WorksheetsFFM-Quiz 1: Chapter1-4
Total questions: 60
Worksheet time: 30mins
Which of the following decisions is an example of capital budgeting?
Issuing new debt
Deciding on dividend payout
Purchasing a new production facility
Repurchasing company shares
Reorganizing management
Which of the following best describes agency problems?
Conflicts between creditors and suppliers
Differences in tax treatment
Conflicts of interest between managers and shareholders
Mispricing of securities
Failure of product lines
Which type of business organization has the greatest potential to raise capital?
Sole proprietorship
Partnership
Limited liability company
Corporation
Cooperative
What is the primary disadvantage of a corporation?
Difficulty in transferring ownership
Unlimited liability
Double taxation
Lack of continuity
Inflexible structure
Which is NOT a major function of the Chief Financial Officer (CFO)?
Managing the firm's accounting
Controlling cash and credit
Preparing operational production plans
Raising capital
Budgeting and forecasting
The risk-return trade-off implies:
Lower risk always leads to higher returns
Risk and return are unrelated
Higher risk should be accepted only if compensated by higher return
Higher return always implies lower risk
There is no trade-off between the two
Which factor does NOT influence managerial behavior?
Executive compensation packages
Regulatory constraints
Threat of hostile takeovers
The Federal Reserve's monetary policy
Shareholder monitoring
Which of the following is a form of intrinsic value?
Market capitalization
Book value
Analyst forecast
Long-run true value of the firm's stock
GAAP net income
Financial management is primarily concerned with:
Efficient production
Record-keeping and reporting
Management of the firm's assets and liabilities
Employment policies
Inventory controls
In a well-functioning economy, capital flows efficiently from:
Consumers to producers
Government to the public
Savers to those who need capital
Banks to government
Retailers to wholesalers
Which is NOT a characteristic of an efficient financial market?
Information is widely available
Capital is allocated based on prices
Prices reflect all available information
Arbitrage is widespread and risk-free
New information is quickly incorporated
Which of the following could reduce agency conflicts?
Increasing dividend payout
Providing managers with company stock options
Reducing transparency
Decreasing managerial salaries
Separating ownership and control
Which is an example of a financial decision?
Choosing a new logo
Hiring an HR manager
Deciding to invest in a new machine
Selecting a supplier
Designing product packaging
What is a stakeholder?
Only a shareholder
Government regulator
Anyone with an interest in the firm's operations
Only employees
Only bondholders
What type of market is the NYSE?
Money market
Private market
Over-the-counter market
Physical location exchange
Futures market
A financial market in which securities are sold for the first time is:
Secondary market
Money market
Private market
Primary market
Spot market
Which is NOT an example of a money market instrument?
Treasury bill
Commercial paper
Certificate of deposit
Common stock
Repurchase agreement
Which institution acts as an intermediary between savers and borrowers?
SEC
FDIC
Financial intermediary
NASDAQ
IRS
Which of the following is true about hedge funds?
Heavily regulated
Open to all investors
Invest only in government bonds
Lightly regulated and accessible to wealthy investors
Government owned
Mutual funds:
Are exempt from regulation
Cannot be publicly traded
Provide diversification to small investors
Only invest in one security
Are only for institutional investors
A dealer market differs from a broker market in that:
Brokers take ownership of assets
Dealers act as intermediaries only
Dealers buy and sell for their own account
Brokers are not licensed
Broker markets trade only futures
Which of the following is NOT a capital market instrument?
Corporate bond
Preferred stock
Treasury bond
Common stock
Treasury bill
Which organization is responsible for regulating stock exchanges?
Federal Reserve
SEC
FDIC
Department of Treasury
FINRA
Investment banks:
Accept deposits
Insure customer deposits
Help firms issue securities
Provide checking accounts
Regulate markets
Which best describes a private market?
Securities are traded in public
Regulated by the SEC
Transactions are negotiated directly
Only stocks are traded
Open to all investors
A forward market involves:
Immediate delivery
Exchange-traded securities
Future delivery at agreed prices
Spot prices
Only physical assets
The main role of the financial system is to:
Collect taxes
Provide free capital
Facilitate the flow of funds
Promote inflation
Set interest rates
Which of the following is NOT a participant in financial markets?
Households
Governments
Foreign investors
Central banks
Advertising agencies
Which is a correct match?
Treasury bills - capital market
NASDAQ - physical exchange
Hedge fund - retail investors
Commercial bank - financial intermediary
NYSE - dealer market
Which of the following is a non-cash expense?
Cost of goods sold
Depreciation
Salaries expense
Utilities expense
Interest expense
Which of the following is a non-cash expense?
Cost of goods sold
Depreciation
Salaries expense
Utilities expense
Interest expense
What does the income statement show?
Cash inflows and outflows
Sources and uses of equity
Financial position at a point in time
Revenues and expenses over a period of time
Changes in owner's equity only
Which of the following is included in the statement of cash flows?
Dividends declared
Net income
Depreciation added back to net income
Retained earnings
Total liabilities
The primary purpose of the balance sheet is to show:
Cash inflows
Net income
Financial condition on a specific date
Market value of equity
Taxable income
What is the formula for net operating working capital (NOWC)?
Current assets - current liabilities
Current assets - notes payable
(Current assets - excess cash) - (current liabilities - notes payable)
Current liabilities - current assets
Inventory + receivables
Which of the following would increase cash flow from investing activities?
Sale of property, plant, and equipment
Depreciation expense
Issuance of common stock
Purchase of inventory
Interest income
What type of activity is 'issuance of bonds' classified as in the statement of cash flows?
Operating activity
Investing activity
Financing activity
Tax activity
Hedging activity
Which of the following is tax-deductible for corporations?
Dividends paid
Interest expense
Net income
Depreciation recapture
Common stock issuance
A firm's marginal tax rate is:
The average rate on all income
The rate applied to the lowest income bracket
The rate paid on the next dollar of taxable income
Fixed for all corporations
The same as the dividend tax rate
What would happen if a firm increases depreciation expense?
Net income rises
Cash flow from operations decreases
Cash flow from operations increases
Total assets increase
EBIT increases
Which financial statement would you analyze to assess a company's liquidity?
Income statement
Statement of retained earnings
Balance sheet
Cash flow statement
Statement of equity
What is the effect of an increase in accounts payable on cash flow?
Increase in cash
Decrease in cash
No effect
Increases net income
Decreases tax expense
A firm's retained earnings will increase if:
Net income is negative
Dividends exceed earnings
Net income is positive and dividends are less than earnings
Depreciation increases
Common stock is issued
Which of the following is subtracted when calculating free cash flow?
Net income
Depreciation
Capital expenditures
Interest expense
Notes payable
Which item appears on both the balance sheet and the cash flow statement?
Depreciation
Retained earnings
Notes payable
Net income
Operating expenses
Which ratio measures a firm's ability to meet short-term obligations?
Current ratio
Debt-to-equity ratio
Return on equity
Profit margin
Inventory turnover
The quick ratio excludes which of the following from current assets?
Cash
Receivables
Inventory
Marketable securities
Prepaid expenses
Which ratio measures how efficiently a company uses its assets to generate sales?
Return on equity
Inventory turnover
Total asset turnover
Current ratio
Debt ratio
Which ratio assesses a firm's ability to use equity efficiently?
ROA
ROE
Current ratio
Total debt ratio
Times interest earned
The DuPont equation helps analyze:
Interest rates
Dividend policy
Return on equity drivers
Inventory levels
Market share
Which of the following increases if a firm uses more debt relative to equity?
ROE
Current ratio
Asset turnover
Gross profit
Market capitalization
Which ratio is most relevant to creditors evaluating a firm's ability to meet interest payments?
Quick ratio
Current ratio
Return on assets
Times interest earned
Inventory turnover
What does a high inventory turnover ratio indicate?
High level of debt
Inventory moves slowly
Efficient inventory management
Poor liquidity
Weak sales
Which of the following best describes the debt ratio?
Equity/Total assets
Debt/Total assets
Debt/Equity
EBIT/Interest expense
Assets/Equity
Common-size financial statements express all items:
As percentage of total liabilities
In constant dollars
As a percentage of sales or total assets
In current market value
On an inflation-adjusted basis
Which of the following is NOT a profitability ratio?
Net profit margin
Return on equity
Gross profit margin
Times interest earned
Return on assets
Which statement is TRUE regarding financial ratio analysis?
It is useful only for large firms
Ratios eliminate the need for other financial analysis
Ratios provide meaningful insights only when compared
Ratio analysis always reveals fraud
All ratios are GAAP-based
If a firm's fixed assets turnover decreases, it may indicate:
Higher sales
Efficient asset use
Under-utilization of assets
Low debt level
Higher equity
Which of the following can lead to misleading ratio analysis?
Use of audited financials
Comparing ratios across industries
Analysis of trends
Standardizing financials
Using industry averages
Trend analysis involves:
Comparing firms to each other
Comparing financials over time
Assessing future stock prices
Calculating depreciation
Assessing customer satisfaction
