BUSI 530 FINANCE EXAM 01 QUIZ / BUSI530 FINANCE EXAM 01 QUIZ:LATEST-LIBERTY UNIVERSITY

BUSI 530 FINANCE EXAM 01 QUIZ / BUSI530 FINANCE EXAM 01 QUIZ:LATEST-LIBERTY UNIVERSITYBUSI 530 EXAM 01 QUIZ BUSI 530 – Exam 1 Liberty University 1. Which of the following is a real asset? a) A patent b) A share of stock issued by Bank of New York c) An IOU (“I owe you”) from your brother-in-law d) A mortgage loan taken out to help pay for a new home 2. Capital budgeting decisions are used to determine how to raise cash necessary for investments. a. True b. False 3. Which one of the following would correctly differentiate general partners from limited partners in a limited partnership? a. General partners have more job experience b. General partners have an ownership interest c. General partners are subject to double taxation d. General partners have unlimited personal liability 4. Which form of organization provides limited liability for the firm but yet allows the professionals working within that firm to be sued personally? a. Limited liability partnership b. Limited liability company c. Sole proprietorship d. Professional corporation 5. Sole proprietorships face the same agency problems as those associated with corporations. a. True b. False 6. When managers' compensation plans are tied in a meaningful manner to the value of the firm, agency problems: a. Can be reduced b. Will be created c. Are shifted to other stakeholders d. Are eliminated entirely from the firm 7. A corporation is considered to be closely held when: a. Only a few shareholders exist b. The market value of shares is stable c. It operations in a small geographic area d. Management also serves as the board of directors 8. A mother in a developing country wants to borrow the equivalent of $20 to enable her to start a small restaurant run by her family. Which type of financing is she looking to obtain? a. Public bond issue b. IPO c. Micro loan d. Futures contract on a commodity 9. From June 2001 to June 2006, house prices in the United States rose sharply. a. True b. False 10. Which of the following information is not provided by the financial markets? a. The price of six ounces of gold b. The cost of borrowing $500,000 for 5 years c. Microsoft’s earnings in 2013 d. The cost of one million yen in the U.S. 11. Which one of the following is least liquid? a. Foreign currency b. U.S. Treasury bonds c. Real estate d. Bank deposit 12. The cost of capital is the interest rate paid on a loan from a bank or some other financial institution. a. True b. False 13. The market for derivatives is also a source of financing for corporations. a. True b. False 14. Only the IPOs for large corporations are sold in primary markets. a. True b. False 15. Which of the following statements correctly describes international accounting standards? a. The standards are becoming less similar over time b. They are concerned only with assets and not liabilities c. Compared with standards in the United States international standards involved less detailed rules d. Balance sheets differ, but the income statements are similar in all countries 16. What happens to a firm's net worth as it uses cash to repay accounts payable? a. Net worth increases b. Net worth decreases c. Net worth remains constant d. Net worth decreases temporarily, until cash in replenished 17. Assume tax rates on single individuals are 10% on taxable income up to $9,275, 15% on income of $9,276 to $37,650 and 25% on income of $37,651 to $91,150. What is the tax liability for a single individual with $52,000 of taxable income, which includes $2,000 of dividends? a. $8,771.25 (0.10 × $9,275) + (0.15 × $28,375) + (0.25 × $14,350) = $8,771.25 b. $9,103.50 c. $8,603.50 d. $8,365.25 18. You have gathered this information on a firm: $500,000 sales, $10,000 cash dividends, $300,000 cost of goods sold, $20,000 administrative expense, $20,000 depreciation expense, $40,000 interest expense, $10,000 purchase of productive equipment, no changes in working capital, and a tax rate of 35%. What is the free cash flow? a. $141,000 b. $168,000 c. $128,000 Net income = ($500,000 - 300,000 - 20,000 - 20,000 - 40,000) × (1 - 0.35) = $78,000 Cash flow from operations = $78,000 + 40,000 + 20,000 = $138,000 Free cash flow = $138,000 - 10,000 = $128,000 d. $142,000 19. A company pays tax at a rate of 15% on its first $50,000 of income. If it has $60,000 of taxable income and an average tax rate of 18%, what is the marginal tax rate on its last $10,000 of income? a. 15% b. 33% 0.18 × $60,000 = (0.15 × $50,000) + (x × ($60,000 - 50,000)) $10,800 = $7,500 + $10,000x x = 0.33, or 33% c. 18% d. 25% 20. Which one of these will increase a firm's cash balance? a. An increase in inventory b. A decrease in accounts payable c. An issue of common stock d. Purchase of new equipment 21. Which of the following will occur in a statement of cash flows as a result of paying cash dividends? a. Cash flows from operations will increase b. Cash flows from investments will decrease c. Cash flows from financing will decrease d. Cash balances will not be affected 22. Which of the following could account for a firm that has a negative net income, yet has a positive amount of cash provided by operations? a. The net loss was greater than the amount of depreciation expense b. Inventory increased significantly more than accounts payable c. Accounts receivable decreased by significantly more than accounts payable d. The cash balance increased significantly 23. The net working capital to total assets ratio is always a larger number than the current ratio. a. True b. False 24. Efficiency ratios: a. Include the quick ratio, asset turnover ratio, and return on equity b. are used to measure how well the company uses its assets c. are used to measure how liquid the company is d. measure the profits generated by a firm’s equity and assets. 25. If a company has a healthy current ratio but a significantly lower quick ratio, then you can assume that: a. The cost of goods sold represents more than half of sales b. Current liabilities exceed current assets c. The firm sells only on a cash basis d. Inventory represents a large portion of the firm’s current assets 26. Which one of the following will increase a firm's times interest earned ratio? a. An increase in debt b. A decrease in cost of goods sold c. An increase in interest expense d. A decrease in net income 27. Return on assets is always a larger number than the return on equity. a. True b. False 28. To calculate which of these measures do you need to know the cost of capital? a. ROC b. ROA c. ROE d. EVA 29. After-tax operating income for a leveraged firm is defined as: a. Net income + after-tax interest b. EBIT x (1-tax rate) c. Net income + depreciation d. Profit margin x sales 30. Other things equal, an increase in average accounts receivable will increase a firm's return on assets. a. True b. False