Finance Quiz

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 1.| Question :| Li Retailing reported the following items for the current year: Sales = $3,000,000; Cost of Goods Sold = $1,500,000; Depreciation Expense = $170,000; Administrative Expenses = $150,000; Interest Expense = $30,000; Marketing Expenses = $80,000; and Taxes = $300,000; Li's operating profit margin is equal to|

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 | Student Answer:| | 25.67% |
 | | | 35.67% |
 | | | 36.67% |
 | | | 50.00%
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 | Instructor Explanation:| Operating Profit Margin = EBIT/Sales = $1,100,000/$3,000,000 = 36.67% AACSB: Analytic skills|
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 | Points Received:| 0 of 1 |
 | Comments:| |
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 2.| Question :| Corporation B reported earnings per share of $10. Corporation B has 100,000 shares of common stock outstanding and reported an increase in owners equity of $400,000 for the period. Corporation B paid $50,000 in interest expense during the period. Corporation B paid dividends per share of|

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 | Student Answer:| | $6.00. |
 | | | $5.50. |
 | | | $6.50. |
 | | | $14.003. |
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 | Points Received:| 0 of 1 |
 | Comments:| |
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 3.| Question :| Which of the following statements is most correct concerning flotation costs?|
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 | Student Answer:| | flotation costs are the same for common stock, preferred stock and bonds because they reflect mainly printing costs and legal fees. |  | | | flotation costs are generally higher for bonds rather than stocks because the dollar amounts involved are much higher, allowing for economies of scale |  | | | flotation costs as a percentage of gross proceeds increase as the size of the security issue increases |  | | | flotation costs are higher for common stocks than for preferred stocks and bonds due to the higher level of risk associated with owning common stock | |

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 | Points Received:| 1 of 1 |
 | Comments:| |
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 4.| Question :| During the period 1984 to 2008, the average yield on 3-Month U.S. Treasury bills was 4.76%, the average inflation rate was 2.97%, the average yield on 30-year Treasury bonds was 6.89%, and the average return on 30-year Aaa-Rated Corporate Bonds was 7.73%. The real risk-free short-term interest rate is|

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 | Student Answer:| | 1.79%. |
 | | | 2.13%. |
 | | | 2.97%. |
 | | | 4.76%. |
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 | Points Received:| 1 of 1 |
 | Comments:| |
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 5.| Question :| A firm paid dividends of $10,000, paid interest of $20,000, reduced debt principal outstanding (paid off debt) in the amount of $100,000, and sold new stock for $150,000. What was the firm's cash flow from financing activities?|

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 | Student Answer:| | +$20,000 ($20,000 flowed into the firm) |  | | | -$20,000 ($20,000 flowed out of the firm) |
 | | | +$280,000 ($280,000 flowed into the firm) |
 | | | -$280,000 ($280,000 flowed out of the firm) |
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 | Points Received:| 1 of 1 |
 | Comments:| |
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 6.| Question :| PDQ Corp. has sales of $4,000,000; the firm's cost of goods sold is $2,500,000; and its total operating expenses are $600,000. What is PDQ's EBIT?|
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 | Student Answer:| | $850,000 |
 | | | $875,000 |
 | | | $900,000 |
 | | | $1,300,000 |
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 | Points Received:| 1 of 1 |
 | Comments:| |
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 7.| Question :| Net working capital is equal to|
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 | Student Answer:| | total assets minus total liabilities. |  | | | current assets minus total liabilities. |
 | | | total operating capital minus net income. |
 | | | current assets minus current liabilities. |
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 | Points Received:| 1 of 1 |
 | Comments:| |
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 8.| Question :| What was the average annual rate of return on 3-month U.S. Treasury bills during the period 1984 to 2008?|
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 | Student Answer:| | 3.84% |
 | | | 4.23% |
 | | | 4.76% |
 | | | 5.68% |
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