FIN 200 Final Exam

This work of FIN 200 Final Exam shows the solutions to the following questions:

1) Corporate governance is the

A. governance of the company by the board of directors with a focus on social responsibility.

B. relationship and exercise of oversight by the board of directors of the company.

C. operation of a company by the chief executive officer (CEO) and other senior executives on the management team.

D. relationship between the chief financial officer and institutional investors.

2) Regarding risk levels, financial managers should

A. evaluate investor’s desire for risk

B. pursue higher risk projects because they increase value

C. focus primarily on market fluctuations

D. avoid higher risk projects because they destroy value

3) One of the major disadvantages of a sole proprietorship is

A. low operating costs.

B. the simplicity of decision making.

C. low organizational costs.

D. that there is unlimited liability to the owner

4) Which of the following would represent a use of funds and, indirectly, a reduction in cash balances?

A. the sale of new bonds by the firm

B. a decrease in marketable securities

C. an increase in accounts payable

D. an increase in inventories

5) Which of the following is an inflow of cash?

A. the retirement of the firm’s bonds

B. the purchase of a new factory

C. the sale of the firm’s bonds

D. funds spent in normal business operations

6) Which account represents the cumulative earnings of the firm since its formation, minus dividends paid?

A. Accumulated depreciation

B. Common stock

C. Retained earnings

D. Paid-in capital

7) A quick ratio that is much smaller than the current ratio reflects

A. that the firm will have a high return on assets.

B. a large portion of current assets is in inventory.

C. that the firm will have a high inventory turnover.

D. a small portion of current assets is in inventory.

8) For a given level of profitability as measured by profit margin, the firm’s return on equity will

A. decrease as its times-interest-earned ratio decreases.

B. decrease as its current ratio increases.

C. increase as its debt-to assets ratio increases.

D. increase as its debt-to-assets ratio decreases.

9) The most rigorous test of a firm’s ability to pay its short-term obligations is its

A. times-interest-earned ratio.

B. quick ratio.

C. debt-to-assets ratio.

D. current ratio.

10) Refer to the figure above. The firm’s inventory turnover ratio is

A. 0.1x.

B. 8x.

C. 2.7x.

D. 10x.

11) Refer to the figure above. The firm’s debt to asset ratio is

A. 48%.

B. 33%.

C. 25%.

D. 58%.

12) Refer to the figure above. Megaframe’s current ratio is

A. 3.2:1

B. 1.625:1

C. 1.5:1

D. 1.9:1

13) The percent-of-sales method of financial forecasting

A. provides a month-to-month breakdown of data.

B. requires more time than a cash budget approach.

C. assumes that balance sheet accounts maintain a constant relationship to sales.

D. is more detailed than a cash budget approach.

14) In order to estimate production requirements, we

A. add beginning inventory to desired ending inventory and subtract projected sales in units.

B. add projected sales in units to desired ending inventory and subtract beginning inventory.

C. add beginning inventory to desired ending inventory and divide by two.

D. add beginning inventory to projected sales in units and subtract desired ending inventory.

15) In the percent-of-sales method, an increase in dividends

A. more information is needed.

B. has no effect on required new funds.

C. will increase required new funds.

D. will decrease required new funds.

16) In developing the pro forma income statement we follow four important steps:

1) compute other expenses,

2) determine a production schedule,

3) establish a sales projection,

4) determine profit by completing the actual pro forma statement.

What is the correct order for these four steps?

A. 3,2,1,4

B. 2,1,3,4

C. 1,2,3,4

D. 3,2,4,1

17) The pro forma income statement is important to the overall process of constructing pro forma statements because it allows us to determine a value for:

A. prepaid expenses.

B. interest expense.

C. change in retained earnings.

D. gross profit.

18) The difference between total receipts and total payments is referred to as

A. cash balance.

B. net cash flow.

C. cumulative cash flow.

D. beginning cash flow.

19) Financial leverage deals with:

A. the entire balance sheet.

B. the entire income statement.

C. the relationship of fixed and variable costs.

D. the relationship of debt and equity in the capital structure.

20) The degree of operating leverage is computed as

A. percent change in operating income divided by percent change in volume.

B. percent change in EPS divided by percent change in operating income.

C. percent change in operating profit divided by percent change in net income.

D. percent change in volume divided by percent change in operating profit.

21) When a firm employs no debt

A. it will not be profitable.

B. its operating leverage is equal to its financial leverage.

C. it has a financial leverage of one.

D. it has a financial leverage of zero.

22) If a firm has a price of $4.00, variable cost per unit of $2.50 and a breakeven point of 20,000 units, fixed costs are equal to:

A. $50,000

B. $30,000

C. $13,333

D. $10,000

23) In break-even analysis, the contribution margin is defined as

A. fixed cost minus variable cost.

B. variable cost minus fixed cost.

C. price minus variable cost.

D. price minus fixed cost.

24) If TechCor has fixed costs of $80,000, variable costs of $1.20/unit, sales price/unit of $6, and depreciation expense of $25,000, what is their cash breakeven in units?

A. 45,833

B. 21,875

C. 9,167

D. 11,458

25) When the yield curve is upward sloping, generally a financial manager should:

A. lease

B. wait for future financing

C. utilize long-term financing

D. utilize short-term financing

26) Normally, permanent current assets should be financed by

A. internally generated funds.

B. borrowed funds.

C. long-term funds.

D. short-term funds.

27) During tight money periods

A. the relationship between short and long-term rates remains unchanged.

B. short-term rates are equal to long-term rates.

C. long-term rates are higher than short-term rates.

D. short-term rates are higher than long-term rates.

28) An aggressive working capital policy would have which of following characteristics?

A. A short average collection period.

B. A high ratio of short-term debt to long-term sources of funds.

C. A high ratio of long-term debt to fixed assets.

D. A low ratio of short-term debt to fixed assets.

29) Risk exposure due to heavy short-term borrowing can be compensated for by

A. carrying more receivables to increase cash flow.

B. carrying highly liquid assets.

C. carrying illiquid assets.

D. carrying longer term, more profitable current assets.

30) An aggressive, risk-oriented firm will likely

A. borrow short-term and carry high levels of liquidity.

B. borrow long-term and carry low levels of liquidity.

C. borrow short-term and carry low levels of liquidity.

D. borrow long-term and carry high levels of liquidity.

31) The system whereby funds are moved between computer terminals without use of checks is

A. magnetic character recognition.

B. electronic funds transfer.

C. float.

D. a lock-box system.

32) The difference between the amount of cash on the firm’s books and the amount credited to it by the bank is

A. float.

B. an overdraft.

C. interest revenue.

D. extended disbursement.

33) How would electronic funds transfer affect the use of “float”?

A. Have no effect on its use

B. Increase its use somewhat

C. Decrease its use somewhat

D. Virtually eliminate its use

34) When developing a credit scoring report, many variables would be considered. Which of the following best represent the major factors Dun & Bradstreet would examine?

A. The company’s cash balances, return on equity, and its average tax rates.

B. The age of the management team, the dollar amount of sales, net profits, and long-term debt.

C. The age of the company, the number of employees, the level of current assets.

D. The financial statements, satisfactory or slow payment experiences, negative public records (suits, liens, judgments, bankruptcies).

35) The most subjective and also significant segment of the 5 C’s of credit for giving final approval is

A. conditions.

B. capacity.

C. collateral.

D. character.

36) The three primary policy variables to consider when extending credit include all of the following except

A. collection policy.

B. credit standards.

C. the level of inflation.

D. the terms of trade.

37) Large firms tend to be

A. firms with low levels of inventory turnover and accounts receivable turnover.

B. net users of trade credit.

C. net suppliers of trade credit.

D. firms with high levels of profitability.

38) Which of the following is not a true statement about commercial paper?

A. Industrial companies, utility firms or finance companies too small to sell direct paper sell dealer paper.

B. Finance paper is sold directly to the lender by the finance company.

C. Finance paper is also referred to as direct paper.

D. Dealer paper is sold directly to the lender by a finance company.

39) Commercial paper that is sold without going through a broker or dealer is known as

A. term paper.

B. direct paper.

C. dealer paper.

D. book-entry transactions.

40) General Rent-All’s officers arrange a $50,000 loan. The company is required to maintain a minimum checking account balance of 10% of the outstanding loan. This practice is called

A. a balloon payment.

B. an installment loan.

C. a compensating balance.

D. a discounted loan.

41) Firms exposed to the risk of interest rate changes may reduce that risk by

A. pledging or factoring accounts receivable.

B. obtaining a Eurodollar loan.

C. hedging in the financial futures market.

D. hedging in the commodities market.

42) From the banker’s point of view, short-term bank credit is an excellent way of financing

A. seasonal bulges in inventory and receivables.

B. fixed assets.

C. repayment of long-term debt.

D. permanent working capital needs.

43) As the interest rate increases, the present value of an amount to be received at the end of a fixed period

A. Not enough information to tell

B. increases

C. remains the same

D. decreases

44) Increasing the number of periods will increase all of the following except

A. the future value of an annuity.

B. the present value of an annuity.

C. the future value of $1.

D. the present value of $1.

45) As the discount rate becomes higher and higher, the present value of inflows approaches

A. need more information

B. 0

C. plus infinity

D. minus infinity

46) If you invest $8,000 at 12% interest, how much will you have in 7 years?

A. $80,712

B. $18,016

C. $3616

D. $17,688

47) Ali Shah sets aside 2,000 each year for 5 years. He then withdraws the funds on an equal annual basis for the next 4 years. If Ali wishes to determine the amount of the annuity to be withdrawn each year, he should use the following two tables in this order:

A. future value of an annuity of $1; future value of a $1

B. present value of an annuity of $1; future value of an annuity of $1

C. future value of an annuity of $1; present value of a $1

D. future value of an annuity of $1; present value of an annuity of $1

48) Mr. Blochirt is creating a college investment fund for his daughter. He will put in $850 per year for the next 15 years and expects to earn an 8% annual rate of return. How much money will his daughter have when she starts college?

A. $23,079

B. $11,250

C. $24,003

D. $12,263

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