C214 Financial Management Overview
Concept Quiz Answers
1. The goal of the corporation is to:
a. Maximize profits
b. Maximize market share
c. Maximize stock price
d. Minimize risk - ANSc. Maximize stock price
2. Risk premium is best described as
a. Return on risky securities
b. Compensation for risk-taking
c. Return on stocks
d. Expected return on securities - ANSb. Compensation for risk-taking
3. What is the relationship between risk and required return?
a. The two are independent
b. Higher required return causes lower risk
c. Higher risk causes higher required return
d. None of the above - ANSc. Higher risk causes higher required return
4. The value of money depends upon
a. The timing of the receipt
b. The certainty of receipt
c. The size of the receipt
d. All of the above - ANSd. All of the above
5. What is the purpose of the SEC 10-K filing requirement?
a. Promote transparency and efficiency
b. Prevent insider trading
c. Regulate sales practices
d. Prevent monopolies - ANSa. Promote transparency and efficiency
6. Which line item is not part of net working capital?
a. Inventory
b. Bonds
c. Accounts Payable
d. Accrued expenses - ANSb. Bonds
7. Which action causes a cash outflow?
, a. Increase in accounts payable
b. Decrease in accounts receivable
c. Increase in inventory
d. None of the above - ANSc. Increase in inventory
8. Which of the following is correct?
a. Gross PPE equals Net PPE plus depreciation expense
b. Gross PPE equals Net PPE plus accumulated depreciation
c. Net PPE equals Gross PPE plus depreciation expense
d. None of the above - ANSc. Net PPE equals Gross PPE plus depreciation expense
9. Net Margin is defined as:
a. Net Income divided by sales
b. EBIT divided by sales
c. Dividends divided by net income
d. Retained earnings divided by sales. - ANSa. Net Income divided by sales
10. Which item is added to the balance sheet?
a. Depreciation expense
b. Dividends paid
c. Addition to retained earnings
d. Both a and c - ANSd. Both a and c
11. What item is added to net income to calculate net cash flow?
a. Taxes
b. Depreciation expense
c. Dividends paid
d. None of the above - ANSb. Depreciation expense
12. Which represents cash earned by producing and selling the product
a. Cash flow operations
b. Cash flow financing
c. Cash flow investing
d. None of the above - ANSa. Cash flow operations
13. Which ratio reflects a firm's reliance on debt financing?
a. Quick ratio
b. Net Margin
c. Financial leverage
d. Asset turnover - ANSc. Financial leverage
14. If two firms use different inventory valuation methods, it is called:
a. Timing issue
b. Seasonal effect
Concept Quiz Answers
1. The goal of the corporation is to:
a. Maximize profits
b. Maximize market share
c. Maximize stock price
d. Minimize risk - ANSc. Maximize stock price
2. Risk premium is best described as
a. Return on risky securities
b. Compensation for risk-taking
c. Return on stocks
d. Expected return on securities - ANSb. Compensation for risk-taking
3. What is the relationship between risk and required return?
a. The two are independent
b. Higher required return causes lower risk
c. Higher risk causes higher required return
d. None of the above - ANSc. Higher risk causes higher required return
4. The value of money depends upon
a. The timing of the receipt
b. The certainty of receipt
c. The size of the receipt
d. All of the above - ANSd. All of the above
5. What is the purpose of the SEC 10-K filing requirement?
a. Promote transparency and efficiency
b. Prevent insider trading
c. Regulate sales practices
d. Prevent monopolies - ANSa. Promote transparency and efficiency
6. Which line item is not part of net working capital?
a. Inventory
b. Bonds
c. Accounts Payable
d. Accrued expenses - ANSb. Bonds
7. Which action causes a cash outflow?
, a. Increase in accounts payable
b. Decrease in accounts receivable
c. Increase in inventory
d. None of the above - ANSc. Increase in inventory
8. Which of the following is correct?
a. Gross PPE equals Net PPE plus depreciation expense
b. Gross PPE equals Net PPE plus accumulated depreciation
c. Net PPE equals Gross PPE plus depreciation expense
d. None of the above - ANSc. Net PPE equals Gross PPE plus depreciation expense
9. Net Margin is defined as:
a. Net Income divided by sales
b. EBIT divided by sales
c. Dividends divided by net income
d. Retained earnings divided by sales. - ANSa. Net Income divided by sales
10. Which item is added to the balance sheet?
a. Depreciation expense
b. Dividends paid
c. Addition to retained earnings
d. Both a and c - ANSd. Both a and c
11. What item is added to net income to calculate net cash flow?
a. Taxes
b. Depreciation expense
c. Dividends paid
d. None of the above - ANSb. Depreciation expense
12. Which represents cash earned by producing and selling the product
a. Cash flow operations
b. Cash flow financing
c. Cash flow investing
d. None of the above - ANSa. Cash flow operations
13. Which ratio reflects a firm's reliance on debt financing?
a. Quick ratio
b. Net Margin
c. Financial leverage
d. Asset turnover - ANSc. Financial leverage
14. If two firms use different inventory valuation methods, it is called:
a. Timing issue
b. Seasonal effect
