behaving in a typical manner.

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