WorksheetsWGU C214 Financial Management - Main Study Guide | Part I
Total questions: 75
Worksheet time: 38mins
(T/F): Trading on the NYSE is executed without a specialist (i.e. a market maker).
True
False
(T/F): Stocks and bonds are two types of financial instruments.
True
False
The Matching Principle in accrual accounting requires that:
Revenues be recognized when the earnings process is complete and matches expenses to revenues recognized.
Expenses are matched to the year in which they are incurred.
Revenues are matched to the year in which they are booked.
Revenues should be large enough to match expenses.
A basic equation for the Balance Sheet is:
Equity = Assets - Liabilities
Liabilities = Equity + Assets
Assets = Liabilities - Equity
Assets = Equity - Liabilities
Why is the Balance Sheet known as a permanent statement?
Because the statement is sent to the SEC.
Because the other statements are reset at the end of the fiscal year.
Because it is printed out and archived.
Because it persists in the minds of the shareholders.
How do you calculate the change in Retained Earnings?
Ending Retained Earnings - Change in Cash
EBIT divided by Total Assets + Dividends
EBIT - Change in Cash - Dividends
Net Income - Dividends
Which of the following is generally true ?
Gross Profit and Operating Income are the same
Cost of Goods Sold + Operating Expenses = Net Income
Operating Income and EBIT are the same.
EBIT + Income Taxes = Net Income
Which components are part of Total Liabilities?
Accounts Payable, Accounts Receivable, Short Term Debt
Long Term Debt, Common Stock, Retained Earnings
Bonds, Accounts Payable, Mortgage
Common Stock, Long Term Debt, Short Term Investments
Which components are part of total assets?
Cash, Accounts Receivable, Short Term Debt
Cash Accounts Receivable, Inventory, Long Term Assets
Accounts Payable, Long Term Assets, Long Term Debt
Accounts Payable, Net Income, Equity
Which are part of current assets?
Cash, Accounts Receivable, Property Plant & Equipment
Accounts Receivable, Accounts Payable, Inventory
Long Term Debt, Property Plant & Equipment, Common Stock
Inventory, Cash, Accounts Receivable, Short Term Investments
When Fixed Assets increase, what happens to Cash?
Cash stays the same
Cash increases
Cash decreases
Assets decrease
Which is the purpose of the Statement of Cash Flows?
serves as the replacement for the income statement and balance sheet
explains the change in cash balance at one point in time
explains the change in cash balance for one period of time
both (a) and (b)
The OIROI (Operating Income Return on Investment) uses what elements on the income statement?
Operating Income, EBIT, Total Liabilities
EBIT, Total Assets
Sales, Total Assets, Equity
Net Margin, Total Current Assets
Why would a company be interested in the TAT (Total Asset Turnover) ratio?
How efficient assets are at producing income
What the turnover of sales is to liabilities
How efficient assets are at producing sales
How efficient assets are to liabilities and equity
Which of the following gives the largest effective rate (APY)?
18.6% compounded monthly
18.6% compounded daily
18.6% compounded weekly
18.6% compounded yearly
What does the Beta coefficient represent?
It is a statistically-derived measure of volatility
It is the Expected Return minus the Growth Rate
It is the volatility of the Risk Free Return
It is the expected return for a basket of preferred stocks
Why is the depreciation expense taken out of the net income calculation, yet added back at the end?
Because fixed assets should remain on the balance sheet
Because depreciation is not a current asset
Because depreciation expense is a non-cash liability
Because depreciation expense is tax deductible
Why is the NPV preferred over the IRR? (Pick TWO):
It has a higher dollar value
It measures the dollar value
It is more reliable
It is harder to calculate
What does Degree of Financial Leverage indicate?
The firm's cash balance
The cost of financed assets
The reliance on debt
The reliance on assets
If a company has a high degree of financial leverage, what does that tell us about the firm's risk profile?
Low Risk
Appropriate Risk
Higher ability to pay debt
Higher profits to shareholders
What is the cash cycle?
The speed of collecting cash from customers
The amount of cash kept in banks
The comparisons of debt to cash
The amount of time to regenerate cash
Why is 'float' important to understand?
To know how to keep the company profitable
To know why the company needs cash
To determine when to buy fixed assets
To time cash expenditures
None of the above
What should a company do to manage its working capital?
Collect quickly and pay slowly
Keep a large cash balance
Maximize the use of long term investment
Depreciate assets more slowly
What would be a source of information to determine Replacement Cost?
Building Appraisal
Accumulated Depreciation Expense
Stock Price
Statement of Cash Flows
What does the Sarbanes-Oxley Act require companies do?
Have a board of directors
Register all foreign sales
Make estimated tax payments
Have internal control audits
FINRA (Financial Industry Regulatory Authority) does the following (pick ONE):
No foreign bribery by corporations
Regulates bond prices
Establishes Credit Unions
Prosecutes naughty stock brokers
Regulates Hedge Funds
If a product is made 100% domestically, what can affect its domestic market?
International exchange rates
International competition
Product tariffs
International political regulations
If a company makes its product in a foreign country where labor costs are much lower, what happens?
Profits and domestic employment goes up
Costs go up and domestic employment goes down
Costs stay the same and domestic employment increases
Profits go up and domestic employment decreases
If the value of a dollar increases, the price of imports:
Increases
Decreases
Stays the same
Fluctuates
Why would a farmer buy a hedge when he signs a contract to sell produce overseas?
To avoid tariffs
To reduce currency risk
To increase profits
To avoid competition
A basic equation for the balance sheet is:
Equity = Assets - Liabilities
Liabilities = Equity + Assets
Assets = Liabilities - Equity
Assets = Equity - Liabilities
Why is the Balance Sheet known as a permanent statement?
Because the statement is sent to the SEC.
Because the other statements are reset at the end of the fiscal year
Because it is printed out and archived
Because it persists in the minds of the shareholders
How do you calculate the change in Retained Earnings?
Ending Retained Earnings - Change in Cash
EBIT divided by Total Assets + Dividends
EBIT - Change in Cash - Dividends
Net Income - Dividends
Which of the following is generally true?
Gross Profit and Operating Income are the same
Cost of Goods Sold + Operating Expenses = Net Income
Operating Income and EBIT are the same
EBIT + Income Taxes - Net Income
Which components are part of the Total Assets?
Cash, Accounts Receivable, Short Term Debt
Cash Accounts Receivable, Inventory, Long Term Assets
Accounts Payable, Long Term Assets, Long Term Debt
Accounts Payable, Net Income, Equity
What components are part of current assets?
Cash, Accounts Receivable, Property Plant & Equipment
Accounts Receivable, Accounts Payable, Inventory
Long Term Debt, Property Plant & Equipment, Common Stock
Inventory, Cash, Accounts Receivable, Short Term Investments
Suppose the inventory turnover of a company is higher than the industry. Based on this observation, which of the following is most likely?
The firm has lower liquidity than the industry average.
The firm has too much inventory thus impairing overall liquidity.
The firm has too little inventory resulting in lost sales or stock-outs.
The firm has low sales volume.
If a company wishes to obtain a bank loan, will it want to have a higher current ratio or a lower current ratio?
higher
lower
the same
it doesn't matter
If an investor knows the idiosyncratic risk, the investor knows the:
Profit Margin percentage
Beta Coefficient
Operating Leverage
Free Cash Flow
Why would we reject a project based on the NPV?
The NPV is lower than the IRR
The NPV is lower than investment
The NPV is a negative number
The IRR is positive
Why would we reject a project based on the IRR?
The IRR is higher than the sum of the cash flows.
The discount rate is lower than the IRR.
The IRR is higher than the NPV.
The discount rate is higher than the IRR.
Company A wishes to keep 20% of its assets as cash. Company B keeps its cash balance at 5% of assets. Which of the following statements apply?
Company A is less liquid than Company B
Company B invests in more working current assets
Company A uses better working capital management
Company B has a more conservative cash policy
Company A offers trade credit of 2% 10/net 30 and Company B offers trade credit at net 30. What can be said about the credit policies of each company?
Company B has a looser credit policy
Company A keeps more of its Accounts Receivable
Company A can attract more customers
Company B can attract more customers
Which of the following characterizes collection float?
Longer float indicates good financial practices
Increased float indicates slower processing time
Accounts receivable increase with shorter float
Liquidity is enhanced with longer float
Company A's inventory is larger than Company B. Both companies are competitors and are about the same size. What does the difference mean from a working capital management standpoint?
Company B has lower inventory float
Company A has more cash in hand
Company B might have higher inventory turnover
Company A has tighter credit.
In regards to Accounts Payable balances, which of the following is true:
Higher Accounts Payable is better than a lower balance
Paying off A/P as soon as possible is good policy
Increased Accounts Payable means faster collections
Paying off A/P on the last day due is good policy
If two companies have earnings of $2,000,000 and Company X has a multiple of 1.2 and Company Z has a multiple of 2.0, what can we estimate about the value of each company?
The value is the same
The value of Company X is higher
The value of Company Z is higher
The relative value can't be determined
Dodd-Frank regulates which segment of the U.S. Economy?
Fannie Mae and Freddie Mac (Housing financing)
Banking Industry
Multi-level Marketing Industry
Automobile Industry
The SEC (Securities & Exchange Commission) requires companies to do the following: (pick TWO):
Register all public offerings
Change CEOs on a regular basis
Regulates stock sales
Prohibits foreign bribery
Regulates the Money Supply
(T/F): Economics is a subfield of Finance.
True
False
(T/F): Capital is defined as a financial asset.
True
False
(T/F): Stocks and bonds are two types of financial instruments.
True
False
(T/F): Primary financial markets are markets where issuers place new securities with investors.
True
False
(T/F): An IPO occurs on the primary market.
True
False
(T/F): An IPO is a seasoned equity offering.
True
False
(T/F): Syndicates are generally made up of investment banks and other institutional investors.
True
False
(T/F): While competitive sales allow underwriters to submit bids to purchase bonds, negotiated sales do not.
True
False
(T/F): NASDAQ is the world's largest secondary financial market.
True
False
(T/F): Auction markets have a physical location.
True
False
(T/F): Dealer markets have a physical location.
True
False
(T/F): NASDAQ is an example of an auction market.
True
False
(T/F): Stocks that are listed on dealer markets generally have a single dealer for each stock.
True
False
(T/F): Markets are where prices are determined.
True
False
(T/F): The NYSE specialist will charge a higher price to sellers of the stock and a lower price to the buyer of the stock.
True
False
(T/F): The NYSE specialist has an objective to provide liquidity to the market.
True
False
(T/F): The bid-ask spread is compensation to the specialist for providing liquidity to the market.
True
False
A market order to buy a stock would execute at the current ask price.
True
False
(T/F): A market order to sell a stock would execute at the current ask price.
True
False
(T/F): A limit order to buy a stock at $101.55 would execute at the current ask price.
True
False
(T/F): A limit order to buy a stock at $101.55 would execute when the ask price is at or below $101.55.
True
False
(T/F): Efficient markets are those in which prices are volatile.
True
False
(T/F): Efficient markets will often have mispriced securities.
True
False
(T/F): Inefficient markets are those in which prices will respond quickly to new information.
True
False
(T/F): Inefficient markets will often have mispriced securities.
True
False
(T/F): Because in an efficient market all available information is built into the price of a stock - investment patterns and trends to "get rich quickly" are not easily discernable and it is difficult to predict the price.
True
False
