Practice for Exam 1 - BFinance

Which one of the following is a capital structure decision?

• Determining the optimal inventory level

• Establishing the preferred debt-equity level

• Selecting new equipment to purchase

• Setting the terms of sale for credit sales

• Determining when suppliers should be paid

The primary goal of financial management is to maximize:

• current profits.

• market share.

• current dividends.

• the market value of existing stock.

• revenue growth.

An agency issue is most apt to develop when:

• a firm encounters a period of stagnant growth.

• a firm downsizes.

• the control of a firm is separated from the firm's ownership.

• the firm's owner is also its key manager.

• a firm is structured as a general partnership.

One example of a primary market transaction would be the:

• sale of 100 shares of stock by Maria to her best friend.

• purchase by Theo of 5,000 shares of stock from his father.

• sale of 1,000 shares of newly issued stock by Alt Company to Miquel.

• sale by Terry of 50,000 shares of stock to his brother.

• sale of 5,000 shares of stock owned by a corporate CEO to his son.

The tax rate that determines the amount of tax that will be due on the next dollar of taxable income earned is called the:

• average tax rate.

• variable tax rate.

• marginal tax rate.

• fixed tax rate.

• ordinary tax rate

Which one of the following is an intangible fixed asset?

• Inventory

• Machinery

• Copyright

• Account receivable

• Building

Shareholders' equity is best defined as:

• the residual value of a firm, net of debt.

• positive net working capital.

• the net liquidity of a firm.

• cash inflows minus cash outflows.

• the cumulative profits of a firm over time.

All else held constant, the book value of owners' equity will decrease when:

• the market value of inventory increases.

• dividends exceed net income for a period.

• cash is used to pay an accounts payable.

• a long-term debt is repaid.

• taxable income increases.

Which one of the following is included in the market value of a firm but not in the book value?

• Raw materials

• Partially built inventory

• Long-term debt

• Reputation of the firm

• Value of a partially depreciated machine

Given a profitable firm, depreciation:

• increases net income.

• increases net fixed assets.

• decreases net working capital.

• lowers taxes.

• has no effect on net income