BUSINESS FINANCE

First Semester First Long Test

Name _________________________________ Section____________________ Score _________

Direction: True or False

1. Cash flow and risk are the key determinants in share price. Increased risk, other things remaining the
same, results in a lower share price.
2. Profit maximization fails because it does not ignores earnings per share.
3. Profit maximization is concerned with maximizing net income.
4. The Treasurer reports to the Chief Financial Officer.
5. The primary goal of the financial manager is maximizing shareholders’ wealth.
6. The investing decision involves a determination of the total amount of assets needed, the composition
of the assets, and whether any assets need to be reduced, eliminated, or replaced.
7. Access to long term sources of funds will affect the decision of management in paying dividends.
8. Corporate owner's receive realizable return through increase in share price and cash dividends.
9. Financial managers evaluating decision alternatives or potential actions must consider risk, return,
and the impact on share price.
10. The money market is created by a financial relationship between suppliers and users of short-term
funds.
11. Financial management is concerned with the acquisition, financing, and management of assets with
some overall goal in mind.
12. Investing is where to put your excess cash to make it more profitable.
13. Corporate social responsibility implies that the firm should consider issues such as protecting the
consumer, paying fair wages, maintaining fair hiring practices, supporting education, and considering
environmental issues.
14. The wealth of the owners of a corporation is represented by share value.
15. Shareholders’ maximization is the most appropriate goal of the firm.
16. Profit maximization is concerned with the maximization of a firm's earnings after taxes.
17. Profit maximization is concerned more with maximizing net income than the stock price.
18. Profit maximization as the goal of the firm is NOT ideal because profit maximization does not consider
risk.
19. The key variables in the owner wealth maximization process are cash flows and risk.
20. Cash flow and risk are the key determinants in share price. Increased cash flow results in a increase
share price, other things remaining the same.
21. Individuals usually is a net supplier of funds.
22. The money market is created by a financial relationship between suppliers and users of short-term
funds.
23. Firms that require funds from external sources can obtain them from private placement.
24. By definition, the money market involves the buying and selling of short term funds
25. The major securities traded in the capital markets are stocks and bonds
26. Long-term debt instruments used by both government and business are known as bonds.
27. The Statement of Owner’s Equity is prepared before the balance sheet since the amount of owner’s
equity at the end of the period must be reported on the balance sheet.
28. Depreciation and amortization expenses are normally adjusted at the end of an period.
29. Current asset MINUS current liabilities is the Working Capital
30. Current assets DIVIDED BY current liabilities is the Current Ratio.
31. Firms that require funds from external sources can obtain them from financial institutions
32. The major securities traded in the capital markets are stocks and bonds.
33. A life insurance company is one financial intermediary handling individual savings. It receives
premium payments that are placed in loans or investments to accumulate funds to cover future
benefits.
34. The key participants in financial transactions are individuals, businesses, and governments.
Individuals are net suppliers of funds, and businesses are net users of funds.
35. An insurance company is a financial institution.
36. A pension fund is set up so that employees of corporations or governments can receive income after
retirement.
37. A mutual fund is a type of financial intermediary that pools savings of individuals and makes them
available to business and government users. Funds are obtained through the sale of shares.
38. Most businesses raise money by selling their securities in a public offering.
39. Buying the businesses of customers is not a service provided by financial institutions.
40. The quick ratio EXCLUDES inventory.
41. Current Assets are likely to have the reported amounts on the balance sheet being close to their
current value.
42. Profitability refers to the company’s ability to generate earnings. It is one of the most important goals
of businesses.

Use the following information to answer items 43- 44:

At December 31 a company's records show the following information:

Cash 10,000
Accounts Receivable 30,000
Inventory 80,000
 Prepaid Insurance 6,000
Long-Term Assets 200,000
Accounts Payable 30,000
Notes payable due in 10 months 25,000
Wages payable 5,000
Long-term Liabilities 70,000
Stockholders' (Owner's) Equity 196,000

43. The company's working capital is 6,6000.

44. The company's current ratio is 2.1 : 1 .
45. Inventory is PHP150. Accounts payable is PHP450. Cash and accounts receivable total PHP800. The
quick ratio is 1.44
46. If current ratio is 1.7, the total accounts receivable is PHP 23,500 , cash is PHP20,000, inventory is
PHP7,500,and accounts payable is PHP30,000.
47. The Debt to Equity Ratio is 0.39 given that Total Assets = 2247 and Total Owners' Equity = 1613.
48. Gross profit is sales less cost of goods or cost of services.
49. Gross profit margin is can be less than or greater than net profit margin.
50. A business has a decreasing gross profit while, gross margin percentage is constant. The possible
reason could be sales and cost of sales decrease by the same percentage.