Midterm test multiple choice questions PDF

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Midterm test multiple choice questions...

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Q1: Normally, permanent current assets should be financed by: A. long-term funds. B. short-term funds. C. borrowed funds. D. internally generated funds. Correct answer: A. long-term funds.

Q2: An aggressive, risk-oriented firm will likely: A. borrow long-term and carry low levels of liquidity. B. borrow short-term and carry low levels of liquidity. C. borrow long-term and carry high levels of liquidity. D. borrow short-term and carry high levels of liquidity. Correct answer: B. borrow short-term and carry low levels of liquidity.

Q3: The concept of a self-liquidating asset implies that: A. the working capital associated with a product will be liquidated within a one-year period. B. all the product will be sold, receivables collected, and bills paid over the time period specified C. assets associated with the production of a product will be liquidated over the amortized life of the assets. D. self-liquidating assets will be financed by long-term sources of capital. Correct answer: B. all the product will be sold, receivables collected, and bills paid over the time period specified.

Q4: When actual sales are greater than forecasted sales:

A. inventory will increase. B. production schedules might have to be revised downward. C. accounts receivable will decrease. D. inventory will decrease and accounts receivable will increase. Correct answer: D. inventory will decrease and accounts receivable will increase.

Q5: The key initial element in developing pro forma statements is: A. a cash budget. B. an income statement. C. a sales forecast D. a collections schedule. Correct answer: C. a sales forecast

Q6: Ideally, sales projections should be derived from: A. an external viewpoint. B. an internal viewpoint. C. both internal and external viewpoints. D. the marketing department. Correct answer: C. both internal and external viewpoints.

Q7: Required production during a planning period will depend on the: A. cost of beginning inventory of products. B. credit sales during the period.

C. desired level of beginning inventory. D. desired level of ending inventory. Correct answer: D. desired level of ending inventory.

Q8: A quick ratio much smaller than the current ratio reflects: A. a small portion of current assets is in inventory. B. a large portion of current assets is in inventory. C. that the firm will have a high inventory turnover. D. that the firm will have a high return on assets. Correct answer: B. a large portion of current assets is in inventory.

Q9: Asset utilization ratios: A. relate the balance sheet assets to the income statement sales. B. measure how much cash is available for reinvestment into current assets. C. are most important to shareholders. D. measures the firm's ability to generate a profit on sales. Correct answer: A. relate the balance sheet assets to the income statement sales.

Q10: Which two ratios are used in the DuPont system to create return on assets? A. Return on assets and asset turnover B. Profit margin and asset turnover C. Return on total capital and the profit margin D. Inventory turnover and return on capital assets

Correct answer: B. Profit margin and asset turnover

Q11: Maximization of shareholder wealth is a concept in which: A. increased earnings are of primary importance. B. increased cash flows are of primary importance. C. increased dividends are of primary importance. D. increased share price is of primary importance. Correct answer: D. increased share price is of primary importance.

Q12: A corporation is not: A. owned by shareholders who enjoy the privilege of limited liability. B. easily divisible between owners. C. a separate legal entity with perpetual life. D. a separate legal entity with limited life. Correct answer: D. a separate legal entity with limited life. Q13: Preferred share dividends ________ earnings available to common shareholders. A. increase B. decrease C. due not effect D. not enough information to tell Correct answer: B. decrease

Q14: When a corporation uses the financial markets to raise new funds, the sale of securities is made in the: A. primary market. B. secondary market. C. on-line market. D. third market. Correct answer: A. primary market.

Q15: In order to estimate production requirements, we: A. add beginning inventory to projected sales in units and subtract desired ending inventory. B. add projected sales in units to desired ending inventory and subtract beginning inventory. C. add beginning inventory to desired ending inventory and divide by two. D. add beginning inventory to desired ending inventory and subtract projected sales in units. Correct answer: B. add projected sales in units to desired ending inventory and subtract beginning inventory....