1. The goal of financial management is to: A. Maximize shareholders' wealth (current stock price) B. Maximize profits C. Maximize market share D. All of the above are equivalent 2. Retained earnings: a. includes common stock, paid in surplus and long-term debt. b. on a balance sheet is equivalent to the market value of the outstanding shares of stock. c. includes all of a firm's earnings not paid out as dividends by the firm to date. d. increases, all else equal, when the dividends paid are greater than the net income for a year. e. includes the book value of any bonds issued by the firm. 3. PDQ has forecast total assets of $23M and total liabilities and equity of $25M. Which of the following is true? (Hope you were paying attention) a. PDQ has a negative profit margin b. PDQ will need external financing of $2M. c. PDQ will have $2M more financing than it anticipates needing d. PDQ will likely revise its forecast dividend downward by $2M e. PDQ will reduce its asset forecast by $2M to make the balance sheet balance. 4. Advantages of the corporate form of ownership in the U.S. include: A. Double taxation. B. The agency problem. C. Limited Liability. D. All of the above. E. None of the above. 5. Accounts receivable is typically considered to be: a. A discretionary financing source b. A spontaneous financing source c. A discretionary asset d. A spontaneous asset 6. Which of the following actions will improve a firm's liquidity? (You are welcome) a. issuing new stock to increase cash b. calling (pre-paying) outstanding bonds c. paying a dividend to stockholders d. investing in new plant and equipment 7. A firm currently has $600 in debt for every $1,000 in equity. Assume the firm uses some of its cash to decrease its debt while maintaining its current equity and net income. Which one of the following will decrease as a result of this action? Hint: Start with what you have been given...Debt and equity A. equity multiplier B. total asset turnover C. profit margin D. return on assets E. return on equity 8. If shareholders want to know how much profit a firm is making on their entire investment in the firm, the shareholders should look at the: a. profit margin. b. return on assets. c. return on equity. d. equity multiplier. 9. You are getting ready to prepare pro forma statements for your business. Which one of the following are you most apt to need estimated first as you begin this process? A. fixed assets B. current expenses C. sales forecast D. projected net income E. external financing need 10. The formula which breaks down the return on equity into three component parts is referred to as which one of the following? A. equity equation B. profitability determinant C. SIC formula D. Du Pont identity E. equity performance formula
