1 The primary goal of the management of a publicly traded corporation should be to ____________.

a. create jobs

b. promote social good

c. maximize profits

d. maximize shareholder wealth

e. minimize risk

2. In conducting a common-size analysis, every income statement item is divided by __________ and every balance sheet account is divided by __________.

a. its corresponding base year balance sheet item; its corresponding base year income statement item.

b. its corresponding base year income statement item; its corresponding base year balance sheet item.

c. net sales or revenues; total assets.

d. total assets; total liabilities and equity.

e. total assets; net sales or revenues.

3. __________ is an accounting statement that lists a companys assets, liabilities and equity. The statement is a stock measure that displays these account values at a specific point in time.

a. The income statement

b. The balance sheet

c. The statement of cash flows

d. The sources and uses statement

e. None of the above

4. According to the textbook, finance is divided into three separate subject areas. Two of the subject areas of finance are Corporate Financial Management and Financial Markets and Institutions. The third subject area of finance is:

a. International Trade

b. Banking

c. Accounting

d. Microeconomics

e. None of the above

5. Which of the following are items/accounts that typically appear on a balance sheet?

a. net sales, cost of goods sold, retained earnings

b. cash, accounts receivable, inventories

c. net sales, inventories, notes payable

d. net sales, depreciation expense, advertising expense

e. cash, depreciation expense, taxes

6. Which of the following would directly affect (either increase or decrease) net cash flow from operating activities (assuming all else remains constant)? Note: there more be more than one answer for this questions record the letter of all that apply (this is an all or nothing answer).

a. An increase in dividends paid.

b. A decrease in accounts receivable.

c. A decrease in notes payable (i.e., bank loans).

d. An increase in inventory.

e. An increase in accounts payable.

f. An increase in retained earnings.

g. A decrease in cash.

h. A decrease in gross plant and equipment.

i. An increase in accruals.

7. If a firms net sales (i.e., revenue) increases, but total assets, its debt ratio, and its net profit margin and remain the same as they were before net sales increased, the firms:

a. ROE would not change.

b. ROE could either increase or decrease depending on the interaction between the equity multiplier and the days payable ratio.

c. ROE would increase.

d. ROE would decrease.

e. There is insufficient information to determine the effect on ROE.

8. Which of the following steps is most likely to decrease a companys cash conversion cycle (assume that none of the following actions has any impact on sales or COGS)? Note: there more be more than one answer for this questions record the letter of all that apply (this is an all or nothing answer).

a. Change its receivables policy from net 45 to net 35 (note that this action will decrease the firms average collection period from 45 days to 35 days).

b. Change its payables policy to pay bills in 30 days instead of in 40 days.

c. Decrease the inventory conversion period from 50 days to 40 days.

d. Reduce the firms notes payable (i.e., bank loan) balance by 20%.

e. None of the actions listed above will decrease the firms cash conversion cycle.

9. Which of the following actions would decrease the current ratio (assuming an initial current ratio of 0.8, and current liabilities equal to $1,000,000)?

a. Borrow $100,000 in short term debt and deposit this money (i.e., $100,000) into the firms cash account.

b. Borrow $200,000 in long-term debt to buy $200,000 worth of additional inventory.

c. Borrow $50,000 of short-term debt and use the proceeds to pay all operating expenses sooner, thus lowering accruals (i.e., accrued expenses) by $50,000.

d. Sell $250,000 of fixed assets to pay off an equal amount of long-term debt.

e. None of the above that is, none of the actions listed about will decrease the current ratio.

10. RedCap Manufacturing, Inc. is planning to borrow money by taking out a short term loan (i.e., increase notes payable) and depositing this money directly into the firms checking account (i.e., increase cash). RedCap believes that this event will have no affect on either sales or costs, and therefore no affect on net income.

All else constant, this new policy should cause the firms quick ratio (assuming an initial quick ratio of 1.5) to:

a. Decrease

b. Increase

c. No Change

d. Not enough information is provided to answer this question.

11. BlueHat, Inc. is planning to use excess cash that the company has in its checking account (i.e., reduce cash) to pay off a long term loan balance. (i.e., decrease long-term debt). BlueHat believes that this event will have no affect on either sales or costs, and therefore no affect on net income.

All else constant, this new policy should cause the firms debt ratio (assuming an initial debt ratio of 45%) to:

a. Decrease

b. Increase

c. No Change

d. Not enough information is provided to answer this question.

12. GreenChapeau, Inc. is planning to increase its short-term loans (i.e., increase notes payable) to pay for an increase in the firms basic inventory level (i.e., increase inventory). GreenChapeau believes that this event will have no affect on either sales or costs, and therefore no affect on net income.

All else constant, this new policy should cause the firms current ratio (assuming a current ratio of 0.75) to:

a. Decrease

b. Increase

c. No Change

d. Not enough information is provided to answer this question.