Finc534 Chap 1-5 Quiz

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Chapter 1:
1. Which of the following statements is CORRECT?
a. One of the disadvantages of a sole proprietorship is that the proprietor is exposed to unlimited liability.
2. Which of the following would be most likely to lead to higher interest rates on all debt securities in the economy?
d. Corporations step up their expansion plans and thus increase their demand for capital. 3. Which of the following statements is CORRECT?
d. Both Nasdaq "dealers" and NYSE “specialists” hold inventories of stocks. 4. Which of the following statements is CORRECT?
e. The potential exists for agency conflicts between stockholders and managers. 5. Which of the following statements is NOT CORRECT?
b. “Going public” establishes a firm's true intrinsic value, and it also insures that a highly liquid market will always exist for the firm’s shares.
Chapter 2:
1. Which of the following statements is CORRECT?
c. If a firm is more profitable than average (e.g., Google), we would normally expect to see its stock price exceed its book value per share.

2. Which of the following statements is CORRECT?
d. The statement of cash flows reflects cash flows from operations and from borrowings, but it does not reflect cash obtained by selling new common stock.

3. Which of the following statements is CORRECT?
e. If a company pays more in dividends than it generates in net income, its retained. earnings as reported on the balance sheet will decline from the previous year's balance.

4. Last year Roussakis Company’s operations provided a negative net cash flow, yet the cash shown on its balance sheet increased. Which of the following statements could explain the increase in cash, assuming the company’s financial statements were prepared under generally accepted accounting principles?

d. The company sold some of its fixed assets.

5. Bartling Energy Systems recently reported $9,250 of sales, $5,750 of operating costs other than depreciation, and $700 of depreciation. The company had no amortization charges, it had $3,200 of outstanding bonds that carry a 5% interest rate, and its federal-plus-state income tax rate was 35%. In order to sustain its operations and thus generate sales and cash flows in the future, the firm was required to make $1,250 of capital expenditures on new fixed assets and to invest $300 in net operating working capital. By how much did the firm's net income exceed its free cash flow?

c. $746.00

Chapter 3:
1. Which of the following statements is CORRECT?
a. The ratio of long-term debt to total capital is more likely to experience seasonal fluctuations than is either the DSO or the inventory turnover ratio.

2. Companies HD and LD have the same tax rate, sales, total assets, and basic earning power. Both companies have positive net incomes. Company HD has a higher debt ratio and, therefore, a higher interest expense. Which of the following statements is CORRECT? e. Company HD has a lower times interest earned (TIE) ratio.

3. Companies HD and LD have the same total assets, sales, operating costs, and tax rates, and they pay the same interest rate on their debt. However, company HD has a higher debt ratio. Which of the following statements is CORRECT?

b. Company LD has a higher basic earning power ratio (BEP).

4.The new CFO thinks that inventories are excessive and could be lowered sufficiently to cause the current ratio to equal the industry average, 2.70, without affecting either sales or net income. Assuming that inventories are sold off and not replaced to get the current ratio to the target level, and that the funds generated are used to buy back common stock at book value, by how much would the ROE change?

b. 4.50%

5. Quigley Inc. is considering two financial plans for the coming year. Management expects sales to be $301,770, operating costs to be $266,545, assets to be $200,000, and its tax rate to be 35%. Under Plan A it would use 25% debt and 75% common equity. The interest rate on the debt...
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