Fin Management Exam 1 with all Correct & 100%
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Which one of these is a correct definition?
Current assets are assets with short lives, such as accounts receivable.
Net working capital equals current assets plus current liabilities.
Current liabilities are debts that must be repaid in 18 months or less.
Long-term debt is defined as a residual claim on a firm's assets. ✔Correct Answer-Current assets
are assets with short lives, such as accounts receivable.
Which one of the following is a capital budgeting decision?
Deciding whether or not a new production facility should be built
Deciding when to repay a long-term debt
Deciding how much credit to grant to a particular customer
Determining how much debt should be borrowed from a particular lender ✔Correct Answer-
Deciding whether or not a new production facility should be built
A firm's capital structure refers to the firm's
mixture of various types of production equipment.
investment selections for its excess cash reserves.
combination of accounts appearing on the left side of its balance sheet.
proportions of financing from current and long-term debt and equity. ✔Correct Answer-
proportions of financing from current and long-term debt and equity.
The ultimate control of a corporation lies in the hands of the corporate:
stockholders.
chairman of the board.
chief executive officer.
board of directors. ✔Correct Answer-stockholders.
The process of planning and managing a firm's long-term assets is called:
,working capital management.
cash management.
capital structure management.
capital budgeting. ✔Correct Answer-capital budgeting.
On a balance sheet, deferred taxes are classified as:
a long-term liability.
a current asset.
a current liability.
stockholders' equity. ✔Correct Answer-a long-term liability.
Under Generally Accepted Accounting Principles (GAAP), a firm's assets are reported at:
market value less accumulated depreciation.
market value.
liquidation value less accumulated depreciation.
historical cost less accumulated depreciation. ✔Correct Answer-historical cost less accumulated
depreciation.
For a firm with long-term debt, net income must be equal to:
Dividends + Addition to retained earnings.
Operating income × (1 − Marginal tax rate).
Taxes + Addition to retained earnings.
Pretax income − Interest expense − Taxes. ✔Correct Answer-Dividends + Addition to retained
earnings.
Which one of these does not affect the cash flow to creditors?
Increase in accounts payable
Interest paid on long-term debt
New mortgage on a building
Reduction in long-term debt ✔Correct Answer-Increase in accounts payable
,Net capital spending is equal to the:
net change in fixed assets plus depreciation.
net change in total assets plus depreciation.
net income plus depreciation.
difference between the market and book values of the total assets. ✔Correct Answer-net change in
fixed assets plus depreciation.
The maximum rate at which a firm can grow while maintaining a constant debt-equity ratio is best
defined by its:
internal rate of growth.
sustainable rate of growth.
rate of return on equity.
rate of return on assets. ✔Correct Answer-sustainable rate of growth.
The long-term debt ratio is probably of most interest to a firm's:
stockholders.
credit customers.
debt holder.
suppliers. ✔Correct Answer-debt holder.
Projected future financial statements are called:
reconciled statements.
aggregated statements.
comparative statements.
pro forma statements. ✔Correct Answer-pro forma statements.
The higher the inventory turnover, the:
higher the inventory as a percentage of total assets.
less time inventory items remain on the shelf.
greater the amount of inventory held by a firm.
, longer it takes a firm to sell its inventory. ✔Correct Answer-less time inventory items remain on the
shelf.
The sustainable growth rate will be equivalent to the internal growth rate when:
a firm has no debt.
the retention ratio is equal to 1.
a firm has a debt-equity ratio equal to 1.
the growth rate is positive. ✔Correct Answer-a firm has no debt.
The cash flow tax savings generated as a result of a firm's tax-deductible depreciation expense is
called the:
aftertax salvage value.
aftertax depreciation savings.
operating cash flow.
depreciation tax shield. ✔Correct Answer-depreciation tax shield.
Interest rates or rates of return on investments that have been adjusted for the effects of inflation
are called ________ rates.
coupon
nominal
real
effective ✔Correct Answer-real
Sunk costs include any cost that:
will change if a project is undertaken.
has previously been incurred and cannot be changed.
will occur if a project is accepted and once incurred, cannot be recouped.
will be incurred if a project is accepted. ✔Correct Answer-has previously been incurred and cannot
be changed.
Sensitivity analysis is primarily designed to determine the:
range of possible outcomes given the expected ranges for every variable.
degree to which a project relies on financial leverage.
Verified Answers |Actual Complete Exam |Already
Graded A+
Which one of these is a correct definition?
Current assets are assets with short lives, such as accounts receivable.
Net working capital equals current assets plus current liabilities.
Current liabilities are debts that must be repaid in 18 months or less.
Long-term debt is defined as a residual claim on a firm's assets. ✔Correct Answer-Current assets
are assets with short lives, such as accounts receivable.
Which one of the following is a capital budgeting decision?
Deciding whether or not a new production facility should be built
Deciding when to repay a long-term debt
Deciding how much credit to grant to a particular customer
Determining how much debt should be borrowed from a particular lender ✔Correct Answer-
Deciding whether or not a new production facility should be built
A firm's capital structure refers to the firm's
mixture of various types of production equipment.
investment selections for its excess cash reserves.
combination of accounts appearing on the left side of its balance sheet.
proportions of financing from current and long-term debt and equity. ✔Correct Answer-
proportions of financing from current and long-term debt and equity.
The ultimate control of a corporation lies in the hands of the corporate:
stockholders.
chairman of the board.
chief executive officer.
board of directors. ✔Correct Answer-stockholders.
The process of planning and managing a firm's long-term assets is called:
,working capital management.
cash management.
capital structure management.
capital budgeting. ✔Correct Answer-capital budgeting.
On a balance sheet, deferred taxes are classified as:
a long-term liability.
a current asset.
a current liability.
stockholders' equity. ✔Correct Answer-a long-term liability.
Under Generally Accepted Accounting Principles (GAAP), a firm's assets are reported at:
market value less accumulated depreciation.
market value.
liquidation value less accumulated depreciation.
historical cost less accumulated depreciation. ✔Correct Answer-historical cost less accumulated
depreciation.
For a firm with long-term debt, net income must be equal to:
Dividends + Addition to retained earnings.
Operating income × (1 − Marginal tax rate).
Taxes + Addition to retained earnings.
Pretax income − Interest expense − Taxes. ✔Correct Answer-Dividends + Addition to retained
earnings.
Which one of these does not affect the cash flow to creditors?
Increase in accounts payable
Interest paid on long-term debt
New mortgage on a building
Reduction in long-term debt ✔Correct Answer-Increase in accounts payable
,Net capital spending is equal to the:
net change in fixed assets plus depreciation.
net change in total assets plus depreciation.
net income plus depreciation.
difference between the market and book values of the total assets. ✔Correct Answer-net change in
fixed assets plus depreciation.
The maximum rate at which a firm can grow while maintaining a constant debt-equity ratio is best
defined by its:
internal rate of growth.
sustainable rate of growth.
rate of return on equity.
rate of return on assets. ✔Correct Answer-sustainable rate of growth.
The long-term debt ratio is probably of most interest to a firm's:
stockholders.
credit customers.
debt holder.
suppliers. ✔Correct Answer-debt holder.
Projected future financial statements are called:
reconciled statements.
aggregated statements.
comparative statements.
pro forma statements. ✔Correct Answer-pro forma statements.
The higher the inventory turnover, the:
higher the inventory as a percentage of total assets.
less time inventory items remain on the shelf.
greater the amount of inventory held by a firm.
, longer it takes a firm to sell its inventory. ✔Correct Answer-less time inventory items remain on the
shelf.
The sustainable growth rate will be equivalent to the internal growth rate when:
a firm has no debt.
the retention ratio is equal to 1.
a firm has a debt-equity ratio equal to 1.
the growth rate is positive. ✔Correct Answer-a firm has no debt.
The cash flow tax savings generated as a result of a firm's tax-deductible depreciation expense is
called the:
aftertax salvage value.
aftertax depreciation savings.
operating cash flow.
depreciation tax shield. ✔Correct Answer-depreciation tax shield.
Interest rates or rates of return on investments that have been adjusted for the effects of inflation
are called ________ rates.
coupon
nominal
real
effective ✔Correct Answer-real
Sunk costs include any cost that:
will change if a project is undertaken.
has previously been incurred and cannot be changed.
will occur if a project is accepted and once incurred, cannot be recouped.
will be incurred if a project is accepted. ✔Correct Answer-has previously been incurred and cannot
be changed.
Sensitivity analysis is primarily designed to determine the:
range of possible outcomes given the expected ranges for every variable.
degree to which a project relies on financial leverage.
