Insert the following items in the appropriate section of the Statement of Cash Flows and indicate whether this increases or decreases cash flow:
a Sale of fixed assets $ 75,000
b. Retirement of bonds $100,000
c. Depreciation $125,000
d. Purchase of equipment $165,000
e. Issuance of preferred stock $500,000
Increase
(Decrease)
Cash flow from operating activities:
Cash flow from investing activities:
Cash flow from financing activities:
(One point each)
2. An example of a liquidity ratio would include
a. Inventory turnover ratio
a. Times interest earned
b. Days sales outstanding (DSO)
c. A and C above
d. None of the above
3. What functions does an underwriter serve in a public offering?
a. Consulting and financial advice
b. Buys the issue from the company
c. Places the issue with selected investor groups
d. None of the above
e. All of the above
4. The cash conversion cycle is determined by
a. Receivables collection period plus the inventory conversion period plus the payables deferral period
b. Cash collection period plus receivables conversion period minus the payables deferral period
c. Inventory conversion period plus cash collection period minus the receivables deferral period
d. All of the above
e. None of the above
5. Which of the following statements is true?
a. One of the benefits of incorporating your business is that you become entitled to receive unlimited liability.
b. Sole proprietorships are subject to more regulations than corporations.
c. Sole proprietorships do not have to pay corporate tax.
d. All of the statements above are correct.
e. None of the statements above is correct.
6. The primary goal of a publicly-owned firm interested in serving its stockholders should be to
a. Maximize expected total corporate profit.
b. Maximize expected EPS.
c. Minimize the chances of losses.
d. Maximize the stock price per share.
e. Maximize expected net income.
7. Which of the following are examples of a primary market transaction?
a. A company issues new common stock.
b. A company issues new bonds.
c. An investor asks his broker to purchase 1,000 shares of Microsoft common stock.
d. All of the statements above are correct.
e. Statements a and b are correct.
8. Which of the following statements is most correct?
a. One of the key steps in the development of pro forma financial statements is to identify those assets and liabilities that increase spontaneously with net income.
b. The first, and most critical, step in constructing a set of pro forma financial statements is establishing the sales forecast.
c. Pro forma financial statements as discussed in the text are used primarily to assess a firm's historical performance.
d. The capital intensity ratio reflects how rapidly a firm turns over its assets and is the reciprocal of the fixed assets turnover ratio.
e. The percent of sales method produces accurate results when fixed
assets are lumpy and when economies of scale are present.
9. Which of the following statements is most correct?
a. Many large firms operate different divisions in different industries, and this makes it hard to develop a meaningful set of industry benchmarks for these types of firms.
b. Financial ratios should be interpreted with caution because there exist seasonal and accounting differences that can reduce their comparability.
c. Financial ratios should be interpreted with caution because it may be difficult to say with certainty what is a "good" value. For example, in the case of the current ratio, a "good" value is neither high nor low.
d. Ratio analysis facilitates comparisons by standardizing numbers.
e. All of the statements above are correct.
10. Which of the following is an example of a capital market instrument?
a. Commercial paper.
b. Preferred stock.
c. U. S. Treasury bills.
d. Banker's acceptances.
e. Money market mutual funds.
11. A yield curve is best described by
a. The relationship between interest rates and the time value of money.
b. The relationship between interest rates and time to maturity.
c. Interest yields in relation to the economy.
d. None of the above.