MBA 702 Exam 1 Questions & Answers 2026 | High-Yield
Review | Graded A+
1. The proper term for the value found by subtracting accumulated depreciation
from the asset's original cost is ________ .
Use value
Book value
Market value
Salvage value
2. What is the drawback of a sole proprietorship?
Employees have greater responsibility
Cannot obtain loans from bank easily
Too small to cope with a competitive market
Unlimited liability to cover all debts
3. The residual amount of earnings after all expenses have been deducted from
sales
gross income
net income
net loss
revenue
4. An obligation to pay cash to another company in the future as a result of a
past transaction is an:
Liability
, Revenue
Expense
Asset
5. If a new entrepreneur wants to start a business with minimal regulatory
requirements and full control over operations, which type of business
organization should they choose?
Partnership
Corporation
Sole proprietorship
Limited liability company
6. What is the term for a company's financial obligations resulting from past
transactions?
Assets
Liabilities
Revenue
Equity
7. The _____is a snapshot of the firm's financial position at a point in time.
Statement of cash flows
Statement of stockholders' equity
balance sheet
income statement
,8. If a firm increases its capital spending while maintaining stable operating cash
flow and working capital, what impact might this have on its cash flow from
assets?
Cash flow from assets will improve due to better working capital
management.
Cash flow from assets may decrease due to increased capital
spending.
Cash flow from assets will remain unchanged.
Cash flow from assets will increase due to higher revenues.
9. Describe the significance of the asset turnover ratio in evaluating a firm's
performance.
The asset turnover ratio indicates how efficiently a firm uses its
assets to generate sales.
The asset turnover ratio measures a firm's profitability relative to its
equity.
The asset turnover ratio assesses the liquidity of a firm's current assets.
The asset turnover ratio compares a firm's total debt to its total assets.
10. Describe the significance of each component of cash flow from assets in
financial analysis.
Operating cash flow is the same as net income, capital spending is
only for equipment, and changes in working capital are not related to
cash flow.
Operating cash flow is irrelevant, capital spending is only for new
projects, and changes in working capital are not necessary for
analysis.
, Operating cash flow indicates the cash generated from core
business operations, capital spending reflects investments in long-
term assets, and changes in working capital show the cash tied up
in day-to-day operations.
Operating cash flow measures total revenue, capital spending
assesses market share, and changes in working capital evaluate
employee performance.
11. A business that has the limited liability of a corporation yet is taxed as a
partnership would be a(n).
LLC
Joint venture
REIT
General partnership
12. What are the two components that net working capital is calculated from?
Cash and cash equivalents
Current assets and current liabilities
Total assets and total liabilities
Long-term assets and long-term liabilities
13. Describe the significance of net working capital in assessing a firm's financial
health.
Net working capital measures the profitability of a firm.
Net working capital indicates a firm's liquidity and ability to meet
short-term obligations.
Net working capital shows the long-term financial stability of a firm.
Review | Graded A+
1. The proper term for the value found by subtracting accumulated depreciation
from the asset's original cost is ________ .
Use value
Book value
Market value
Salvage value
2. What is the drawback of a sole proprietorship?
Employees have greater responsibility
Cannot obtain loans from bank easily
Too small to cope with a competitive market
Unlimited liability to cover all debts
3. The residual amount of earnings after all expenses have been deducted from
sales
gross income
net income
net loss
revenue
4. An obligation to pay cash to another company in the future as a result of a
past transaction is an:
Liability
, Revenue
Expense
Asset
5. If a new entrepreneur wants to start a business with minimal regulatory
requirements and full control over operations, which type of business
organization should they choose?
Partnership
Corporation
Sole proprietorship
Limited liability company
6. What is the term for a company's financial obligations resulting from past
transactions?
Assets
Liabilities
Revenue
Equity
7. The _____is a snapshot of the firm's financial position at a point in time.
Statement of cash flows
Statement of stockholders' equity
balance sheet
income statement
,8. If a firm increases its capital spending while maintaining stable operating cash
flow and working capital, what impact might this have on its cash flow from
assets?
Cash flow from assets will improve due to better working capital
management.
Cash flow from assets may decrease due to increased capital
spending.
Cash flow from assets will remain unchanged.
Cash flow from assets will increase due to higher revenues.
9. Describe the significance of the asset turnover ratio in evaluating a firm's
performance.
The asset turnover ratio indicates how efficiently a firm uses its
assets to generate sales.
The asset turnover ratio measures a firm's profitability relative to its
equity.
The asset turnover ratio assesses the liquidity of a firm's current assets.
The asset turnover ratio compares a firm's total debt to its total assets.
10. Describe the significance of each component of cash flow from assets in
financial analysis.
Operating cash flow is the same as net income, capital spending is
only for equipment, and changes in working capital are not related to
cash flow.
Operating cash flow is irrelevant, capital spending is only for new
projects, and changes in working capital are not necessary for
analysis.
, Operating cash flow indicates the cash generated from core
business operations, capital spending reflects investments in long-
term assets, and changes in working capital show the cash tied up
in day-to-day operations.
Operating cash flow measures total revenue, capital spending
assesses market share, and changes in working capital evaluate
employee performance.
11. A business that has the limited liability of a corporation yet is taxed as a
partnership would be a(n).
LLC
Joint venture
REIT
General partnership
12. What are the two components that net working capital is calculated from?
Cash and cash equivalents
Current assets and current liabilities
Total assets and total liabilities
Long-term assets and long-term liabilities
13. Describe the significance of net working capital in assessing a firm's financial
health.
Net working capital measures the profitability of a firm.
Net working capital indicates a firm's liquidity and ability to meet
short-term obligations.
Net working capital shows the long-term financial stability of a firm.
