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How was corporate governance in 1990s different from corporate governance in 1980s? A) The 1990s involved more managerial stock ownership than the 1980s B) Decreased importance placed on stock price and management performance C) CEOs had longer tenures during the 1990s compared to the 1980s D) Institutional investors were more active in the 1980s than in the 1990s E) Corporate raiders were more prevalent in the 1990s than in the 1980s 2. Why did Bernard Madoff's Ponzi scheme fall apart? A) He lacked the name recognition to attract investors B) Too many new investors wanted him to manage their portfolios C) His auditor turned him in D) The SEC investigation revealed his scheme E) There was a financial crisis and too many investors withdrew their money 3. What was the outcome due to the corporate governance issues in the 1980s? A) Unfair corporate voting procedures B) Low managerial stock ownership C) Ponzi Schemes D) Hostile Takeovers E) High rates of return 4. The managerial defense mechanism that occurs when a company is targeted for hostile takeover and responds by selling off its prized assets is______. A) Golden Parachutes B) Crown Jewels C) The PacMan defense D) Poison Pill E) Greenmail 5. Which of the following events would reduce a company's cash flow? Event A: Accounts Payable Turnover went from 6.0 to 4.0 Event B: Get $1M loan from a bank Event C: Issued a dividend of $.80 per share Event D: Sold unused office building for $10M Event E: Increase in accounts payable A) Event B B) Event C C) Event A D) Event D E) Event E 6. What is the growth rate for net income between 2012 and 2013? Net income for 2012: $6 million Net income for 2013: $14 million A) 75% B) 133% C) 42% D) 8% E) 57% 7. On a common size balance sheet, Power, Plant and Equipment (PPE) is expressed as a per centage of what value? A) Inventory B) Total Liabilities C) Revenue D) Cash E) Total Assets 8. Which of the following is true of financial statements? A) Depreciation is a source of cash on the cash flow statement B) Retained Earnings is an asset C) Cash flows from investing activities are always positive D) Net income minus COGS equals gross profit E) Liabilities must equal shareholders' equity 9. Calculate the ROE using the DuPont Model (strategic profit model) for a company with the fol lowing data:, Profit margin = 15% Total Asset Turnover = 2.0 Inventory Turnover = 1.2 Equity Multiplier = 0.8 Current Ratio = 1.7 A) 24% B) 18% C) 36% D) 51% E) 6% 10. Which would most likely cause a profitable company to run out of cash? A) Revenue growing faster than net income B) Declining revenues C) High leverage ratios D) Significant depreciation expense as % of sales E) Increase in receivables and inventory 11. Which of the following is TRUE regarding Company 123 given the following information? Current Assets = $250 Fixed Assets = $130 Current Liabilities = $160 Long Term Debt = $120 Revenue = $530 Net Income = $70 A) Debt to Equity Ratio = 0.78 B) Current Ratio = 1.65 C) Shareholders' Equity = $200 D) Return on Equity = 70% E) Asset Turnover = 1.25 12. The Matching Principle in GAAP: A) Matches revenues with profits on the income statement B) Matches sales to inventory shipments C) Matches the expenses related to a sale in the same period D) Matches ROE to a firm's capital investment E) Matches costs of goods sold with the inventory on the balance sheet 13. If investors want to assess how efficient a company is at using its productive resources, they would most likely look at which ratios? A) Profitability ratios B) Liquidity ratios C) Inventory ratios D) Activity ratios E) Leverage ratios 14. Company X made a $14,000 sale and will receive payment 30 days from now. Where is this transaction represented in the balance sheet? A) Revenue B) Cash C) Accounts Payable D) Accounts Receivable E) Unearned Revenue 15. Given the following information, which is ratio is correct? Revenue: $6,000 Operating Profit (EBIT): $1,200 Interest Expense: $350 Net Profit: $500 Total Assets: $8,000 A) Total Asset Turnover = 0.75 B) Net Profit Margin = 6.25% C) Times Interest Earned = 1.43x D) Common Size Interest Expense = 4.4% E) Return on Assets = 15% 16. Given the following information, which is true? Company 1 Current Ratio: 0.8x, Times Interest Earned: 1.3x, Inventory Turnover: 4.0x Company 2 Current Ratio: 2.3x, Times Interest Earned: 5.4x, Inventory Turnover: 3.1x Company 3 Current Ratio: 1.6x, Times Interest Earned: 3.2x, Inventory Turnover: 5.5x A) Company 2 is unable to make interest payments on its debt B) Company 1 is more efficient at managing inventory than Company 2 C) Lenders would view Company 3 as higher risk of default than Company 1 D) Company 2 is the least liquid firm E) Company 1 is the most liquid firm 17. Given the following information, calculate X Company's Gross Profit and Gross Margin. Revenue: $1,000 SG&A: 200 Cost of Goods Sold: $700 Taxes: 30 A) Gross Profit= $70, Gross Margin=7% B) Gross Profit=$300, Gross Margin=7% C) Gross Profit= $300, Gross Margin=30% D) Gross Profit= $70, Gross Margin=30% E) Gross Profit= $100, Gross Margin=10% 18. Which of the following is a cash flow from investing activities A) Issuance of stocks B) Purchase of Property, plant and equipment C) Changes in Accounts Payable D) Payment of loan E) Stock purchase and dividend payout 19. Which of the following is true regarding depreciation methods and deferred taxes? A) The primary source of deferred taxes is from companies' use of accelerated depreciation in reporting net income to the Internal Revenue Service B) Using accelerated depreciation methods for fixed assets provides for higher reported net in come than straight line depreciation C) Companies report lower depreciation and higher net income using accelerated depreciation for fixed assets D) Companies report higher depreciation and net income using straight line depreciation for fixed assets E) The primary source of deferred taxes is companies' use of straight line depreciation when re porting to shareholders 20. Company X signs a long term contract and recognizes the full amount of the contract as rev enue at signing. This is an example of which unethical behavior A) shift expenses to a later period B) recording too much revenue C) income smoothing D) boosting income with one time gain E) recording revenue too soon 21. Given the following, calculate WACC for company XYZ: Total Liabilities/Total Assets: 80% ROE: 15% Debt/Capital: 50% Interest Cost on Debt: 7.0% Cost of Equity: 13.0% Tax Rate: 40.0% A) 5.5% B) 10.0% C) 8.2% D) 8.6% E) 6.0% 22. If a company shifts future costs to the current period (which is a financial shenanigan), what will be the effect on financial ratios (assuming all else is constant)? A) Total assets on the common size balance sheet will be lower B) Times interest earned ratio will be higher in the current period C) Shareholders' Equity on the common size balance sheet will be higher for the current period D) Profit margins in the current period will be lower E) Profits margins in the next period will be lower 23. Which of the following is true regarding capital budgeting? A) The key metrics in evaluating capital budgeting decisions are ROI and cost of capital B) A company should always invest in projects with positive ROI C) An investment to build inventory is an example of a capital budgeting decision D) Capital budgeting is related to the composition of the company's liabilities and equity E) A company should invest in new machinery if it will result in higher profit margins 24. Based on the following, which is true? Company 1 Return on Assets: 12.0%, Net Profit Margin: 5.5%, Debt / Equity: 0.5x Company 2 Return on Assets: 9.2%, Net Profit Margin: 6.7%, Debt / Equity: 3.0x Company 3 Return on Assets: 16.2%, Net Profit Margin: 12.1%, Debt / Equity: 1.3x A) Company 2 is more efficient at generating sales from assets than Company 1 B) Company 2 is the most leveraged firm C) Company 2 is the least leveraged firm D) Company 1 is the worst at generating profits from its assets E) Company 3 is the worst at generating profits from its sales 25. Based on the following, which is true? Company 1 A/R Days: 40, Inventory Days: 10, Payable Days: 30 Company 2 A/R Days: 5, Inventory Days: 30, Payable Days: 10 A) Company 2 has a negative cash conversion cycle, meaning it pays its receives payment from customers before paying suppliers B) Company 2 has a longer operating cycle and cash conversion cycle C) Both companies' have the same cash conversion cycle D) Company 1 has a longer operating but a shorter cycle cash conversion cycle E) Both companies receive payment from customers before paying suppliers 26. Which of the following is true regarding debt and equity financing? A) The primary tradeoff in capital structure decisions is tax savings and financial distress costs of debt B) The disadvantage to equity financing is fixed financing cost of dividends C) As a company uses more equity financing, the value of the firm always increases D) The optimum capital structure is where weighted average cost of capital (WACC) is maxi mized E) A company with a low tax rate has a greater advantage in using debt financing than a com pany with a high tax rate 27. What is one way of the top 5 ways to spot earnings mismanagement? A) Yearoveryear reserves for the company have stayed the same B) Earnings match up perfectly with cash flow C) A company's earnings correlate with their competitors D) Small and infrequent onetime gains E) The growth of a company's earnings is too consistent 28. Which of the following types of companies would you expect to have the highest debt/capital ra tio? A) Consulting Firm B) Social Media Company C) Software Company D) Public Utility E) Pharmaceutical Company 29. Which of the following would result in a company having a HIGHER weighted average cost of capital (WACC)? A) Lower interest rate on debt B) Higher profit margins C) Higher tax rate D) Higher cost of equity E) Lower financial risk of a default on debt 30. Given the following information, calculate WoolridgeCo's Operating Cycle. Revenue: $8,000,000 COGS: $4,000,000 EBIT: $3,000,000 Net Income: $2,000,000 Avg. Inventory: $1,000,000 Avg. Receivables: $800,000 Avg. Payables: $800,000 A) 18 days B) 36 days C) 128 days D) 55 days E) 36 days