Chapter 1 The Goals and Functions of Financial Management Multiple Choice Questions 1. What is the primary goal of financial management? A) Increased earnings B) Maximizing cash flow C) Maximizing shareholder wealth D) Minimizing risk of the firm 2. The partnership form of organization A) avoids the double taxation of earnings and dividends found in the corporate form of organization. B) usually provides limited liability to the partners. C) has unlimited life. D) simplifies decision making. 3. Increased productivity due to technology has A) increased corporations reliance on debt for capital expansion needs. B) created larger asset values on the firms historical balance sheet. C) made it cheaper (in terms of interest costs) for firms to borrow money. D) helped to keep corporate costs in check. 4. Insider trading occurs when A) someone has information not available to the public which they use to profit from trading in stocks. B) corporate officers buy stock in their company. C) lawyers, investment bankers, and others buy common stock in companies represented by their firms. D) any stock transactions occur in violation of the Federal Trade Commissions restrictions on monopolies. Chapter 2 Review of Accounting 5. When a firms earnings are falling more rapidly than its stock price, its P/E ratio will: A) remain the same B) go up C) go down D) could go either up or down 6. The net worth of a firm A) is usually the same as the firms market value. B) is based on current asset costs. C) is based on current liabilities. D) none of the above. 7. A statement of cash flows allows a financial analyst to determine A) whether a cash dividend is affordable. B) how increases in asset accounts have been financed. C) whether long-term assets are being financed with long-term or short-term financing. D) all of the above 8. A firm has $200,000 in current assets, $400,000 in long-term assets, $80,000 in current liabilities, and $200,000 in long-term liabilities. What is its net working capital? A) $120,000 B) $320,000 C) $520,000 D) none of the above Chapter 3 Financial Analysis Multiple Choice Questions 9. The ______________ method of inventory costing is least likely to lead to inflation-induced profits. A) FIFO B) LIFO C) Weighted average D) Lower of cost or market 10. The Bubba Corp. had net income before taxes of $200,000 and sales of $2,000,000. If it is in the 50% tax bracket its after-tax profit margin is: A) 5% B) 12% C) 20% D) 25% 11. XYZs receivables turnover is 10x. The accounts receivable at year-end are $600,000. The average collection period is 90 days (3 months). What was the sales figure for the year? A) $60,000 B) $6,000,000 C) $24,000,000 D) none of the above 12. A firm has total assets of $2,000,000. It has $900,000 in long-term debt. The stockholders equity is $900,000. What is the total debt to asset ratio? A) 45% B) 40% C) 55% D) none of the above Chapter 4 Financial Forecasting 13. Required production during a planning period will depend on the A) beginning inventory of products. B) sales during the period. C) desired level of ending inventory. D) all of the above 14. XYZ Co. has forecasted June sales of 600 units and July sales of 1000 units. The company maintains ending inventory equal to 125% of next months sales. June beginning inventory reflects this policy. What is Junes required production? A) 1100 units B) -0- units C) 500 units D) 400 units 15. The difference between total receipts and total payments referred to as A) cumulative cash flow. B) beginning cash flow. C) net cash flow. D) cash balance. 16. In developing the pro forma income statement we follow four important steps: 1) compute other expenses, 2) determine a production schedule, 3) establish a sales projection, 4) determine profit by completing the actual pro forma statement. What is the correct order for these four steps? A) 1,2,3,4 B) 4,3,2,1 C) 2,1,3,4 D) 3,2,1,4 Chapter 5 Operating and Financial Leverage 17. In break-even analysis…
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