BCOR2204 Quiz#1 Eq Sheet and Practice Questions PDF

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BCOR2204 Equation Sheet This sheet will be provided to you for Quiz#1 (no need to bring your own copy).

ROE = Returns / Equity = ROA * FLM = NPM * TAT * FLM ROA = Returns / Assets NPM = Returns / Sales TAT = Sales / Assets FLM = Assets / Equity Current Ratio = CA / CL Quick Ratios = [CA – Inventory] / CL Ave Pmt Period = A/P / Ave Purchases per day Inventory Turnover = CGS / Inventory Ave age of Inventory = 365 / Inventory Turnover Ave Collection Period = A/R / Ave sales per day Gross Profit Margin = Gross Profits / Sales Operating Profit Margin = Operating Profits / Sales Times Interest Earned = EBIT / Interest P/E ratio = PPS / EPS

Quiz#1 Practice Questions BCOR2204 Finance Clicker questions & homework questions would also provide a non-comprehensive review of pertinent materials. The class slides, spreadsheets, textbook, and your class notes would also be helpful to review. Ratios to be familiar with and to know how to calculate: DuPont Model, ROE, ROA, NPM, TAT, Current, Quick, Ave Pmt Period, Inventory Turnover, Ave age of Inventory, Ave Collection Per, Gross Prof Margin, Op Prof Margin, Times Interest Earned, P/E Note: The following questions are NOT meant to be a comprehensive study guide, but rather give an indication of the type and format of questions that will be asked. You will NOT have access to Excel during the test, you will need a calculator. The number of questions in each chapter below is NOT an indication of the weighting for Quiz #1.

Chapter 1 1) ________ is concerned with design and delivery of advice and financial products to individuals, businesses, and governments. A) Managerial finance B) Auditing services C) Financial services D) Cost accounting Answer: C 2) Managerial finance ________. A) involves tasks such as budgeting, financial forecasting, cash management, and funds procurement B) involves the design and delivery of advice and financial products C) recognizes funds on an accrual basis D) devotes the majority of its attention to the collection and presentation of financial data Answer: A 3) Profit maximization as the goal of the firm is not ideal because ________. A) profits are only accounting measures B) cash flows are more representative of financial strength C) profit maximization does not consider risk D) profits today are less desirable than profits earned in future years Answer: C

4) The implementation of a pro-active ethics program is expected to result in ________. A) a positive corporate image and increased respect, but is not expected to affect cash flows B) an increased share price resulting from a decrease in risk, but is not expected to affect cash flows C) a positive corporate image and increased respect, but is not expected to affect share price D) a positive corporate image and increased respect, a reduction in risk, and enhanced cash flow resulting in an increase in share price Answer: D 5) The board of directors is typically responsible for ________. A) approving strategic goals and plans B) managing day-to-day operations C) arranging finance for approved long-term investments D) maintaining and controlling the firm's daily cash balances Answer: A 6) The agency problem may result from a manager's concerns about ________. A) job security B) maximizing shareholder value C) corporate goals D) increasing creditworthiness Answer: A

Chapter 3 7) The ________ ratios are primarily used as measures of return. A) liquidity B) activity C) debt D) profitability Answer: D 8) If the only information you are given about Ryan Corporation, a large public company in business for many years, is that it has a current ratio of 2.9, what could you infer from this? A) It can meet the short-term obligations without any difficulty. B) You could determine that Ryan has a liquidity problem because Ryan's current ratio is greater than 2 which is the rule of thumb for the current ratio. C) Nothing, you would also need the current ratio's from thelast few years of the S&P 500 Index. D) You could determine that Ryan has an activity problem because Ryan's current ratio is greater than 2 which is the rule of thumb for the current ratio. Answer: A 9) Nico Corporation has cost of goods sold of $300,000 and inventory of $30,000, then the inventory turnover is ________ and the average age of inventory is ________. A) 36.5; 10 B) 10; 36.5 C) 36.0; 10 D) 30; 36.0 Answer: B

10) ________ may indicate a firm is experiencing stockouts and lost sales. A) Average payment period B) Inventory turnover ratio C) Average collection period D) Quick Answer: B

11) The ________ measures the activity, or liquidity, of a firm's stock of goods. A) average collection period B) inventory turnover ratio C) average payment period D) total asset turnover ratio Answer: B 12) Nico Corporation has annual purchases of $300,000 and accounts payable of $30,000, then average purchases per day are ________ and the average payment period is ________. A) 36.5; 821.9 B) 36.0; 833.3 C) 821.9; 36.5 D) 833.3; 36.0 Answer: C 13) The ________ ratio indicates the efficiency with which a firm uses its assets to generate sales. A) inventory turnover B) total asset turnover C) quick D) current asset turnover Answer: B

Table 3.2 Dana Dairy Products Key Ratios

Income Statement Dana Dairy Products For the Year Ended December 31, 2013

Balance Sheet Dana Dairy Products December 31, 2013

14) The current ratio for Dana Dairy Products in 2013 was ________. (See Table 3.2) A) 1.58 B) 0.63 C) 1.10 D) 0.91 Answer: D 15) Since 2012, the liquidity of Dana Dairy Products ________. (See Table 3.2) A) has deteriorated B) has remained the same C) has improved D) is not determinable Answer: A

16) The inventory turnover for Dana Dairy Products in 2013 was ________. (See Table 3.2) A) 43 B) 5 C) 20 D) 25 Answer: C 17) The inventory management at Dana Dairy Products ________ since 2012. (See Table 3.2) A) has deteriorated B) has remained the same C) has improved slightly D) cannot be determined Answer: C 18) The average collection period for Dana Dairy Products in 2013 was ________. (See Table 3.2) A) 32.5 days. B) 11.8 days. C) 25.3 days. D) 35.9 days. Answer: A 19) If Dana Dairy Products has credit terms which specify that accounts receivable should be paid in 25 days, the average collection period ________ since 2012. (See Table 3.2) A) has deteriorated B) has remained the same C) has improved D) cannot be determined Answer: A

20) Dana Dairy Products had a ________ degree of financial leverage than the industry standard, resulting in ________. (See Table 3.2) A) lower; lower return on total assets B) lower; lower return on equity C) higher; higher return on equity D) higher; higher return on total assets Answer: B 21) Dana Dairy Products' gross profit margin was inferior to the industry standard. This may have resulted from ________. (See Table 3.2) A) a high sales price B) the high cost of goods sold C) excessive selling and administrative expenses D) excessive interest expense Answer: B 22) The gross profit margin and net profit margin for DanaDairy Products in 2013 were ________. (See Table 3.2) A) 13 percent and 0.9 percent, respectively B) 13 percent and 1.5 percent, respectively C) 2 percent and 0.9 percent, respectively D) 2 percent and 1.5 percent, respectively Answer: A 23) The return on total assets for Dana Dairy Products for 2013 was ________. (See Table 3.2) A) 0.9 percent B) 5.5 percent C) 25 percent D) 2.5 percent Answer: D

24) The return on equity for Dana Dairy Products for 2013 was ________. (See Table 3.2) A) 0.6 percent B) 5.6 percent C) 0.9 percent D) 50 percent Answer: B 25) Using the modified DuPont formula allows the analyst to break Dana Dairy Products return on equity into 3 components: the net profit margin, the total asset turnover, and a measure of leverage (the financial leverage multiplier). Which of the following mathematical expressions represents the modified DuPont formula relative to Dana Dairy Products' 2013 performance? (See Table 3.2) A) 5.6(ROE) = 2.5(ROA) × 2.22(Financial leverage multiplier) B) 5.6(ROE) = 3.3(ROA) × 1.70(Financial leverage multiplier) C) 4.0(ROE) = 2.5(ROA) × 2.00(Financial leverage multiplier) D) 2.5(ROE) = 5.6(ROA) × 2.22(Financial leverage multiplier) Answer: A

Chapter 4 26) Which of the following is a cash inflow? A) a decrease in accounts payable B) a decrease in accounts receivable C) an increase in dividend payment D) a decrease in accrued liabilities Answer: B

27) An external sales forecast is based on ________. A) the relationships between a firm's sales and certain key economic indicators such as GDP and consumer confidence B) a buildup, or consensus of sales forecasts through a firm's own sales channels C) the prediction of a firm's sales over a given period through the analysis of the sales trends of its competitors D) developing the pro forma income statement to forecast sales and then express the various income statement items as percentage of projected sales Answer: A 28) The key input to the short-term financial planning process is ________. A) the audit report B) the pro forma balance sheet C) the sales forecast D) the pro forma income statement Answer: C 29) A firm has projected sales in May, June, and July of $100, $200, and $300, respectively. The firm makes 20 percent of sales for cash and collects the balance one month following the sale. The firm's total cash receipts in July is ________. A) $220 B) $200 C) $180 D) $140 Answer: A 30) The key input to any cash budget is ________. A) the sales forecast B) the production plan C) the pro forma balance sheet D) the current tax laws Answer: A

31) If a firm expects short-term cash surpluses, it can plan ________. A) long-term investments B) short-term borrowing C) short-term investments D) leverage decisions Answer: C 32) A firm has actual sales in November of $1,000 and projected sales in December and January of $3,000 and $4,000, respectively. The firm makes 10 percent of its sales for cash, collects 40 percent of its sales one month following the sale, and collects the balance two months following the sale. The firm's total expected cash receipts in January is ________. A) $700 B) $2,100 C) $1,900 D) $300 Answer: B 33) In October, a firm had an ending cash balance of $35,000. In November, the firm had a net cash flow of $40,000. The minimum cash balance required by the firm is $25,000. At the end of November, the firm had ________. A) an excess cash balance of $50,000 B) an excess cash balance of $75,000 C) required total financing of $15,000 D) required total financing of $5,000 Answer: A 34) The primary purpose in preparing pro forma financial statements is ________. A) for cash planning B) to ensure the ability to pay dividends C) for risk analysis D) for profit planning Answer: D 35) ________ are projected financial statements. A) Pro forma statements B) Statements of retained earnings C) Cash budgets D) Cash flow statements Answer: A

36) The key inputs for preparing pro forma income statements using the simplified approaches are the ________. A) sales forecast for the preceding year and financial statements for the coming year B) sales forecast for the coming year and the cash budget for the preceding year C) sales forecast for the coming year and financial statements for the preceding year D) cash budget for the coming year and sales forecast for the preceding year Answer: C 37) The percentage-of-sales method of preparing pro forma income statements assumes that ________. A) sales are fixed B) all costs inversely vary with sales C) all costs are independent D) all costs are variable Answer: D 38) In a period of rising sales utilizing past cost and expense ratios (percent-of-sales method), when preparing pro forma financial statements and planning financing, will tend to ________. A) understate retained earnings and understate the additional financing needed B) overstate retained earnings and overstate the additional financing needed C) understate retained earnings and overstate the financing needed D) overstate retained earnings and understate the financing needed Answer: C 39) A firm has prepared the coming year's pro forma balance sheet resulting in a plug figure in a preliminary statement—called the external financing required—of $230,000. The firm should prepare to ________. A) repurchase common stock totaling $230,000 B) arrange for a loan of $230,000 C) do nothing; the balance sheet balances D) invest in marketable securities totaling $230,000 Answer: B

Use the percent-of-sales method to prepare a pro forma income statement for the year ended December 31, 2015, for Hennesaw Lumber, Inc. Hennesaw Lumber, Inc. estimates that its sales in 2015 will be $4,500,000. Interest expense is to remain unchanged at $105,000 and the firm plans to pay cash dividends of $150,000 during 2015. Hennesaw Lumber, Inc.'s income statement for the year ended December 31, 2014 is shown below. From your preparation of the pro forma income statement, answer the following multiple choice questions.

40) The pro forma net profits after taxes for 2015 are ________. (See Table 4.4) A) $202,500 B) $207,000 C) $52,500 D) $57,000 Answer: B 41) The pro forma cost of goods sold for 2015 is ________. (See Table 4.4) A) $3,500,000 B) $3,750,000 C) $3,825,000 D) $4,000,000 Answer: C 42) The pro forma operating expenses for 2015 are ________. (See Table 4.4) A) $150,000 B) $200,000 C) $210,000 D) $225,000 Answer: D...