Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Johnson, Inc. has just ended the calendar year making a sale in the amount of $10,000 of merchandise purchased during the year at a total cost of $7,000. Although the firm paid in full for the merchandise during the year, it has yet to collect at year end from the customer. The net profit and cash flow from this sale for the year are A) $3,000 and $7,000, respectively . B) $3,000 and – $7,000, respectively . C) $3,000 and $10,000, respectively. D) $7,000 and – $3,000, respectively. 2) A firm has just ended its calendar year making a sale in the amount of $150,000 of merchandise purchased during the year at a total cost of $112,500. Although the firm paid in full for the merchandise during the year, it has yet to collect at year end from the customer. The net profit and cash flow from this sale for the year are A) $37,500 and – $112,500, respectively . B) $37,500 and – $150,000, respectively. C) $0 and $150,000, respectively. D) $150,000 and $112,500, respectively. TRUE/FALSE. Write ‘T’ if the statement is true and ‘F’ if the statement is false. 3) Dividend payments change directly with changes in earnings per share. F MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 4) The primary goal of the financial manager is A) minimizing risk. B) maximizing profit. C) minimizing return. D) maximizing wealth. 5) A financial manager must choose between three alternative investments. Each asset is expected to provide earnings over a three – year period as described below. Based on the wealth maximization goal, the financial manager would Year Asset 1 Asset 2 Asset 3 1 $21,000 $ 9,000 $15,000 2 15,000 15,000 15,000 3 9,000 21,000 15,000 $ 45,000 $45,000 $45,000 A) choose Asset 1. B) choose Asset 2. C) choose Asset 3. D) be indifferent between Asset 1 and Asset 2. 6) The ________ provides a financial summary of the firm’s operating results during a specified period. A) statement of cash flows B) balance sheet C) income statement D) statement of retained earnings 7) Earnings available to common shareholders are defined as net profits A) before taxes. B) after taxes minus common dividends. C) after taxes. D ) after taxes minus preferred dividends. 8) A firm had the following accounts and financial data for 2005. Sales Revenue $3,060 Cost of goods sold $1,800 Accounts Receivable 500 Preferred stock dividends 18 Interest expense 126 Tax rate 40% Total oper. expenses 600 Number of shares of common 1,000 Accounts payable 240 stocks outstanding The firm’s earnings available to common shareholders for 2005 were ________. A) $302.40 B) $516.60 C) $195.40 D) – $224.25 ESSAY. Write your answer on a separate sheet of paper. 9) At the end of 2005, the Long Life Light Bulb Company announced it had produced a gross profit of $1 million. The company has also established that over the course of this year it has incurred $345,000 in operating expenses and $125,000 in interest expenses. The company is subject to a 30% tax rate and has declared $57,000 total preferred stock dividends. (a) How much is the earnings available for common stockholders? (b) Compute the increased retained earnings for 2005 if the company were to declare a $4.25 common stock dividend. The company has 15,000 shares of common stock outstanding. MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 10) The two basic measures of liquidity are A) inventory turnover and current ratio. B) current ratio and total asset turnover. C) gross profit margin and ROE. D) current ratio and quick ratio. 11) As a firm’s cash flows become more predictable, A) the return on equity should increase. B) the current ratio should expand. C) current liabilities should decrease . D) current assets should decrease. 12) If Nico Corporation has annual purchase…
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