Question Bank - MBA 503
Question # 00004271
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Updated on: 11/30/2013 10:43 AM Due on: 12/31/2013
Mba503 Final Exam
Final Exam
Please provide your answers as follows in the Assignment newsgroup (Excel spreadsheet is
preferred):
1. A
2. B
3. B, etc
Chapter 1 The Goals and Functions of Financial Management
Multiple Choice Questions
1. What is the primary goal of financial management?
A) Increased earnings
B) Maximizing cash flow
C) Maximizing shareholder wealth
D) Minimizing risk of the firm
2. The partnership form of organization
A) avoids the double taxation of earnings and dividends found in the corporate form of
organization.
B) usually provides limited liability to the partners.
C) has unlimited life.
D) simplifies decision making.
3. Increased productivity due to technology has
A) increased corporations' reliance on debt for capital expansion needs.
B) created larger asset values on the firm's historical balance sheet.
C) made it cheaper (in terms of interest costs) for firms to borrow money.
D) helped to keep corporate costs in check.
4. Insider trading occurs when
A) someone has information not available to the public which they use to profit from trading in
stocks.
B) corporate officers buy stock in their company.
C) lawyers, investment bankers, and others buy common stock in companies represented by
their firms.
D) any stock transactions occur in violation of the Federal Trade Commissions restrictions on
monopolies.
Chapter 2 Review of Accounting
5. When a firm's earnings are falling more rapidly than its stock price, its P/E ratio will:
A) remain the same
B) go up
C) go down
D) could go either up or down
6. The net worth of a firm
A) is usually the same as the firm's market value.
B) is based on current asset costs.
C) is based on current liabilities.
D) none of the above.
7. A statement of cash flows allows a financial analyst to determine
A) whether a cash dividend is affordable.
B) how increases in asset accounts have been financed.
C) whether long-term assets are being financed with long-term or short-term financing.
D) all of the above
8. A firm has $200,000 in current assets, $400,000 in long-term assets, $80,000 in current
liabilities, and $200,000 in long-term liabilities. What is its net working capital?
A) $120,000
B) $320,000
C) $520,000
D) none of the above
Chapter 3 Financial Analysis
Multiple Choice Questions
9. The ______________ method of inventory costing is least likely to lead to inflation-induced
profits.
A) FIFO
B) LIFO
C) Weighted average
D) Lower of cost or market
10. The Bubba Corp. had net income before taxes of $200,000 and sales of $2,000,000. If it is
in the 50% tax bracket its after-tax profit margin is:
A) 5%
B) 12%
C) 20%
D) 25%
11. XYZ's receivables turnover is 10x. The accounts receivable at year-end are $600,000. The
average collection period is 90 days (3 months). What was the sales figure for the year?
A) $60,000
B) $6,000,000
C) $24,000,000
D) none of the above
12. A firm has total assets of $2,000,000. It has $900,000 in long-term debt. The stockholders
equity is $900,000. What is the total debt to asset ratio?
A) 45%
B) 40%
C) 55%
D) none of the above
Chapter 4 Financial Forecasting
13. Required production during a planning period will depend on the
A) beginning inventory of products.
B) sales during the period.
C) desired level of ending inventory.
D) all of the above
14. XYZ Co. has forecasted June sales of 600 units and July sales of 1000 units. The company
maintains ending inventory equal to 125% of next month's sales. June beginning inventory
reflects this policy. What is June's required production?
A) 1100 units
B) -0- units
C) 500 units
D) 400 units
15. The difference between total receipts and total payments referred to as
A) cumulative cash flow.
B) beginning cash flow.
C) net cash flow.
D) cash balance.
16. In developing the pro forma income statement we follow four important steps:
1) compute other expenses,
2) determine a production schedule,
3) establish a sales projection,
4) determine profit by completing the actual pro forma statement.
What is the correct order for these four steps?
A) 1,2,3,4
B) 4,3,2,1
C) 2,1,3,4
D) 3,2,1,4
Chapter 5 Operating and Financial Leverage
17. In break-even analysis the contribution margin is defined as
A) sales minus variable costs.
B) sales minus fixed costs.
C) variable costs minus fixed costs.
D) fixed costs minus variable costs.
18. Firm A employs a high degree of operating leverage; Firm B takes a more conservative
approach. Which of the following comparative statements about firms A and B is true?
A) A has a lower break-even point than B, but A's profit grows faster after the break-even.
B) A has a higher break-even point than B, but A's profit grows slower after the break-even.
C) B has a lower break-even point than A, but A's profit grows faster after break-even.
D) B has a lower break-even point than A, and profit grows the same rate for both companies
after the breakeven point.
19. Heavy use of long-term debt may be beneficial in an inflationary economy because
A) the debt may be repaid in more "expensive" dollars.
B) nominal interest rates exceed real interest rates.
C) inflation is associated with the peak of a business cycle.
D) the debt may be repaid in "cheaper" dollars.
20. Under which of the following conditions could the overuse of financial leverage be
detrimental to the firm?
A) Stable industry
B) Cyclical demand for the firm's products.
C) Upswing of business cycle.
D) Low interest cost compared to return on assets
Chapter 6 Working Capital and the Financial Decision
21. Risk exposure due to heavy short-term borrowing can be compensated for by
A) carrying highly liquid assets.
B) carrying illiquid assets.
C) carrying longer term, more profitable current assets.
D) carrying more receivables to increase cash flow.
22. When actual sales are greater than forecasted sales
A) inventory will decline.
B) production schedules might have to be revised upward.
C) accounts receivable will rise.
D) all of the above
23. Yield curves change daily to reflect
A) changing conditions in the money and capital markets.
B) new inflation expectations.
C) changing conditions in the overall economy.
D) all of the above.
24. Retail companies like Target and Limited Brands are more likely to have
A) stable sales and earnings per share.
B) cyclical sales but less volatile earnings per share.
C) cyclical sales and more volatile earnings per share.
D) cyclical sales but stable accounts receivable and inventory.
Chapter 7 Current Asset Management
25. When using the economic order quantity model
A) ordering costs increase as the level of inventory increases.
B) carrying costs decrease as the level of inventory increases.
C) costs are minimized when total carrying costs and total ordering costs are equal.
D) none of the above
26. Hedging
A) is a way to protect your accounts receivable position.
B) increases risk.
C) is a legal agreement to buy or sell a financial futures contract.
D) can be carried out with a futures contract.
27. Which of the following is not a true statement about commercial paper?
A) Finance paper is sold directly to the lender by the finance company.
B) Finance paper is also referred to as direct paper.
C) Dealer paper is sold directly to the lender by a finance company.
D) Industrial companies, utility firms or finance companies too small to sell direct paper sell
dealer paper.
28. Which of the following best describes the benefits to the borrower of selling asset backed
securities?
A) Due to the portfolio effect, the borrower can package up low quality accounts receivable and
sell them for a premium price.
B) The borrower trades future cash flows for current cash flows.
C) The asset-backed security is likely to carry a high credit rating of AA or better.
D) b and c are correct.
29. Price Corp. is considering selling to a group of new customers and creating new annual
sales of $70,000. 5% will be uncollectible. The collection cost on these accounts is 3.5% of new
sales, the cost of producing and selling is 80% of sales and the firm is in the 31% tax bracket.
What is the profit on new sales?
A) $5,554.50
B) $9,660.00
C) $7,245.00
D) none of the above.
Chapter 8 Sources of Short-Term Financing
30. Mr. Jones borrows $2,000 for 90 days and pays $35 interest. What is his effective rate of
interest?
A) 9.3%
B) 7.0%
C) 11.7%
D) None of the above
Final Exam
Please provide your answers as follows in the Assignment newsgroup (Excel spreadsheet is
preferred):
1. A
2. B
3. B, etc
Chapter 1 The Goals and Functions of Financial Management
Multiple Choice Questions
1. What is the primary goal of financial management?
A) Increased earnings
B) Maximizing cash flow
C) Maximizing shareholder wealth
D) Minimizing risk of the firm
2. The partnership form of organization
A) avoids the double taxation of earnings and dividends found in the corporate form of
organization.
B) usually provides limited liability to the partners.
C) has unlimited life.
D) simplifies decision making.
3. Increased productivity due to technology has
A) increased corporations' reliance on debt for capital expansion needs.
B) created larger asset values on the firm's historical balance sheet.
C) made it cheaper (in terms of interest costs) for firms to borrow money.
D) helped to keep corporate costs in check.
4. Insider trading occurs when
A) someone has information not available to the public which they use to profit from trading in
stocks.
B) corporate officers buy stock in their company.
C) lawyers, investment bankers, and others buy common stock in companies represented by
their firms.
D) any stock transactions occur in violation of the Federal Trade Commissions restrictions on
monopolies.
Chapter 2 Review of Accounting
5. When a firm's earnings are falling more rapidly than its stock price, its P/E ratio will:
A) remain the same
B) go up
C) go down
D) could go either up or down
6. The net worth of a firm
A) is usually the same as the firm's market value.
B) is based on current asset costs.
C) is based on current liabilities.
D) none of the above.
7. A statement of cash flows allows a financial analyst to determine
A) whether a cash dividend is affordable.
B) how increases in asset accounts have been financed.
C) whether long-term assets are being financed with long-term or short-term financing.
D) all of the above
8. A firm has $200,000 in current assets, $400,000 in long-term assets, $80,000 in current
liabilities, and $200,000 in long-term liabilities. What is its net working capital?
A) $120,000
B) $320,000
C) $520,000
D) none of the above
Chapter 3 Financial Analysis
Multiple Choice Questions
9. The ______________ method of inventory costing is least likely to lead to inflation-induced
profits.
A) FIFO
B) LIFO
C) Weighted average
D) Lower of cost or market
10. The Bubba Corp. had net income before taxes of $200,000 and sales of $2,000,000. If it is
in the 50% tax bracket its after-tax profit margin is:
A) 5%
B) 12%
C) 20%
D) 25%
11. XYZ's receivables turnover is 10x. The accounts receivable at year-end are $600,000. The
average collection period is 90 days (3 months). What was the sales figure for the year?
A) $60,000
B) $6,000,000
C) $24,000,000
D) none of the above
12. A firm has total assets of $2,000,000. It has $900,000 in long-term debt. The stockholders
equity is $900,000. What is the total debt to asset ratio?
A) 45%
B) 40%
C) 55%
D) none of the above
Chapter 4 Financial Forecasting
13. Required production during a planning period will depend on the
A) beginning inventory of products.
B) sales during the period.
C) desired level of ending inventory.
D) all of the above
14. XYZ Co. has forecasted June sales of 600 units and July sales of 1000 units. The company
maintains ending inventory equal to 125% of next month's sales. June beginning inventory
reflects this policy. What is June's required production?
A) 1100 units
B) -0- units
C) 500 units
D) 400 units
15. The difference between total receipts and total payments referred to as
A) cumulative cash flow.
B) beginning cash flow.
C) net cash flow.
D) cash balance.
16. In developing the pro forma income statement we follow four important steps:
1) compute other expenses,
2) determine a production schedule,
3) establish a sales projection,
4) determine profit by completing the actual pro forma statement.
What is the correct order for these four steps?
A) 1,2,3,4
B) 4,3,2,1
C) 2,1,3,4
D) 3,2,1,4
Chapter 5 Operating and Financial Leverage
17. In break-even analysis the contribution margin is defined as
A) sales minus variable costs.
B) sales minus fixed costs.
C) variable costs minus fixed costs.
D) fixed costs minus variable costs.
18. Firm A employs a high degree of operating leverage; Firm B takes a more conservative
approach. Which of the following comparative statements about firms A and B is true?
A) A has a lower break-even point than B, but A's profit grows faster after the break-even.
B) A has a higher break-even point than B, but A's profit grows slower after the break-even.
C) B has a lower break-even point than A, but A's profit grows faster after break-even.
D) B has a lower break-even point than A, and profit grows the same rate for both companies
after the breakeven point.
19. Heavy use of long-term debt may be beneficial in an inflationary economy because
A) the debt may be repaid in more "expensive" dollars.
B) nominal interest rates exceed real interest rates.
C) inflation is associated with the peak of a business cycle.
D) the debt may be repaid in "cheaper" dollars.
20. Under which of the following conditions could the overuse of financial leverage be
detrimental to the firm?
A) Stable industry
B) Cyclical demand for the firm's products.
C) Upswing of business cycle.
D) Low interest cost compared to return on assets
Chapter 6 Working Capital and the Financial Decision
21. Risk exposure due to heavy short-term borrowing can be compensated for by
A) carrying highly liquid assets.
B) carrying illiquid assets.
C) carrying longer term, more profitable current assets.
D) carrying more receivables to increase cash flow.
22. When actual sales are greater than forecasted sales
A) inventory will decline.
B) production schedules might have to be revised upward.
C) accounts receivable will rise.
D) all of the above
23. Yield curves change daily to reflect
A) changing conditions in the money and capital markets.
B) new inflation expectations.
C) changing conditions in the overall economy.
D) all of the above.
24. Retail companies like Target and Limited Brands are more likely to have
A) stable sales and earnings per share.
B) cyclical sales but less volatile earnings per share.
C) cyclical sales and more volatile earnings per share.
D) cyclical sales but stable accounts receivable and inventory.
Chapter 7 Current Asset Management
25. When using the economic order quantity model
A) ordering costs increase as the level of inventory increases.
B) carrying costs decrease as the level of inventory increases.
C) costs are minimized when total carrying costs and total ordering costs are equal.
D) none of the above
26. Hedging
A) is a way to protect your accounts receivable position.
B) increases risk.
C) is a legal agreement to buy or sell a financial futures contract.
D) can be carried out with a futures contract.
27. Which of the following is not a true statement about commercial paper?
A) Finance paper is sold directly to the lender by the finance company.
B) Finance paper is also referred to as direct paper.
C) Dealer paper is sold directly to the lender by a finance company.
D) Industrial companies, utility firms or finance companies too small to sell direct paper sell
dealer paper.
28. Which of the following best describes the benefits to the borrower of selling asset backed
securities?
A) Due to the portfolio effect, the borrower can package up low quality accounts receivable and
sell them for a premium price.
B) The borrower trades future cash flows for current cash flows.
C) The asset-backed security is likely to carry a high credit rating of AA or better.
D) b and c are correct.
29. Price Corp. is considering selling to a group of new customers and creating new annual
sales of $70,000. 5% will be uncollectible. The collection cost on these accounts is 3.5% of new
sales, the cost of producing and selling is 80% of sales and the firm is in the 31% tax bracket.
What is the profit on new sales?
A) $5,554.50
B) $9,660.00
C) $7,245.00
D) none of the above.
Chapter 8 Sources of Short-Term Financing
30. Mr. Jones borrows $2,000 for 90 days and pays $35 interest. What is his effective rate of
interest?
A) 9.3%
B) 7.0%
C) 11.7%
D) None of the above
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