FINA 3332 Final Exam
Emerald Corporation's current ratio is 0.5, while Ruby (Emerald's competitor) Company's current ratio is
1.5. Both firms want to "window dress" their coming end-of-year financial statements. As part of their
window dressing strategy, each firm will double its current liabilities by adding short-term debt and
placing the funds obtained in the cash account. Which of the statements below best describes the actual
results of these transactions? ANS: Only Emerald Corporation's current ratio will be increased.
The statement of retained earnings for Redwood Systems Ltd. shows a retained earnings balance of
$300 million on December 31. During the year, Redwoos generated net income of $60 million and paid
dividends of $20 million to its stockholders. What was beginning balance of retained earnings at the
start of the year? ANS: $? +60 million-$20 million = $300 million
x= $260 million
Other things held constant, which of the following will not affect the current ratio, assuming an initial
current ratio greater than 1.0? ANS: Accounts receivable are collected.
Bicksler Corporation has a current ratio of 2.0 on July 21 of the current year. On July 22, Bicksler
purchased (and received) raw materials on credit from its supplier. Assuming all other things are equal,
how will this transaction affect the current ratio of Bicksler? ANS: The value of the current ratio will
decrease.
Under the best-efforts arrangement, the investment banker purchases all of the shares from the issuing
firm and then resells them to the public. Under this arrangement, the investment banker assumes
significant risk.
True or False ANS: False
Which of the following is true of shareholders in continental Europe?
-The stocks of corporations are widely dispersed among a large number of different investors, both
individuals and institutions.
,-Many shareholders assign banks their proxy votes for the directors of the companies.
-Banks are major shareholders of corporations in continental Europe.
-Major shareholders of closed corporations are not involved in the firm's daily operations.
-Shareholders in continental Europe are often family units resulting from the universal banking
relationship existing in the United States. ANS: Many shareholders assign banks their proxy votes for
the directors of the companies.
An arrangement in which the investment banking firm typically buys the securities from the issuing firm
and then sells the securities in the primary markets, hoping to make a profit, is called a(n) ANS:
Underwritten arrangement
The management's primary goal is stockholder wealth maximization, which translates into___ ANS:
Maximizing the value of the firm as measured by the price of its common stock
In an underwritten agreement, the investment banker assures the company that is issuing new
securities that the entire issue will be sold, which means the investment banker bears significant risks in
such an offering.
True or False ANS: True
Which of the following forms of business offers limited personal liability to owners as well as the choice
to be taxed as either a corporation as a partnership? ANS: Limited liability company
The difference between the issuing price of debt or equity issue and the net proceeds of the issue and
the net proceeds of the issue received by the issuing firm is known as the___? ANS: Underwriter's
spread
Which of the following mathematical expressions computes the net worth of a firm? ANS: Net worth=
Total assets minus total liabilities
, Which of the following is true of the investment function of finance?
-The investment functions focus on socially responsible actions taken by corporations.
-The investment function focuses on the values, risks, and returns associated with financial assets such
as stocks and bonds.
-The investment function focuses on the optimal mix of. securities based on the environment-friendly
behavior of the corporations.
-The investment function focuses on the regulations applicable to a public corporation.
-The investment function focuses on additional information about the procedures used to construct and
report financial statements. ANS: The investment function focuses on the values, risks, and returns
associated with financial assets such as stocks and bonds.
Industrial groups are organizations consisting of companies in different industries with common
ownership interests, which include firms necessary to sell and manufacture products.
True or False ANS: True
Determining whether a firm's financial position is improving or deteriorating requires analysis of more
than one set of financial statements. Trend analysis is one method of measuring a firm's performance
over time.
True or False ANS: True
Listing requirements of a security refer to the ___?
-quantitative and qualitative characteristics a firm must possess to be listed on a stock exchange
-quantitative and qualitative characteristics a firm must possess to be listed with the Securities and
Exchange Commission (SEC)
Emerald Corporation's current ratio is 0.5, while Ruby (Emerald's competitor) Company's current ratio is
1.5. Both firms want to "window dress" their coming end-of-year financial statements. As part of their
window dressing strategy, each firm will double its current liabilities by adding short-term debt and
placing the funds obtained in the cash account. Which of the statements below best describes the actual
results of these transactions? ANS: Only Emerald Corporation's current ratio will be increased.
The statement of retained earnings for Redwood Systems Ltd. shows a retained earnings balance of
$300 million on December 31. During the year, Redwoos generated net income of $60 million and paid
dividends of $20 million to its stockholders. What was beginning balance of retained earnings at the
start of the year? ANS: $? +60 million-$20 million = $300 million
x= $260 million
Other things held constant, which of the following will not affect the current ratio, assuming an initial
current ratio greater than 1.0? ANS: Accounts receivable are collected.
Bicksler Corporation has a current ratio of 2.0 on July 21 of the current year. On July 22, Bicksler
purchased (and received) raw materials on credit from its supplier. Assuming all other things are equal,
how will this transaction affect the current ratio of Bicksler? ANS: The value of the current ratio will
decrease.
Under the best-efforts arrangement, the investment banker purchases all of the shares from the issuing
firm and then resells them to the public. Under this arrangement, the investment banker assumes
significant risk.
True or False ANS: False
Which of the following is true of shareholders in continental Europe?
-The stocks of corporations are widely dispersed among a large number of different investors, both
individuals and institutions.
,-Many shareholders assign banks their proxy votes for the directors of the companies.
-Banks are major shareholders of corporations in continental Europe.
-Major shareholders of closed corporations are not involved in the firm's daily operations.
-Shareholders in continental Europe are often family units resulting from the universal banking
relationship existing in the United States. ANS: Many shareholders assign banks their proxy votes for
the directors of the companies.
An arrangement in which the investment banking firm typically buys the securities from the issuing firm
and then sells the securities in the primary markets, hoping to make a profit, is called a(n) ANS:
Underwritten arrangement
The management's primary goal is stockholder wealth maximization, which translates into___ ANS:
Maximizing the value of the firm as measured by the price of its common stock
In an underwritten agreement, the investment banker assures the company that is issuing new
securities that the entire issue will be sold, which means the investment banker bears significant risks in
such an offering.
True or False ANS: True
Which of the following forms of business offers limited personal liability to owners as well as the choice
to be taxed as either a corporation as a partnership? ANS: Limited liability company
The difference between the issuing price of debt or equity issue and the net proceeds of the issue and
the net proceeds of the issue received by the issuing firm is known as the___? ANS: Underwriter's
spread
Which of the following mathematical expressions computes the net worth of a firm? ANS: Net worth=
Total assets minus total liabilities
, Which of the following is true of the investment function of finance?
-The investment functions focus on socially responsible actions taken by corporations.
-The investment function focuses on the values, risks, and returns associated with financial assets such
as stocks and bonds.
-The investment function focuses on the optimal mix of. securities based on the environment-friendly
behavior of the corporations.
-The investment function focuses on the regulations applicable to a public corporation.
-The investment function focuses on additional information about the procedures used to construct and
report financial statements. ANS: The investment function focuses on the values, risks, and returns
associated with financial assets such as stocks and bonds.
Industrial groups are organizations consisting of companies in different industries with common
ownership interests, which include firms necessary to sell and manufacture products.
True or False ANS: True
Determining whether a firm's financial position is improving or deteriorating requires analysis of more
than one set of financial statements. Trend analysis is one method of measuring a firm's performance
over time.
True or False ANS: True
Listing requirements of a security refer to the ___?
-quantitative and qualitative characteristics a firm must possess to be listed on a stock exchange
-quantitative and qualitative characteristics a firm must possess to be listed with the Securities and
Exchange Commission (SEC)
