1. Which of the following statements concerning the cash flow production cycle is true?
a) The profits reported in a given time period equal the cash flows generated.
b) A company’s operations and finances are independent of each other.
c) Financial statements have nothing to do with reality
d) The movement of cash to inventory, to accounts receivable, and back to cash is know as the firm’s working capital cycle
e) A profitable company will always have sufficient cash to meet its obligations
2. Which one of the following is a source of cash
a) increase in accounts receivable
b) decrease in notes payable
c) decrease in common stock
d) increase in inventory
e) increase in accounts payable
3. Which one of the following is a use of cash
a) increase in notes payable
b) increase in inventory
c) increase in long term debt
d) decrease in accounts receivable
e) increase in common stock
4. The book value of a firms is:
a) equivalent to a firm’s market value provided that the firm has some fixed assets
b) based on historical costs
c) generally greater than the market value when fixed assets are included
d) more of a financial than an accounting valuation
e) adjusted to the market value whenever the market value exceeds the stated book value
South Inc. ($ in millions)
2010 2011
net sales 296 364
cost of good sold 168 223
depreciation 51 61
net income 32 45
finished goods in inv 34 29
accounts receivable 47 87
accounts payable 39 44
net fixed assets 404 482
year end cash balance 186 123
5. During 2011, how much cash in millions did South collect from sales?
a) 364
b) 277
c) 404
d) 324
e) 451
f) none of the above
6. JM Case Inc. has a market value of $5million with 500,000 shares outstanding. The book value of its equity is $1,750,000. If the company repurchases 20% of its shares in the stock market, what will be the book value of equity if all else remains the same?
a) $750,000
b) $1,250,000
c) $1,000,000
d) $1,400,000
e) $4,000,000
f) none of the above
7. Ratios that measure how efficiently a firm manages its assets and operations to generate ne income are referred to as --------- ratios.
a) asset turnover and control
b) financial leverage
c) coverage
d) profitability
e) none of the above
Plumbridge Co. ( selected financial data)
2011 2012
sales 160,835 274,219
cost of goods sold 141,829 209,628
net income (91,432) (257,981)
cash from operations (35,831) (12,538)
Balance Sheet
Cash 236,307 164,952
Marketable securities 209,670 22,638
Accounts receivable 12,645 21,655
Inventories 3,971 40,556
Total current assets 462,593 249,801
Accounts payable 17,735 13,962
Accrued liabilities 27,184 76,596
Total current liabilities 44,919 90,558
8. The current ratio at the end of 2012 for Plumbridge is:
a) 10.21
b) 2.31
c) 2.76
d) 10.30
e) none of the above
9. Assume a 365 day year for your calculations. The inventory turnover, based on cost of goods sold at the end of 2012 for Plumbridge is:
a) 5.2
b) 24.3
c) 28.8
d) 35.7
e) non of the above
10. You are estimating your company’s external financial needs for next year. At the end of the year you expect that owners’ equity will be $80 million, total asset will amount to $170 million, and total liabilities will be $70 million. How much will your firm need to borrow, or otherwise acquire, from outside sources during the year?
a) $20 million
b) $70 million
c) $150 million
d) $160 million
e) $180 million
f) none of the above
11. To estimate Missed Place Inc. (MP) external financial needs, the CFO needs to figure out how much equity her firm will have at the end of next year. At the end of the most recent fiscal year, MP’s retained earnings were $158,000. The Controller has estimated that over the next year, gross profits will be $360,700, earnings after tax will total $23,400, and MP will pay $12,400 in dividends. What are the estimated retained earnings at the end of next year.
a) $169,000
b) $170,400
c) $181,400
d) $506,300
e) $518,700
12. Cavan Co. expects sales of $560, $650, $670, and $610 for the months of May through August respectively. The firm collects 20 percent of sales in the month of sale and 70 percent in the month following the month of sale and 8 percent in the second month following the month of sale. The remaining 2 percent of sales is never collected. How much money does the firm expect to collect in the month of August?
a) $621
b) $628
c) $633
d) $639
e) $643
13. LL Music expects sales of $437,500 next year. The profit margin is 4.8 percent and the firm has a 30 percent dividend payout ratio. What is the projected increase in retained earnings?
a) $14,700
b) $17,500
c) $18,300
d) $20,600
e) $21,000
f) none of the above
14. Bern Inc. has a 4.5 percent profit margin and a 15 percent dividend payout ratio. The asset turnover ratio is 1.6 and the assets-to- equity ratio (using beginning-of-period equity) is 1.77. What is the sustainable rate of growth?
a) 1.91
b) 6.12
c) 10.83
d) 11.26
e) 12.74
f) none of the above
15. At the end of fiscal year 2011, KBL Inc., stock price was $30.75. A year later it was $34.88. Per share dividends over the year were $0 .55, while earnings per share were 41.33. What rate of return did the common stock owners earn in fiscal year 2012?
a) 1.79%
b) 4.33%
c) 13.43%
d) 15.22%
e) 17.76%
f) none of the above