* Your assessment is very important for improving the work of artificial intelligence, which forms the content of this project
Midterm 1 MGT 3040C Part I: Each question is worth 2 point, 20 points total 1- In general, the role of the financial manager is to maximize the value of the firm. a. True b. False 2- Two key disadvantages of the proprietorship form of business are difficulty in raising capital and the presence of unlimited personal liability for business debts. a. True b. False 3- On the balance sheet, total assets must always equal total liabilities. The amount remaining is what is used to finance the firm and includes equity and long-term debt. a. True b. False 4- The income statement measures revenue and expenses of the firm over a certain time period. It is always based on accounting data. a. True b. False 5- Interest paid by a corporation is a tax deduction for the paying corporation, but dividends paid are not deductible. This treatment, other things held constant, tends to encourage the use of debt financing by corporations. a. True b. False 6- Determining whether a firm’s financial position is improving or deteriorating requires analysis of more than one set of financial statements. Cross sectional analysis is one method of measuring a firm’s performance over time. a. True b. False 7- The current ratio and inventory turnover ratio measure the liquidity of a firm. The current ratio measures the relationship of a firm’s current assets to its current liabilities and the inventory turnover ratio measures how rapidly a firm turns its inventory back into a “quick” asset or cash. a. True b. False 8- If a firm has high current and quick ratios, this is always a good indication that a firm is managing its liquidity position well. a. True b. False 9- Generally, firms with high profit margins have high asset turnover rates, and firms with low profit margins have low turnover rates; this result is exactly as predicted by the extended Du Pont equation. a. True b. False 10- The greater the number of compounding periods within a year, the greater the future value of a lump sum invested today, and the greater the present value of a given lump sum to be received in the future. a. True b. False Part II: Each question is worth 2 points, 20 points total. 11- The management of the firm’s short-term assets and liabilities is called: a. b. c. d. e. Capital budgeting. Capital structure. Agency cost analysis. Financial depreciation. Working capital management. 12- Which of the following is an advantage of ownership of a corporation compared to that of a sole proprietorship? a. b. c. d. e. The owners of the corporation have unlimited liability for the firm’s debts. It is the simplest to start. The corporation has an unlimited life. Dividends received by the corporation’s shareholders are tax-exempt. It is more difficult to transfer ownership in a corporation. 13- The purchase and sale of securities after the original issuance occurs in the: a. b. c. d. e. Dealer market. Auction market. Primary market. Secondary market. Liquidation market. 14- Balance sheet assets ___________________________. I. are always equal to total liabilities minus shareholders’ equity II. represent items acquired with the use of the firm’s assumed liabilities and equity III. are listed in order of increasing liquidity a. b. c. d. e. I only II only III only I and III only II and III only 15- Which of the following financial statement items is generally considered the most liquid? a. b. c. d. e. Inventory Net fixed assets Long-term debt Patents and trademarks Accounts receivable 16- In 2005, Sensicon Inc. experienced negative cash flow from assets. It must be the case that: a. b. c. d. e. The company is in financial distress. Cash flow to creditors and cash flow to shareholders are both negative. Sensicon’s interest payments were greater than its dividend payments. Sensicon’s dividend payments were greater than its interest payments. Operating cash flow was less than the combination of additions to net working capital and net new capital expenditures. 17- Ratios that measure the firm’s financial leverage are known as: a. b. c. d. e. Asset management ratios. Short-term solvency ratios. Debt management ratios. Profitability ratios. Market value ratios. 18- All else constant, return on equity will increase if the ______________________. a. b. c. d. e. profit margin decreases return on assets increases debt-equity ratio decreases accounts receivable turnover increases total asset turnover decreases 19- In words, what does an equity multiplier of 2 mean? a. b. c. d. e. Each dollar in equity the firm has supports $2 in assets. Each dollar in assets the firm owns is supported by $2 in equity. Each dollar in assets the firm owns is supported by $4 in equity. Each dollar in equity the firm has supports fifty cents in assets. Each dollar in assets the firm owns is supported by $2 in debt. 20- The amount an investment is worth after one or more periods of time is the ____________. a. b. c. d. e. principal value present value future value compound interest rate simple interest rate Part III: Each question is worth 5 points, 60 points total. Use the following information to answer questions 21 through 24 During the year 2005, the Yung.com had sales of $3000, cost of goods sold of $1000, depreciation of $300, and interest paid of $850. The tax rate is 34% and all taxes are paid currently. Assume Yung.com has 100 shares of common stock outstanding at the end of 2005. Total dividends paid were $250. At year-end 2004, Yung.com had notes payable of $4200, accounts payable of $2000, long-term debt of $8000, and equity of $7500. Corresponding entries for 2005 are $5000, $2500, $9000, and $9500. Asset values are below. 2004 2005 Current Assets Cash Marketable securities Accounts receivable Inventory $ 800 1200 2200 5500 $ 700 1400 3000 6900 Fixed Assets Net plant & equipment $12000 $14000 During the year 2005 Yung.com sold $1689 worth of stock. 21- What is Yung.com’s EPS and dividends per share for 2005? 22- What is Yung.com’s operating cash flow and net capital spending for 2005? 23- What is Yung.com’s cash flow to shareholders for 2005? 24- What is Yung.com’s cash flow from assets for 2005? Use the following information to answer questions 25 & 26 COOGAN DEVELOPMENT CO., INC. Balance Sheet as of December 31, 2005 2005 Assets Current Assets Cash Accounts Receivable Inventory Total Fixed Assets Net plant and equipment Total assets Liabilities and Owners’ Equity Current liabilities Accounts payable Notes payable Total Long-term debt Owners’ equity Common stock and paid-in surplus Retained earnings Total Total liabilities and equity $ 3,000 6,000 14,500 $23,500 51,500 $75,000 $ 3,600 6,400 $10,000 $27,000 16,500 21,500 $38,000 $75,000 25- Compute the total debt ratio, debt/equity ratio, and equity multiplier from the 2005 financial statement data. 26- Compute the current ratio, quick ratio, and cash ratio from the 2005 financial statement data. 27- A firm has an ROA of 8%, sales of $100, and total assets of $75. What is its profit margin? 28- A firm has sales of $500, total assets of $300, and a debt/equity ratio of 2. If its return on equity is 15%, what is its net income? 29- You are offered an investment that requires you to put up $5,000 today in exchange for $12,000 15 years from now. What is the annual rate of return on this investment? 30- What is the future value of $25,000 received today if it is invested at 6.5% compounded annually for six years? 31- How much would you have to invest today at 8% compounded annually to have $25,000 available for the purchase of a car four years from now? 32- You can earn 4.8% annually at your bank. If you deposit $1,200 today, how long must you wait until your account has grown to $2,500?