Question 1: The firm's price-earnings (P/E) ratio is influenced by its

A. capital structure
B. earnings volatility
C. sales, profit margins, and earnings
D. all of these

Question 2: 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: Total assets of a firm are financed with liabilities and stockholders' equity

A. True
B. False

Question 4: 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: The higher the profit of a firm, the higher the value the firm is assured of receiving in the market

A. True
B. False

Question 6: Ratios are used to compare different firms in the same industry

A. True
B. False

Question 7: 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

Question 8: Which of the following is not subtracted out in arriving at operating income?

A. interest expense
B. cost of goods sold
C. depreciation
D. selling and administrative expense

Question 9: Which of the following is not a primary source of capital to the firm?

A. assets
B. common stock
C. preferred stock
D. bonds

Question 10: 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: Debt utilization ratios are used to evaluate the firm's debt position with regard to its asset base and earning power.

A. True
B. False

Question 12: A firm with earnings per share of $3 and a price-earnings ratio of 20 will have a stock price of

A. $60.00
B. $15.00
C. $6.67
D. the market assigns a stock price independent of EPS and the P/E ratio.

Question 13: The P/E ratio is strongly related to the past performance of the firm

A. True
B. False

Question 14: 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

Question 15: Agency theory assumes that corporate managers act to increase the wealth of corporate shareholders

A. True
B. False

Question 16: Preferred stock is excluded from stockholders equity because it does not have full voting rights

A. True
B. False

Question 17: Sales minus cost of goods sold is equal to earnings before taxes

A. True
B. False

Question 18: 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: The P/E ratio provides no indication of investors' expectations about the future of a company

A. True
B. False

Question 20: Asset utilization ratios relate balance sheet assets to income statement sales

A. True
B. False

Question 21: Financial markets exist as a vast global network of individuals and financial institutions that may be lenders, borrowers, or owners of public companies worldwide.

A. True
B. False

Question 22: Which of the following is an outflow of cash?

A. profitable operations
B. the sale of equipment
C. the sale of the company's common stock
D. the payment of cash dividends

Question 23: 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:

A. 40%
B. 12%
C. 20%
D. 25%

Question 24: The income statement is the major device for measuring the profitability of a firm over a period of time.

A. True
B. False

Question 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 bond