Unit # 1 – Accounting and Finance
1. A convertible bond is one which
a. can be exchanged for shares of stock
b. may be called ahead of maturity date by the issuer
c. has a maturity less than 90 days
d. makes no coupon payments and is initially priced at a deep discount
2. The Statement of Cash Flows addresses
a. assets, liabilities, and equity
b. dividends and retained earnings
c. operating, investing, and financing activities
d. working capital and float
3. The cash flow for three investments are:
Which of these has the highest present value?
4. Opportunity cost is
a. cost which has already been incurred and cannot be recovered b. the value of the best alternative foregone when a choice is made between two investments c. the cost incurred by the next unit of production
d. the difference between book value and market value for an asset
5. The constant growth model (or “dividend discount model”) of stock valuation is based upon the premise that a. the value of a stock is purely a function of supply and demand conditions in the market b. a stock’s dividends are inherently more valuable than a bond’s interest payments c. a company with a healthy cash flow will generally reduce its dividends over time d. the value of a stock is the present value of the future dividends
6. When using Net Present Value (NPV) to make an investment decision, a project is acceptable if NPV is a. Equals zero (modified)
b. Equals the desired rate of return.
c. Greater than zero.
d. Less than zero.
7. Absorption costing is required to be used for financial accounting because a. It is the simplest cost allocation method
b. It is required by the tax laws
c. It was the first method developed
d. It is required by GAAP
Use the following information to answer the next three questions: JKL Pet Supplies wants to add a new type of dog collar to its product line. The following data apply to the new line.
$5 per unit
$3 per unit
30,000 units per year
$10,000 per year
8. The break-even point in units for the new line is
9. The margin of safety in units is
10. How many units must JKL sell to make a profit of $50,000 on the new product? a. 2,000 units
b. 10,000 units
c. 20,000 units
d. 30,000 units
11. Ending retained earnings is reported on the statement of retained earnings. It is calculated by taking beginning retained earnings and a. adding net income and dividends
b. adding net assets and subtracting total liabilities
c. adding net income and subtracting dividends
d. adding in common stock and dividends
12. The primary objective of just-in-time inventory delivery for a manufacturer is to a. increase the cost of capital
b. reduce the cost of inventory
c. decrease the use of warehouse space
d reduce the amount of scrap cost
13. Which of the following ratios is associated with the receivables period of the cash cycle? a. debt to equity ratio
b. average collection period
c. accounts payable turnover
d. current ratio
Use the following information to answer the next three questions OPQ Company has the capacity to produce 10,000 fax machines per year. OPQ currently produces and sells 7,000 units per year. The fax machines normally sell for $100 each. VWX Products has offered to buy 2,000 fax machines from OPQ for $60 each. Variable costs associated with manufacturing the fax machines are $15 each for direct labor and $40 each for direct materials. Fixed costs are $115,000.
14. What is OPQ's current profit (net income) before this order? a. $115,000
15. How much would profit increase (decrease) if OPQ accepted this...
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