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Text: Principles of Managerial Finance
12th Edition, 2009
Multiple Choice Questions (Enter your answers on the enclosed answer sheet)
1)Which of the following legal forms of organization is characterized by limited
d.Sole proprietorsh i p
2) The financial manager may be responsible for any of the following EXCEPT
a.keepi ng track of quarterly tax payments.
b.analyzing quarterly budget and performance reports.
c.analyzing the effects of more debt on the firm’s capital structure.
d.determining whether to accept or reject a capital asset acquisition.
3) The financial manager’s financing decisions determine
a.both the mix and the type of assets found on the firm’s balance sheet.
b.both the mix and the type of assets and liabilities found on the firm’s balance
c.the most appropriate mix of short-term and long-term financing.
d.the proportion of the firm’s earnings to be paid as dividend.
4) Wealth maximization as the goal of the firm implies enhancing the wealth of
a.the firm’s stockholders.
b.the Board of Directors.
c.the firm’s employees.
d.the federal government.
5)The amount earned during the accounting period on each outstanding share of common stock is called
a.common stock dividend.
b.net profits after taxes.
c.earn i ngs per share.
6)Cash flow and risk are the key determinants in share price. Increased cash flow results in , other things remaining the same.
a.an unchanged share price
b.a lower share price
c.an undetermined share price
d.a higher share price
7)A more recent issue that is causing major problems in the business commu-
a.short-term versus long-term financial goals of management.
b.the privatization of ownership.
8) The implementation of a pro-active ethics program is expected to result in
a.a positive corporate image and increased respect, but is not expected to af-
fect cash flows.
b.a positive corporate image and increased respect, but is not expected to af-
fect share price.
c.an increased share price resulting from a decrease in risk, but is not expected
to affect cash flows.
d.a positive corporate image and increased respect, a reduction in risk, and en-
hanced cash flow resulting in an increase in share price.
9) The Sarbanes-Oxley Act of 2002 was passed in response to
a.the decline in tech nology stocks.
b.insider trading activities.
c.false disclosures in financial reporting.
d.all of the above
10)The key participants in financial transactions are individuals, businesses,
and governments. Individuals are net of funds, and businesses are
net of funds.
11) The over-the-counter (OTe) market is
a.an intangible market for unlisted securities.
b.a place where securities are bought and sold.
c.the New York Stock Exchange.
d.an organized stock exchange.
12) The two key financial markets are
a.primary market and secondary market.
b.capital market and secondary market.
c.primary market and money market.
d.money market and capital market.
13)Securities exchanges create efficient markets that do all of the following
a.ensure a market in which the price reflects the true value of the security.
b.control the supply and demand for securities through price.
c.allocate funds to the most productive uses.
d.allow the price to be determined by supply and demand of securities.
14)The tax deductibility of various expenses such as general and administrative
expenses their after-tax cost.
b.has no effect on
c.has an undetermined effect on
15)The dividend exclusion for corporations receiving dividends from another corporation has resulted in
a.stock investments being relatively less attractive, relative to bond investments made by one corporation in another corporation.
b.stock investments being relatively more attractive relative to bond investments made by one corporation in another corporation.
c.a lower cost of equity for the corporation paying the dividend.
d.a higher relative cost of bond-financing for the corporation paying the dividend.
16)The rule-setting body, which authorizes generally accepted accounting principles is
b.Federal Reserve System.
Financial Ma ment
17)Candy Corporation had pretax profits of $1.2 million, an average tax rate
of 34 percent, and it paid preferred stock dividends of $50,000. There were
100,000 shares outstanding and no interest expense. What were Candy Cor-
poration’s earnings per share?
18) The analyst should be careful when evaluating a ratio analysis that
a.the dates of the financial statements being compared are the same time.
b.pre-audited statements are used.
c.neither A nor B.
d.both A and B.
19) The is useful in evaluating credit and collection policies.
a.current asset turnover
c.average collection period
d.average payment period
20) The ratio may indicate poor collections procedures or a lax credit
a.average collection period
b.average payment period
21) are especially interested in the average payment period, since it
provides them with a sense of the bill-paying patterns of the firm.
a.Lenders and suppliers
b.Borrowers and buyers
Financial Man ent
22) If the inventory turnover is divided into 365, it becomes a measure of
b.the average collection period.
d.the average age of the inventory.
23)The ratio may indicate that the firm will not be able to meet interest obligations due on outstanding debt.
a.times interest earned
b.return on total assets
c.net profit rnargi n
24)The measures the percentage of profit earned on each sales dollar before interest and taxes.
a.net profit margin
b.operati ng profit margi n
c.earnings available to common shareholders
d.gross profit margin
25) In the DuPont system, the return on total assets (asset) is equal to
a.(net profit margin) x (fixed asset turnover).
b.(return on equity) x (total asset turnover).
c.(return on equity) x (financial leverage multiplier).
d.(net profit margin) x (total asset turnover).
26) The financial leverage multiplier is an indicator of how much a corporation is utilizing.
27)Allocation of the historic costs of fixed assets against the annual revenue they
generate is called
Financial Ma ment
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