Question 1. The corporate document that sets forth the business purpose of a firm is the:

state tax agreement.
corporate bylaws.
articles of incorporation.
indenture contract.
debt charter.

Question 2. Agency costs refer to:

the total dividends paid to stockholders over the lifetime of a firm.
the costs that result from default and bankruptcy of a firm.
the costs of any conflicts of interest between stockholders and management.
the total interest paid to creditors over the lifetime of the firm.
corporate income subject to double taxation.

Question 3. Which one of the following is a capital budgeting decision?

Deciding when to repay a long-term debt
Determining how much debt should be borrowed from a particular lender
Determining how much money should be kept in the checking account
Determining how much inventory to keep on hand
Deciding whether or not to open a new store

Question 4. Which one of the following statements is correct?

Both partnerships and corporations incur double taxation.
Both partnerships and corporations have limited liability for general partners and shareholders.
Both sole proprietorships and partnerships are taxed in a similar fashion.
All types of business formations have limited lives.
Partnerships are the most complicated type of business to form.

Question 5. The rules by which corporations govern themselves are called:

bylaws.
articles of incorporation.
indenture provisions.
indemnity provisions.
charter agreements.

Question 6. The decisions made by financial managers should all be ones which increase the:

financial distress of the firm.
marketability of the managers.
size of the firm.
market value of the existing owners' equity.
growth rate of the firm.

Question 7. The process of planning and managing a firm's long-term investments is called:

working capital management.
capital structure.
capital budgeting.
agency cost analysis.
financial depreciation.

Question 8. A conflict of interest between the stockholders and management of a firm is called:

stockholders' liability.
corporate breakdown.
corporate activism.
legal liability.
the agency problem.

Question 9. Which one of the following assets is generally the most liquid?

patents
equipment
accounts receivable
buildings
inventory

Question 10. Which equality is the basis for the balance sheet?

Assets = Liabilities + Stockholder's Equity
Assets = Current Long-Term Debt + Retained Earnings
None of these
Fixed Assets = Liabilities + Stockholder's Equity
Fixed Assets = Stockholder's Equity + Current Assets

Question 11. _____ refers to the firm's dividend payments less any net new equity raised.

Capital spending
Operating cash flow
Cash flow from creditors
Net working capital
Cash flow to stockholders

Question 12. An increase in total assets:

must be offset by an equal increase in liabilities and shareholders' equity.
can only occur when a firm has positive net income.
means that shareholders' equity must also increase.
means that net working capital is also increasing.
requires an investment in fixed assets.

Question 13. Depreciation:

decreases net fixed assets, net income, and operating cash flows.
is a non-cash expense which increases the net operating income.
increases the net fixed assets as shown on the balance sheet.
is a noncash expense that is recorded on the income statement.
reduces both the net fixed assets and the costs of a firm.

Question 14. _____ refers to the cash flow that results from the firm's ongoing, normal business activities.

Cash flow from operating activities
Capital spending
Net working capital
Cash flow from assets
Cash flow to creditors

Question 15. Liquidity is:

equal to the market value of a firm's total assets minus its current liabilities.
equal to current assets minus current liabilities.
a measure of the use of debt in a firm's capital structure.
valuable to a firm even though liquid assets tend to be less profitable to own.
generally associated with intangible assets.

Question 16. The financial statement summarizing a firm's accounting performance over a period of time is the:

shareholders' equity sheet.
balance sheet.
income statement.
statement of cash flows.
tax reconciliation statement.

Question 17. One of the reasons why cash flow analysis is popular is because:

None of these.
cash flows are more subjective than net income.
it is easy to manipulate, or spin the cash flows.
it is difficult to manipulate, or spin the cash flows.
cash flows are hard to understand.

Question 18. The higher the inventory turnover measure, the:

greater the amount of inventory held by a firm.
faster a firm sells its inventory.
longer it takes a firm to sell its inventory.
lesser the amount of inventory held by a firm.
faster a firm collects payment on its sales.

Question 19. One key reason a long-term financial plan is developed is because:

None of these.
the plan determines your financial policy.
there are direct connections between achievable corporate growth and the financial policy.
the plan determines your investment policy.
there is unlimited growth possible in a well-developed financial plan.

Question 20. If shareholders want to know how much profit a firm is making on their entire investment in the firm, the shareholders should look at the:

equity multiplier.
return on assets.
earnings per share.
profit margin.
return on equity.

Question 21. Financial ratios that measure a firm's ability to pay its bills over the short run without undue stress are known as _____ ratios.

market value
short-term solvency
long-term solvency
profitability
asset management

Question 22. Which one of the following statements is correct concerning ratio analysis?

Ratios do not address the problem of size differences among firms.
A single ratio is often computed differently by different individuals.
Only a very limited number of ratios can be used for analytical purposes.
Ratios cannot be used for comparison purposes over periods of time.
Each ratio has a specific formula that is used consistently by all analysts.

Question 23. Which of the following are liquidity ratios?

I. cash coverage ratio
II. current ratio
III. quick ratio
IV. inventory turnover
I and II only
II, III, and IV only
I, III, and IV only
I, II, III, and IV
II and III only

Question 24. Which one of the following sets of ratios applies most directly to shareholders?

Market-to-book ratio and price-earnings ratio
Quick ratio and times interest earned
Return on assets and profit margin
Price-earnings ratio and debt-equity ratio
Cash coverage ratio and times equity multiplier

Question 25. Which two of the following represent the most effective methods of directly evaluating the financial performance of a firm?

I. comparing the current financial ratios to those of the same firm from prior time periods
II. comparing a firm's financial ratios to those of other firms in the firm's peer group who have similar operations
III. comparing the financial statements of the firm to the financial statements of similar firms operating in other countries
IV. comparing the financial ratios of the firm to the average ratios of all firms located in the same geographic area
II and III only
III and IV only
I and II only
I and III only
I and IV only