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Test Bank for Quiz-2 FINA252 Financial Management ========================================= A firm’s financial statement, that summarizes its sources and uses of cash over a specified period, is known as a(n): A. profit and loss statement B. accounting standard C. statement of cash flows D. balance sheet 1. 2. Activities of the firm that generate cash are known as: A. uses of cash B. sources of cash C. application of cash D. cash receipts 3. Activities of the firm in which cash is spent are known as: A. uses of cash B. sources of cash C. application of cash D. uses of cash or application of cash A summary of a firm’s financial position on a given date is known as ________. A. statement of cash flows from assets B. statement of operating profits C. statement of working capital D. balance sheet 4. 5. Which of the following assets would be considered the most liquid? A. a new automobile B. inventory C. debtors D. cash 6. The difference between the total value of assets and the total value of liabilities is the ________. A. net cash flows B. net working capital C. shareholders’ equity D. operating profit 7. A debt that is not due in the coming year is classified as a(n) ________. A. indirect liability B. direct liability C. non-current liability D. current liability 8. Cash flow from assets is equal to: A. cash flow to debt holders plus cash flow to shareholders B. cash flow to debt holders less cash flow to shareholders C. cash flow to debt holders only D. cash flow to shareholders only 9. Assets are classified as ________. A. tangible and intangible B. current and fixed (non-current) C. cash and accounts receivable D. direct and indirect The difference between a firm’s current assets and current liabilities is called: A. accounting profits B. excess profits C. net working capital D. both accounting profits and net working capital 10. Which of the following would be considered a current asset on a firm’s balance sheet? A. accounts receivable B. inventory C. plant and machinery D. both accounts receivable and inventory 11. 12. The value of a firm’s assets is equal to the sum of its liabilities and: A. liquidity B. operating cash flows C. retained earnings D. shareholders’ equity 13. The liabilities side of the balance sheet primarily reflects managerial decisions about ________. A. the use of debt alone B. the capital structure C. the owner’s equity D. capital structure and the use of debt 14. The values shown on the balance sheet for the firm’s assets are ________ and generally are not what the assets are actually worth. A. discounted values B. intrinsic values C. book values D. market values 15. Which of the following does not appear in the balance sheet? A. good management B. talented employees C. good reputation D. all of the above ________ refers to the cash flow that results from the firm’s normal business activities. A. Cash flow from assets B. Operating cash flow C. Working capital D. Capital spending 16. ________ refers to a firm’s interest payments to lenders, less net new borrowings. A. Capital spending B. Additions to net working capital C. Cash flows to shareholders D. Cash flows to debt holders 17. 18. ________ refers to a firm’s dividend payments to shareholders, less net new equity raised. A. Capital spending B. Additions to net working capital C. Cash flows to shareholders D. Cash flows to debt holders 19. ________ refers to a firm’s ending net working capital, less beginning net working capital. A. Net capital spending B. Change in net working capital C. Cash flows to shareholders D. Cash flows to debt holders 20. ________ refers to a firm’s ending non-current assets, less beginning noncurrent assets, plus depreciation. A. Net capital spending B. Change in net working capital C. Cash flows to shareholders D. Cash flows to debt holders 21. A. B. C. D. Uses of funds include a (an): decrease in cash increase in any liability increase in fixed assets tax refund 22. A. B. C. D. An examination of the sources and uses of funds statement is part of: a forecasting techniques a funds flow analysis a ratio analysis calculations for preparing the balance sheet. 23. A. B. C. D. For a profitable firm, total sources of funds will always funds. be equal to be greater than be less than none of the above 24. A. B. C. D. In finance, "working capital" means the same thing as total assets fixed assets current assets current assets minus current liabilities 25. A. B. C. D. Which of the following items can be found on an income statement? Accounts receivable Long-term debt Sales Inventory 26. If you only knew a company’s total assets and total debt, which item could you easily calculate? Sales Depreciation Total equity Inventory A. B. C. D. total uses of TRUE and FALSE 1. The market value and the book value are always the same. True or False? A. True B. False (correct answer: Market value could be equal or more or less than the book value) 2. Revenues + Expenses (costs) = Profit. True or False? A. True B. False (correct answer: Revenue – expenses (costs)= profit) 3. Inventory is often the least liquid current asset. True or False? A. True B. False 4. EBIT (Earnings before interest and taxes) = Sales (revenue) – cost of goods sold (expenses) + depreciation. True or False? A. True B. False correct answer: (– depreciation) 5. Net profits = EBIT + interest – taxes. True or False? A. True B. False correct answer: (– interest) 6. Cash flow from assets = cash flow to debt-holders + cash flow to shareholders. True or False? A. True B. False A summary of a firm’s revenues and expenses over a specified period is called balance sheet. True or False? A. True B. False correct answer: (Income statement) 7. cash flow from the firm’s assets is equal to the cash flow paid to suppliers of capital to the firm. True or False? A. True B. False 8. 9. Cash flow to debt-holders = Interest paid – net new equity. True or False? A. True B. False correct answer: (net new borrowing) Cash flow to share-holders = Dividends paid – net new equity. True or False? A. True B. False 10. 11. Petro Rabigh had operating cash flow equal to $352.00 for 2015. If its earnings before interest and taxes (EBIT) was $400.00 while its tax bill was $108.00, Petro Rabigh’s depreciation expense for the year was $960.00. True or False? A. True B. False correct answer: $60.00 [Operating Cash Flow = EBIT - Taxes + Depreciation 352.00 = 400.00 – 108.00 + Depreciation Depreciation = 60.00] 12. Petro-Rabigh’s had sales (revenue) is $1420.00 for 2015. If its costs of goods sold was $960.00 while its depreciation was $60.00. Petro Rabigh’s operation cash flow for this year is $1420.00. True or False? A. True B. False correct answer: $352.00 [Operating Cash Flow = EBIT - Taxes + Depreciation = 400.00 – 108.00 + 60.00] The formula (EBIT – Taxes + Depreciation) use to calculate operating cash flow. True or False? A. True B. False 13. Petro-Rabigh’s had non-current assets $1970.00 for 2014 and $2200.00 for 2015, while its depreciation was $60.00. Petro Rabigh’s net capital spending for this year is $2200.00. True or False? A. True B. False correct answer: $290.00 [Net capital spending = ending noncurrent assets – beginning noncurrent assets + Depreciation = 2200.00 – 1970.00 + 60.00] 14.