Explore BrainMass
Share

Multiple Choice and True and False Finance Questions

This content was STOLEN from BrainMass.com - View the original, and get the already-completed solution here!

True/False: Write "T' if the statement is true and "F" is the statement is false.

1. The focus of DuPont analysis is to provide management information as to how the firm is using its resources to maximize returns on owners' investments.

2. The financial manager should examine available risk-return trade-offs and make his decision based upon the greatest expected return.

3. When fixed expenses increase relative to sales, it indicates that there is not enough productive capacity to absorb an increase in sales.

4. We can use the present value of an annuity formula to calculate constant annual loan payments.

5. Working capital for a project includes investment in fixed assets.

6. Capital structure represents the mix of long-term sources of funds used by a firm.

7. Corporate profits play a part in the choice firms make between using internal versus external capital.

8. Business risk refers to the relative dispersion of the firm's earnings available to common stockholders.

9. The hedging principle involves matching the cash flow from an asset with the cash flow requirements of the financing used.

10. Accounts receivable are an asset that reflects sales made on credit.

Multiple Choice: Choose the one alternative that best completes the statement or answers the question)

11. If you were given the components of current assets and of current liabilities, what ratio (s) could you compute?
a. Quick ratio
b. Average collection period
c. Current ratio
d. Both a and c
e. All of the above

12. Purchases of plant and equipment can be determined from the:
a. current cash budget
b. previous period's balance sheet
c. pro forma income statement
d. use of ratio analysis

13. An increase in _________ would increase the weighted average cost of capital.
a. flotation costs
b. projected dividends
c. the tax rate
d. both a and c
e. all of the above
14. Financial intermediaries:
a. offer indirect securities
b. include insurance companies
c. usually are underwriting syndicates
d. both a and b
e. all of the above

15. Which of the following is considered a source of spontaneous financing?
a. Trade credit
b. Inventories
c. Accounts payable
d. Both a and c

Multiple Choice: Choose the one alternative that best completes the statement or answers the question.
16. Your firm is trying to determine its cash disbursements for the next two months (June and July). In any month, the firm makes purchases of 60% of that month's sales, which are paid the following month. In addition, the firm incurs the following costs every month and pays for them in the month the expenses are incurred: wages and salaries of $10,000, rent of $4,000, and miscellaneous cash expenses of $1,000. Depreciation amortized on a monthly basis is $2,000. June's sales are expected to be $100,000, and July's sales are expected to be $150,000. Cash disbursements for the month of July are expected to be:
a. $105,000
b. $107,000
c. $77,000
d. $75,000

17. Regal Enterprises is considering the purchase of a new embroidering machine. It is expected to generate additional sales of $400,000 per year. The machine will cost $295,000, plus $3,000 to install it. The embroider will save $12,000 in labor expenses each year. Regal is in the 34% income tax bracket. The machine will be depreciated on a straight-line basis over five years (it has no salvage value). The embroiderer will require annual operating expenses of $136,000. What is the annual operating cash flow that the machine will generate?
a. $316,954
b. $124,000
c. $202,424
d. $165,816

18. Based on the information in Table 1, which is the contribution margin?
Table 1
Average selling price per unit $16.00
Variable cost per unit $12.00
Units Sold 200,000
Fixed costs $800,000
Interest expense $50,000

a. $5.00
b. $4.00
c. $3.00
d. $2.00

19. Smart and Smiley Incorporated has an average collection period of 74 days. What is the accounts receivable turnover ratio for Smart and Smiley? You may use a 360-day year.
a. 4.86
b. 2.47
c. 2.66
d. 1.68

20. Use the following information to answer the questions. As of December 31, Budget, Inc. had a cash balance of $50,000. December sales were $150,000 and are expected to be $100,000 in January. 20% of sales in any month are cash sales, and 80% of sales are collected during the following month. In January, Budget is expected to have total cash disbursements of $120,000, and Budget requires a minimum of cash balance of $50,000. Budget's expected cash receipts for January are:
a. $80,000
b. $100,000
c. $110,000
d. $140,000

21. The present value of $1,000 to be received at the end of five years, if the discount rate is 10%, is:
a. $621
b. $784
c. $614
d. $500

22. ZZZ Corp. ended the day with a cleared balance in its bank account of $7,000. The company deposited $50,000 in checks received from customers the next day. It wrote checks to its suppliers the same day that totaled $20,000. If $14,000 of the firm's deposited checks have cleared by the end of the third day but only $8,000 of its checks to suppliers have cleared, what is its "float"?
a. $14,000
b. $28,000
c. $36,000
d. $41,000

Problems:
23. Table 1

Hokie Corporation Comparative Balance Sheet
For the Years Ending March 31, 1995 and 1996
(Millions of Dollars)

Assets 1995 1996
Current assets:
Cash $2.00 $10
Accounts Receivable 16 10
Inventory 22 26
Total current assets $40 $46
Gross fixed assets $120 $124
Less accumulated depreciation 60 64
Net fixed assets 60 60
Total assets $100 $106
Liabilities and Owners' Equity
Current liabilities:
Accounts payable $16 $18
Notes payable 10 10
Total current liabilities $26 $28
Long-term debt 20 18
Owners' equity
Common stock 40 40
Retained earnings 14 20
Total liabilities and owners' equity $100 $106

Hokie had net income of $26 million for 1996 and paid total cash dividends of $20 million to their common stockholders.

Calculate the following financial ratios for the Hokie Corporation using the information given in Table 1 and 1996 information.

a. current ratio
b. acid-test ratio
c. debt ratio
d. long-term debt to total capitalization
e. return on total assets
f. return on common equity

24. The following is an analytical income statement for the Swill & Spoon, a fine dining establishment:
Sales $150,000
Variable costs 90,000
Revenue before fixed costs $60,000
Fixed costs 35,000
EBIT $25,000
Interest expenses $10,000
Earning before taxes $15,000
Taxes (.34) 5,100
Net income 9,900

a. Calculate the degree of operating leverage at this output level.
b. Calculate the degree of financial leverage at this level of EBIT
c. What is the degree of combined leverage?

© BrainMass Inc. brainmass.com October 25, 2018, 1:43 am ad1c9bdddf
https://brainmass.com/business/weighted-average-cost-of-capital/multiple-choice-and-true-and-false-finance-questions-272344

Attachments

Solution Preview

Please see the attached word document for a better formatted solution

True/False: Write "T' if the statement is true and "F" is the statement is false.

1. The focus of DuPont analysis is to provide management information as to how the firm is using its resources to maximize returns on owners' investments. True

2. The financial manager should examine available risk-return trade-offs and make his decision based upon the greatest expected return. False

3. When fixed expenses increase relative to sales, it indicates that there is not enough productive capacity to absorb an increase in sales. True

4. We can use the present value of an annuity formula to calculate constant annual loan payments. True

5. Working capital for a project includes investment in fixed assets. False

6. Capital structure represents the mix of long-term sources of funds used by a firm. True

7. Corporate profits play a part in the choice firms make between using internal versus external capital. True

8. Business risk refers to the relative dispersion of the firm's earnings available to common stockholders. False

9. The hedging principle involves matching the cash flow from an asset with the cash flow requirements of the financing used. True

10. Accounts receivable are an asset that reflects sales made on credit. True

Multiple Choice: Choose the one alternative that best completes the statement or answers the question)

11. If you were given the components of current assets and of current liabilities, what ratio (s) could you compute?
a. Quick ratio
b. Average collection period
c. Current ratio
d. Both a and c
e. All of the above

12. Purchases of plant and equipment can be determined from the:
a. current cash budget
b. previous period's balance sheet
c. pro forma income statement
d. use of ratio ...

Solution Summary

The solution is in a word document answering True and False, Multiple Choice as well as Ratio Calculation Problems

$2.19
See Also This Related BrainMass Solution

10 Multiple Choice questions regarding finance.

1. If an individual investory buys and sells existing stocks through a broker, these are primary market transactions.

a. True
b. False

2. A call provision gives bondholders not bond issuers the right to demand, or "call for," repayment of a bond. Typically, calls are exercised if interest rates rise, because when rates rise the bondholder can get the principal amount back and reinvest it elsewhere at higher rates.

a. True
b. False

3. Although common stock represents a riskier investment to an individual than do bonds, in the sense of exposing the firm to the risk of bankruptcy, bonds represent a riskier method of financing to a corporation than does common stock.

a. True
b. False

4. Preferred stockholders have priority over common stockholders with respect to earnings. Dividends must be paid on preferred stock before they can be paid on common stock. In exchange for this priority to dividends, preferred stockholders give up their priority claims to common stockholders in the event of bankruptcy.

a. True
b. False

5. An investor purchased a call option that allows her to purchase 100 shares of Dell Computer common stock for $45 per share any time during the next six months. The price she paid for the option was $2.50 per share, or $250 total, and the current market price of Dell's stock is $42.50. If the price of Dell increases to $50 and the investor decides to exercise it, what will the gain or loss that results from the option position that was held? Ignore taxes and commissions, but include the cost of the option.

a. $500 gain
b. $250 loss
c. $750 gain
d. $250 gain

6. Investment bankers are not really like commercial "bankers" in the sense of taking deposits and issuing loans; rather, they help firms issue securities in the secondary market and their activities are limited to raising new equity capital.

a. True
b. False

7. Finances places primary emphasis on cash flows, the inflow and outflow of cash and not accounting income.

a. True
b. False

8. The marginal tax rate (not average tax rate) represents the rate at which additional income is taxed.

a. True
b. False

9. Assume that the expectations theory holds and that liquidity and maturity risk premiums are zero. If the annual rate of interest on a 2-yr Treasury bond is 10.5% and the rate on a 1 yr Treasury bond in 12%, what rate of interest should you expect on a 1-year Treasury bond one yr from now?

a. 9.0%
b. 9.5%
c. 10.0%
d. 10.5%

10. Which of the following powers or tools of Federal Reserve monentary policy has the greatest impact on the money supply?

a. Discount rate
b. Regulation Q
c. Open market operations

View Full Posting Details