Points Awarded 58.

50

Points Missed 31.50

Percentage 65.0%

1. The person generally directly responsible for overseeing the cash and credit functions, financial
planning, and capital expenditures is the:

A) treasurer.

B) director.

C) controller.

D) chairman of the board.

E) chief operations officer.

Points Earned: 4.5/4.5

Correct Answer(s): A

2. Financial managers should strive to maximize the current value per share of the

existing stock because:

A) doing so guarantees the company will grow in size at the maximum possible rate.

B) doing so increases the salaries of all the employees.

C) the current stockholders are the owners of the corporation.

D) doing so means the firm is growing in size faster than its competitors.
E) the managers often receive shares of stock as part of their compensation.

Points Earned: 4.5/4.5

Correct Answer(s): C

3. A(n) ____ asset is one which can be quickly converted into cash without significant loss in value.

A) current

B) fixed

C) intangible

D) liquid

E) long-term

Points Earned: 0.0/4.5

Correct Answer(s): D

4. Depreciation:

A) is a noncash expense that is recorded on the income statement.

B) increases the net fixed assets as shown on the balance sheet.

C) reduces both the net fixed assets and the costs of a firm.

D) is a non-cash expense which increases the net operating income.

E) decreases net fixed assets, net income, and operating cash flows.

Points Earned: 4.5/4.5

Correct Answer(s): A

5. Dividends per share is equal to dividends paid:

A) divided by the par value of common stock.

B) divided by the total number of shares outstanding.

C) divided by total shareholders’ equity.

D) multiplied by the par value of the common stock.

E) multiplied by the total number of shares outstanding.

Points Earned: 4.5/4.5

Correct Answer(s): B

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

A) determining how much debt should be borrowed from a particular lender

B) deciding whether or not to open a new store

C) deciding when to repay a long-term debt

D) determining how much inventory to keep on hand

E) determining how much money should be kept in the checking account

Points Earned: 0.0/4.5

Correct Answer(s): B

7. A business owned by a single individual is called a:

A) corporation.

B) sole proprietorship.

C) general partnership.

D) limited partnership.

E) limited liability company.

Points Earned: 4.5/4.5

Correct Answer(s): B
 8. A business created as a distinct legal entity composed of one or more individuals or entities is called
a:

A) corporation.

B) sole proprietorship.

C) general partnership.

D) limited partnership.

E) unlimited liability company.

Points Earned: 0.0/4.5

Correct Answer(s): A

9. Net working capital is defined as:

A) total liabilities minus shareholders’ equity.

B) current liabilities minus shareholders’ equity.

C) fixed assets minus long-term liabilities.

D) total assets minus total liabilities.

E) current assets minus current liabilities.

Points Earned: 4.5/4.5

Correct Answer(s): E
 10. Agency costs refer to:

A) the total dividends paid to stockholders over the lifetime of a firm.

B) the costs that result from default and bankruptcy of a firm.

C) corporate income subject to double taxation.

D) the costs of any conflicts of interest between stockholders and management.

E) the total interest paid to creditors over the lifetime of the firm.

Points Earned: 4.5/4.5

Correct Answer(s): D

11. Recently, the owner of Martha’s Wares encountered severe legal problems and is trying to sell her
business. The company built a building at a cost of $1.2 million that is currently appraised at $1.4
million. The equipment originally cost $700,000 and is currently valued at $400,000. The inventory is
valued on the balance sheet at $350,000 but has market value of only one-half of that amount. The
owner expects to collect 95 percent of the $200,000 in accounts receivable. The firm has $10,000 in cash
and owes a total of $1.4 million. The legal problems are personal and unrelated to the actual business.
What is the market value of this firm?

A) $575,000

B) $775,000

C) $950,000

D) $1,150,000

E) $1,175,000
Points Earned: 9.0/9.0

Correct Answer(s): B

12. Brad’s Co. has equipment with a book value of $500 that could be sold today at a 50 percent
discount. Their inventory is valued at $400 and could be sold to a competitor for that amount. The firm
has $50 in cash and customers owe them $300. What is the accounting value of their liquid assets?

A) $50

B) $350

C) $700

D) $750

E) $1,000

Points Earned: 9.0/9.0

Correct Answer(s): D

13. Tim’s Playhouse paid $155 in dividends and $220 in interest expense. The addition to retained
earnings is $325 and net new equity is $50. The tax rate is 25 percent. Sales are $1,600 and depreciation
is $160. What are the earnings before interest and taxes?
A) $480

B) $640

C) $860

D) $1,020

E) $1,440

Points Earned: 0.0/9.0

Correct Answer(s): C

14. Your firm has net income of $198 on total sales of $1,200. Costs are $715 and depreciation is $145.
The tax rate is 34 percent. The firm does not have interest expenses. What is the operating cash flow?

A) $93

B) $241

C) $340

D) $383

E) $485

Points Earned: 9.0/9.0

Correct Answer(s): D
 15. Teddy’s Pillows has beginning net fixed assets of $480 and ending net fixed assets of $530. Assets
valued at $300 were sold during the year. Depreciation was $40. What is the amount of net capital
spending?

A) $10

B) $50

C) $90

D) $260

E) $390

Points Earned: 0.0/9.0

Correct Answer(s): C