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Finance question – 50 questions

Question 1 Question PDQ Corp. has sales of $3,000,000; the firm’s cost of goods sold is $1,425,000; and its total […]

Question 1 Question
PDQ Corp. has sales of $3,000,000; the firm’s cost of goods sold is $1,425,000; and its total operating expenses are $700,000. The firm’s interest expense is $230,000, and the corporate tax rate is 40%. What is PDQ’s tax liability?
Question 1 answers
$258,000
$350,000
$387,000
$645,000
Question 2 text Question 2 Question
Benefits of an organized security exchange include:
Question 2 answers
helping companies raise new capital
establishing and publicizing fair security prices
providing a continuous market
all of the above
Question 3 text Question 3 Question
Roxbury Brothers has sales of $2,250,000; a gross profit of $825,000; total operating costs of $620,000; income taxes of $74,800; and total assets of $995,000. What is Roxbury’s Operating Income Return on Investment?
Question 3 answers
36.67%
14.32%
20.60%
4.99%
Question 4 text Question 4 Question
General partners have unrestricted transferability of ownership, while limited partners must have the consent of all partners to transfer their ownership.
Question 4 answers
True
False
Question 5 text Question 5 Question
Patti Corporation has current assets of $11,400, inventories of $4,000, and a current ratio of 2.6. What is Patti’s acid test ratio?
Question 5 answers
1.69
0.54
0.74
1.35
Question 6 text Question 6 Question
Which of the following has the most significant influence on return on equity?
Question 6 answers
Common dividends
Principal payments
Accruals
Operating income
Question 7 text Question 7 Question
A firm that wants to know if it has enough cash to meet its bills would be most likely to use which kind of ratio?
Question 7 answers
liquidity
leverage
efficiency
profitability
Question 8 text Question 8 Question
Which of the following represents the correct ordering of standard deviation of returns over the period 1926 to 2000 (from highest to lowest standard deviation of returns)?
Question 8 answers
T-bills, long-term corporate bonds, common stocks, Small firm common stocks
small firm common stocks, common stocks, long-term corporate bonds, T-bills
T-bills, common stocks, long-term corporate bonds, small firm common stocks
long-term corporate bonds, T-bills, common stocks, small firm common stocks
Question 9 text Question 9 Question
Which of the following goals of the firm are synonymous (equivalent) to the maximization of shareholder wealth?
Question 9 answers
profit maximization
risk minimization
maximization of the total market value of the firm’s common stock
none of the above
Question 10 text Question 10 Question
The investment banker does not underwrite the securities to be issued in which of the following?
Question 10 answers
initial public offering
primary market transaction
firm commitment
best efforts
Question 11 text Question 11 Question
A “normal” yield curve is ________.
Question 11 answers
Downward sloping.
Downward sloping, then upward sloping.
Upward sloping.
Upward sloping, then downward sloping.
Question 12 text Question 12 Question
If a firm has unused debt capacity and the general level of equity prices is depressed, financial executives will favor the issuance of debt securities over the issuance of new common stock.
Question 12 answers
True
False
Question 13 text Question 13 Question
Savings are generally transferred to business firms by:
Question 13 answers
direct transfer of funds
indirect transfer using the investment banker
indirect transfer using the financial intermediary
all of the above
Question 14 text Question 14 Question
Common stock is the most relied on financing method used by corporations.
Question 14 answers
True
False
Question 15 text Question 15 Question
A Cash Flow Statement can be used to answer a variety of questions. Which of the following would this statement not be likely to answer?
Question 15 answers
Why was money borrowed?
Where did profits go?
What is the current level of inventory?
How was the retirement of debt accomplished?
Question 16 text Question 16 Question
The quick ratio of a firm would be unaffected by which of the following?
Question 16 answers
land held for investment is sold for cash
equipment is purchased, financed by a long-term debt issue
inventories are sold for cash
inventories are sold on a short-term credit basis
Question 17 text Question 17 Question
Which of the following are tax deductible items to a corporation:
Question 17 answers
interest expenses
dividends to common stockholders
dividends to preferred stockholders
None of the above are tax deductible.
Question 18 text Question 18 Question
There is no legal distinction made between the assets of the business and the personal assets of any of the owners in the limited partnership.
Question 18 answers
True
False
Question 19 text Question 19 Question
Which of the following ratios would be the best way to determine how customers are paying for their purchases?
Question 19 answers
Inventory turnover.
Total asset turnover.
Current ratio.
Average collection period.
Question 20 text Question 20 Question
Management may use straight-line depreciation for reporting income to the shareholders while still using an accelerated method for calculating taxable income.
Question 20 answers
True
False
Question 21 text Question 21 Question
Financial intermediaries:
Question 21 answers
offer indirect securities
include the national and regional stock exchange
usually are underwriting syndicates
constitute the various secondary markets
Question 22 text Question 22 Question
“The markets are quick and the prices are right” describes a market that is:
Question 22 answers
effervescent
effective
efficient
effluent
Question 23 text Question 23 Question
All risk is not equal because:
Question 23 answers
Some can be diversified away and some cannot
Some risk is free while some is not
Some risk is too small to be considered
None of the above
Question 24 text Question 24 Question
DuPont analysis indicates that the return on assets equals the return on equity when total assets equals common equity.
Question 24 answers
True
False
Question 25 text Question 25 Question
In making financial decisions, the relevant tax rate is the:
Question 25 answers
marginal tax rate.
average (effective) tax rate.
previous year’s tax rate.
maximum allowable tax rate.
Question 26 text Question 26 Question
Margin requirements are set by:
Question 26 answers
the Chairman of the Federal Reserve.
the Board of Governors of the Federal Reserve.
the Secretary of the Treasury
the Securities and Exchange Commission
Question 27 text Question 27 Question
Based on the information in the table, calculate the after tax cash flow from operations for 2002 (no assets were disposed of during the year, and there was no change in interest payable or taxes payable):
Jones Company
Financial Information
December 2001 December 2002
Net income $1,500 $3,000
Accounts receivable 750 750
Accumulated depreciation 1,125 1,500
Common stock 4,500 5,250
Paid-in capital 7,500 8,250
Retained earnings 1,500 2,250
Accounts payable 750 750
Question 27 answers
$3,750
$3,375
$3,000
$2,250
Question 28 text Question 28 Question
The quick ratio of a firm would be increased by which of the following?
Question 28 answers
land held for investment is sold for cash
equipment is purchased, financed by a long-term debt issue
inventories are sold for cash
inventories are sold in exchange for a long-term note
both a and c above
Question 29 text Question 29 Question
Advantages of private placements do not include which of the following:
Question 29 answers
more financing flexibility
lower flotation costs
investor protection through extensive regulation
funds which are available more quickly than through a public offering
Question 30 text Question 30 Question
PDQ Corp. has sales of $3,000,000; the firm’s cost of goods sold is $1,425,000; and its total operating expenses are $700,000. The firm’s interest expense is $230,000, and the corporate tax rate is 40%. The firm paid dividends to preferred stockholders of $30,000, and the firm distributed $60,000 in dividend payments to common stockholders. What is PDQ’s “Addition to Retained Earnings?”
Question 30 answers
$297,000
$327,000
$387,000
$477,000
Question 31 text Question 31 Question
According to the SEC the correct sequence of events for a security issue is:
Question 31 answers
red herring, final prospectus, registration statement
registration statement, red herring, final prospectus
final prospectus, registration statement, red herring
red herring, registration statement, final prospectus
Question 32 text Question 32 Question
A firm has after-tax cash flow from operations equal to $100,000. Operating working capital increased by $20,000, and the firm purchased $30,000 of fixed assets. The firm’s free cash flow (asset perspective) was:
Question 32 answers
$50,000
$90,000
$110,000
$150,000
None of the above
Question 33 text Question 33 Question
A firm may use a capital loss to offset a capital gain in the current year only.
Question 33 answers
True
False
Question 34 text Question 34 Question
If a company’s average collection period is lower than the industry average, then the company may be:
Question 34 answers
offering credit terms to its customers that are too stringent
allowing its customers too much time to pay their bills
too tough in collecting its accounts
both a and c above
Question 35 text Question 35 Question
Byron, Inc. has total current assets of $800,000; total current liabilities of $450,000; long-term assets of $300,000; and long-term debt of $200,000. How much is the firm’s total equity?
Question 35 answers
$1,150,000
$ 150,000
$ 450,000
$ 750,000
Question 36 text Question 36 Question
The Securities and Exchange Commission is responsible for setting margin requirements.
Question 36 answers
True
False
Question 37 text Question 37 Question
Which of the following is not a deductible business expense for income tax purposes?
Question 37 answers
Cost of goods sold.
Dividends.
Depreciation.
Interest.
Question 38 text Question 38 Question
The corporation is a legal entity separate from it owners; thus it is possible for the corporation to continue even upon the death of one or more shareholders.
Question 38 answers
True
False
Question 39 text Question 39 Question
Which of the following relationships is true regarding the costs of issuing the following securities?
Question 39 answers
common stock > bonds > preferred stock
preferred stock > common stock > bonds
bonds > common stock > preferred stock
common stock > preferred stock > bonds
Question 40 text Question 40 Question
Byron, Inc. has total current assets of $800,000; long-term debt of $200,000; total current liabilities of $450,000; and long-term assets of $300,000. How much is the firm’s net working capital?
Question 40 answers
$ 75,000
$ 15,000
$225,000
$350,000
Question 41 text Question 41 Question
The investment banker does not underwrite the securities to be issued in which of the following?
Question 41 answers
competitive bid purchase
negotiated purchase
commission or best efforts basis
direct sale
Question 42 text Question 42 Question
An advantage of the OIROI ratio is that it:
Question 42 answers
ignores the firm’s financing policies.
uses net income to measure efficiency.
combines total asset turnover and gross profit margin.
simply assumes that a firm is financed 50% by equity and 50% by debt.
Question 43 text Question 43 Question
Which of the following best reflects the mix of corporate securities issued in the U.S.?
Question 43 answers
74% debt, 26% equity
55% debt, 45% equity
45% debt, 55% equity
26% debt, 74% equity
Question 44 text Question 44 Question
The SEC requires registration of a public issue in which of the following circumstances?
Question 44 answers
a railroad bond issue
an issue of commercial paper
a public utility issue
an issue of $5,000,000
Question 45 text Question 45 Question
The procedure by which significant changes may be made to a partnership, such as admission of a new partner or termination of the partnership, are governed by each state so no partnership agreement is needed.
Question 45 answers
True
False
Question 46 text Question 46 Question
In a general partnership there is a distinction between business and personal assets.
Question 46 answers
True
False
Question 47 text Question 47 Question
The effective legal definition of corporation is “an artificial being, invisible, intangible, and existing only in the contemplation of law.”
Question 47 answers
True
False
Question 48 text Question 48 Question
In a typical year, when new funds are being raised, corporate debt markets outweigh corporate equity markets in terms of dollar volume.
Question 48 answers
True
False
Question 49 text Question 49 Question
The U.S. tax system favors ________ as a means of raising capital.
Question 49 answers
common stock
preferred stock
debt
none of the above
Question 50 text Question 50 Question
If an investor is said to be “risk averse” then that investor:
Question 50 answers
cannot be induced to take on any risk.
will only take on additional risk if he/she expects to be compensated in the form of additional return.
will only take on the least risk possible.
is not behaving in a typical manner.

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