BUSI 408 MIDTERM QUESTIONS & ANSWERS
The management of a firm's short-term assets and liabilities - Answers -Working capital
management
The process of planning and managing a firm's long-term investments - Answers -
Capital budgeting
The mixture of debt and equity used by a firm to finance its operations - Answers -
Capital structure
The primary goal of financial management - Answers -To maximize the current value
per share of the existing stock
A capital budgeting decision could be... - Answers -Deciding whether or not to open a
new store
Working capital management includes decisions concerning what? - Answers -
Accounts payable, Accounts Receivable, Inventory. NOT long term debt
This is concerned with the upper portion of the balance - Answers -Working capital
management
Financial managers should strive to maximize the current value per share of the existing
stock because.. - Answers -Because the current stockholders are the owners of the
corporation
The decisions made by financial managers should all be ones which increase the.. -
Answers -market value of the existing owners' equity
Accounting profits and cash flows are... - Answers -...generally not the same since
GAAP allows for revenue recognition separate from the receipt of cash flows
The financial statement showing a firm's accounting value on a particular date is the... -
Answers -balance sheet
Net working capital is defined as: - Answers -Current Assets—Current Liabilities
A _______ asset is one which can be quickly converted into cash without significant
loss in value - Answers -Liquid
The financial statement summarizing a firm's accounting performance over a period of
time is the: - Answers -Income Statement
, Noncash items refer to: - Answers -expenses charged against revenues that do not
directly affect cash flow
_______ refers to the cash flow that results from the firm's ongoing, normal business
activities - Answers -Cash flow from operating activities
______ refers to the changes in net capital assets - Answers -Cash flow from investing
_______ refers to the difference between a firm's current assets and its current liabilities
- Answers -Net working capital
______ is calculated by adding back noncash expenses to net income and adjusting for
changes in current assets and liabilities - Answers -Cash flow from operations
Earnings per share is equal to: - Answers -net income divided by total number of
shares outstanding
The following are included in current assets: - Answers -inventory and cash. NOT
equipment or accounts payable
The following are included in current liabilities: - Answers -Debt payable to a mortgage
company in 9 months and accounts payable to suppliers. NOT note payable to a
supplier in 18 months nor loan payable to the bank in 14 months
An increase in total assets: - Answers -must be offset by an equal increase in liabilities
and shareholders' equity
Which asset is generally the most liquid? - Answers -Accounts receivable. NOT
inventory, buildings, equipment, or patents
A correct statement concerning liquidity? - Answers -Balance sheet accounts are listed
in order of decreasing liquidity
Liquidity is: - Answers -valuable to a firm even though liquid assets tend to be less
profitable to own
The following accounts are included in shareholders' equity - Answers -Retained
earnings and capital surplus. NOT interest paid nor long-term debt
Book value: - Answers -is based on historical cost
When making financial decisions related to assets, you should: - Answers -always
consider market values
As seen on an income statement: - Answers -depreciation reduces both the pretax
income and the net income
The management of a firm's short-term assets and liabilities - Answers -Working capital
management
The process of planning and managing a firm's long-term investments - Answers -
Capital budgeting
The mixture of debt and equity used by a firm to finance its operations - Answers -
Capital structure
The primary goal of financial management - Answers -To maximize the current value
per share of the existing stock
A capital budgeting decision could be... - Answers -Deciding whether or not to open a
new store
Working capital management includes decisions concerning what? - Answers -
Accounts payable, Accounts Receivable, Inventory. NOT long term debt
This is concerned with the upper portion of the balance - Answers -Working capital
management
Financial managers should strive to maximize the current value per share of the existing
stock because.. - Answers -Because the current stockholders are the owners of the
corporation
The decisions made by financial managers should all be ones which increase the.. -
Answers -market value of the existing owners' equity
Accounting profits and cash flows are... - Answers -...generally not the same since
GAAP allows for revenue recognition separate from the receipt of cash flows
The financial statement showing a firm's accounting value on a particular date is the... -
Answers -balance sheet
Net working capital is defined as: - Answers -Current Assets—Current Liabilities
A _______ asset is one which can be quickly converted into cash without significant
loss in value - Answers -Liquid
The financial statement summarizing a firm's accounting performance over a period of
time is the: - Answers -Income Statement
, Noncash items refer to: - Answers -expenses charged against revenues that do not
directly affect cash flow
_______ refers to the cash flow that results from the firm's ongoing, normal business
activities - Answers -Cash flow from operating activities
______ refers to the changes in net capital assets - Answers -Cash flow from investing
_______ refers to the difference between a firm's current assets and its current liabilities
- Answers -Net working capital
______ is calculated by adding back noncash expenses to net income and adjusting for
changes in current assets and liabilities - Answers -Cash flow from operations
Earnings per share is equal to: - Answers -net income divided by total number of
shares outstanding
The following are included in current assets: - Answers -inventory and cash. NOT
equipment or accounts payable
The following are included in current liabilities: - Answers -Debt payable to a mortgage
company in 9 months and accounts payable to suppliers. NOT note payable to a
supplier in 18 months nor loan payable to the bank in 14 months
An increase in total assets: - Answers -must be offset by an equal increase in liabilities
and shareholders' equity
Which asset is generally the most liquid? - Answers -Accounts receivable. NOT
inventory, buildings, equipment, or patents
A correct statement concerning liquidity? - Answers -Balance sheet accounts are listed
in order of decreasing liquidity
Liquidity is: - Answers -valuable to a firm even though liquid assets tend to be less
profitable to own
The following accounts are included in shareholders' equity - Answers -Retained
earnings and capital surplus. NOT interest paid nor long-term debt
Book value: - Answers -is based on historical cost
When making financial decisions related to assets, you should: - Answers -always
consider market values
As seen on an income statement: - Answers -depreciation reduces both the pretax
income and the net income
