Business: Time Value of Money and Income Statement

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Financial Management Mock Midterm
Name___________________________________

1) Which of the following organization forms accounts for the greatest number of firms? A) Limited PartnershipB) "S" Corporation
C) "C" CorporationD) Sole Proprietorship
Section: 1.1 The Four Types of Firms

2) The person charged with running the corporation by instituting the rules and policies set by the board of directors is called A) the Company President.B) the Chief Operating Officer.
C) the Chief Executive Officer.D) the Chief Financial Officer. Section: 1.2 Ownership Versus Control of Corporations

3) You overhear your manager saying that she plans to book an Ocean-view room on her upcoming trip to Miami for a meeting. You know that the interior rooms are much less expensive, but that your manager is traveling at the Company's expense. This use of additional funds is best described as: A) a publicity problem.B) an agency problem.

C) an adverse selection problem.D) a moral hazard.
Section: 1.2 Ownership Versus Control of Corporations

4) What is the role of an auditor in financial statement analysis?

Section: 2.1 The Disclosure of Financial Information

5) An agency problem can be alleviated by:
A) requiring all firms to be sole proprietorships.
B) compensating managers in such a way that acting in the best interest of shareholders is also in the best interest of managers. C) asking managers to take on more risk than they are comfortable taking. D) A and B.

Section: 1.2 Ownership Versus Control of Corporations

6) Accounts payable is a
A) Current Asset.B) Long-term Asset.
C) Current Liability.D) Long-term Liability.
Section: 2.2 The Balance Sheet

7) Dustin's Donuts experienced a decrease in the value of the trademark of a company it acquired two years ago. This reduction in value results in A) an impairment charge.B) goodwill.
C) depreciation expense.D) an operating expense.
Section: 2.2 The Balance Sheet

Use the following information for ECE incorporated:

Assets$200 million
Shareholder Equity$100 million
Sales$300 million

8) If ECE's stock is currently trading at $24.00 and ECE has 25 million shares outstanding, then ECE's market-to-book ratio is: Section: 2.3 Balance Sheet Analysis

9) Which of the following statements regarding the income statement is incorrect? A) The last or "bottom" line of the income statement shows the firm's net income. B) The first line of an income statement lists the revenues from the sales of products or services. C) The income statement shows the earnings and expenses at a given point in time. D) The income statement shows the flow of earnings and expenses generated by the firm between two dates. Section: 2.4 The Income Statement

10) Which of the following is not an operating expense?
A) Depreciation and amortizationB) Interest expense
C) Selling, general and administrative expensesD) Research and development Section: 2.4 The Income Statement

Use the table for the question(s) below.

Consider the following income statement and other information:

Luther CorporationConsolidated Income StatementYear ended December 31 (in $ millions)| | 2009| 2008|
Total sales| 610.1| 578.3|
Cost of sales| (500.2)| (481.9)|
Gross profit| 109.9| 96.4|
Selling, general, and administrative expenses| (40.5)| (39.0)| Research and development| (24.6)| (22.8)|
Depreciation and amortization| (3.6)| (3.3)|
Operating income| 41.2| 31.3|
Other income| ---| ---|
Earnings before interest and taxes (EBIT)| 41.2| 31.3|
Interest income (expense)| (25.1)| (15.8)|
Pre-tax income| 16.1| 15.5|
Taxes| (5.5)| (5.3)|
Net income| 10.6| 10.2|
| | |
Price per share| $16| $15|
Shares outstanding (millions)| 10.2| 8.0|
Stock options outstanding (millions)| 0.3| 0.2|
| | |
Stockholders' Equity| 126.6| 63.6|
Total Liabilities and Stockholders' Equity| 533.1|...
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