Finance Questions

Maple Furniture recently issued new common stock and used the proceeds to pay off some of its short-term notes payable. This action had no effect on the company's total assets or operating income. Which of the following effects would occur as a result of this action?a. The company's equity multiplier increased.b. The company's return on assets decreased.c. The company's times interest earned ratio decreased.d. The company's debt ratio increased.e. The company's current ratio increased.

A firm wants to strengthen its financial position. Which of the following actions would INCREASE its current ratio?a. Borrow using short-term debt and use the proceeds to repay debt that has a maturity of more than one year.b. Reduce the company’s days’ sales outstanding ratio to the industry average and use the resulting cash savings to purchase plant and equipment.c. Use cash to increase inventory holdings.d. Use cash to repurchase some of the company’s own stock.e. Issue new stock and use some of the proceeds to purchase additional inventory and hold the remainder of the funds received as cash.

Which of the following statements is CORRECT?a. In the statement of cash flows, depreciation charges are reported as a use of cash.b. In the statement of cash flows, a decrease in accounts receivable is reported as a use of cash.c. In the statement of cash flows, a decrease in inventories is reported as a use of cash.d. In the statement of cash flows, a decrease in accounts payable is reported as a use of cash.e. All of the above answers are correct.

The primary operating goal of a publicly-owned firm interested in serving its stockholders should be toa. Maximize its expected total corporate income.b. Maximize its expected EPS.c. Minimize the chances of losses.d. Maximize the stock price per share over the long run, which is the stock's intrinsic value.

When a manager creates a budget that is too easy to attain, ____ occurs:

The CFO of Mulroney Industries plans to have the company issue $300 million of new common stock and to use the proceeds to pay off some of its outstanding bonds. Assume that the company, which does not pay any dividends, takes this action, and that total assets, operating income (EBIT), and its tax rate all remain constant. Which of the following would occur?a. The company's net income would increase.b. The company's taxable income would fall.c. The company would have to pay less taxes.d. The company would have less common equity than before.e. The company's interest expense would remain constant.

Nelson Automotive is considering issuing new common stock and using the proceeds to reduce its outstanding debt. The stock issue would have no effect on total assets, the interest rate Nelson pays, EBIT, or the tax rate. Which of the following is likely to occur if the company goes ahead with the stock issue?a. Net income will decrease.b. The times interest earned ratio will decrease.c. The ROA will decrease.d. The tax bill will increase.e. Taxable income will decrease.

What is a firm's intrinsic value? Current stock price? Stock's "true" long-run value more closely related to its intrinsic value or to its current price

Which of the following statements is correct?a. If a firm increases its sales while holding its accounts receivable constant, then, other things held constant, its days' sales outstanding (DSO) will increase.b. If a firm increases its sales while holding its accounts receivable constant, then, other things held constant, its days' sales outstanding will decline.c. A reduction in accounts receivable would have no effect on the current ratio, but it would lead to an increase in the quick ratio.d. If a securities analyst saw that a firm's days' sales outstanding was increasing and was higher than the industry average and also was trending still higher, this would be interpreted as a sign of strength.e. There is no relationship between the days' sales outstanding (DSO) and the average collection period (ACP). These ratios measure different things.

Which of the following is a primary market transaction?a. You sell 200 shares of IBM stock on the NYSE through your broker.b. You buy 200 shares of IBM stock from your brother. The trade is not made through a broker—you just give him cash and he gives you the stock.c. IBM issues 2,000,000 shares of new stock and sells them to the public.d. One financial institution buys 200,000 shares of IBM stock from another institution. An investment banker arranges the transaction.e. All of the statements above are correct.

Which of the following statements is CORRECT?a. Four key financial statements are the balance sheet, the income statement, the statement of cash flows, and the statement of retained earnings.b. The balance sheet gives us a picture of the firm's financial situation over a period of time.c. The income statement gives us a snapshot of what is happening at a point in time.d. The statement of cash flows tells us how much cash the firm has in the form of currency and demand deposits.e. The statement of cash needs tells us how much cash the firm will require during some future period, generally a month or a year.

Which of the following items is NOT included in current assets?a. Accounts payable.b. Inventory.c. Accounts receivable.d. Cash.e. Short-term, highly liquid, marketable securities.

Below is the common equity section (in millions) of Glenn Technology’s last two year-end balance sheets:2005 2004Common stock 2,000 1,000Retained earnings 2,000 2,340Total common equity $4,080 $3,420Glenn has never paid a dividend to its common stockholders. Which of the following statements is CORRECT?a. The market price of Glenn’s stock doubled in 2005.b. The company has more equity than debt on its balance sheet.c. Glenn had positive net income in both 2004 and 2005, but the company’s net income in 2005 was lower than it was in 2004.d. The company’s net income in 2005 was higher than in 2004.e. Glenn issued common stock in 2005.

Analysts who follow Sierra Nevada Inc. recently noted that, relative to the previous year, the company’s operating net cash flow increased, yet cash as reported on the balance sheet declined. Which of the following factors could explain this situation?a. The company sold a division and received cash in return.b. The company cut its dividend.c. The company made a large investment in a new plant.d. The company issued new long-term debt.e. The company issued new common stock.

Which of the following statements is CORRECT?a. The NYSE does not exist as a physical location; rather it represents a loose collection of dealers who trade stock electronically.b. An example of a primary market transaction would be your uncle transferring 100 shares of Wal-Mart stock to you as a birthday gift.c. Capital market instruments include both long-term debt and common stocks.d. If your uncle in New York sold 100 shares of Microsoft through his broker to an investor in Los Angeles, this would be a primary market transaction.e. While the two frequently perform similar functions, investment banks generally specialize in lending money, whereas commercial banks generally help companies raise large blocks of capital from investors.

Most studies of stock market efficiency suggest that the stock market is highly efficient in the weak-form and reasonably efficient in the semistrong-form. Assuming these findings are correct, which of the following statements is CORRECT?a. Information you read in The Wall Street Journal cannot be used to select stocks that are likely to produce above-average rates of return.b. You have been tracking a stock's price over the past 6 months, and you note that this particular stock has tended to rise sharply immediately after it has fallen for three days. You can use this information to devise a trading strategy that will help you beat the market.c. If you apply financial analysis properly, you can use information provided in companies' annual reports to earn above-average returns.d. Even if you possess insider information, you cannot use this information to earn above-average returns because such information will already be reflected in stock prices.e. You notice that a company's stock price always seems to swing back and forth--whenever it by 10% or more, it seems to recover and to eventually exceed its former high. Since its price has fallen during the past 2 months, now is a great

Which of the following statements is correct?a. Other things held constant, a reduction in the inventory turnover ratio will increase the ROE.b. If a firm increases its sales while holding its inventories constant, then, other things held constant, its inventory turnover ratio will decrease.c. A reduction in inventories held would have no effect on the current ratio.d. An increase in inventories held would have no effect on the current ratio.e. If a firm increases its sales while holding its inventories constant, then, other things held constant, its inventory turnover ratio will increase.

Which of the following statements is CORRECT?a. If you purchase 100 shares of Disney stock from your brother-in-law, this is an example of a primary market transaction.b. If Disney issues additional shares of common stock through an investment banker, this would be a secondary market transaction.c. The NYSE is an example of an over-the-counter market.d. Only institutions, and not individuals, can engage in the derivatives markets.e. As they are generally defined, money market transactions involve debt securities with maturities of less than one year.

Which of the following actions would be likely to encourage a firm's managers to make decisions that are in the best interest of shareholders?a. The percentage of executive compensation that comes the form of cash is increased and the percentage from than long-term stock options is reduced.b. The state legislature passes a law that makes it more difficult to successfully complete a hostile takeover.c. The percentage of the firm's stock that is held by institutional investors such as mutual funds, pension funds, and hedge funds rather than by small individual investors rises from 10% to 60%.d. The firm's founder, who is also president and chairman of the board, sells 90% of her shares.e. The firm's board of directors gives the firm's managers greater freedom to take whatever actions they decide to take.

Superior Medical System's 2005 balance sheet showed total common equity of $2,050,000. The company had 100,000 shares of stock outstanding which sold at a price of $57.25 per share. By how much did the firm's market value and book value per share differ?a. $36.75b. $38.25c. $39.50d. $40.25e. $51.00