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Financial Management, FINN 3120 Sec 002 Spring 2019 Exam 1 Name___________________________________

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TIME: 2:30 pm to 3:45 pm MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. (20*4 points) 1) The primary goal of a publicly owned corporation is to ________. A) maximize dividends per share B) maximize shareholder wealth C) maximize earnings per share after taxes D) minimize shareholder risk 2) A financial manager is considering two projects, A and B. A is expected to add $2 million to profits this year while B is expected to add $1 million to profits this year. Which of the following statements is MOST correct? A) The manager should select project A because it maximizes profits. B) The manager should select the project that maximizes long-term profits, not just one year of profits. C) The manager should select project A or he is irrational. D) The manager should select the project that causes the stock price to increase the most, which could be A or B. 3) All of the following forms of business organizations provide limited liability to all owners EXCEPT A) limited liability company. B) S-type corporation. C) corporation. D) limited partnership. 4) Which of the following statements is an example of a futures market transaction? A) An investor purchases 100 shares of IBM hoping to sell it in two years for a profit. B) A company purchases an option to buy 1000 barrels of oil anytime between now and the end of the year. C) A company agrees to purchase 1000 barrels of oil for delivery in six months at a price of $70 per barrel. D) An executive has a portion of his current year salary deferred until he retires. 5) General Electric (GE) has been a public company for many years with its common stock traded on the New York Stock Exchange. If GE decides to sell 500,000 shares of new common stock, the transaction will be describe as A) an initial public offering. B) a secondary market transaction because GE common stock has been trading for years. C) a seasoned equity offering because GE has sold common stock before. D) a money-market transaction because GE raises new money to fund its business. 6) The New York Stock Exchange (NYSE) is A) an automated electronic trading platform. B) an auction market with face-to-face trading on the floor of the stock exchange in addition to automated, electronic trading. C) a hybrid market, allowing for face-to-face trading on the floor of the stock exchange in addition to 1

automated, electronic trading. D) primarily a futures market. 7) Advantages of private placements do NOT include which of the following? A) more financing flexibility B) lower flotation costs C) investor protection through extensive regulation D) funds which are available more quickly than through a public offering 8) Universal Financial, Inc. has total current assets of $1,200,000; long ‐term debt of $600,000; total current liabilities of $500,000; and long ‐term assets of $800,000. How much is the firm ʹs net working capital? A) $1,000,000 B) $900,000 C) $600,000 D) $700,000 9) Company A and Company B both report the same level of sales and net income. Therefore, A) both A and B will report the same Earnings Per Share. B) both A and B will report the same Gross Profit Margin. C) both A and B will report the same Net Profit Margin. D) both A and C are true. 10) Rogue Industries reported the following items for the current year: Sales = $3,000,000; Cost of Goods Sold = $1,500,000; Depreciation Expense = $170,000; Administrative Expenses = $150,000; Interest Expense= $30,000; Marketing Expenses = $80,000; and Taxes = $300,000; Rogue ʹs operating profit margin is equal to A) 25.67%. B) 35.67%. C) 36.67%. D) 50.00%. 11) California Retailing Inc. has sales of $4,000,000; the firmʹs cost of goods sold is $2,500,000; and its total operating expenses are $600,000. What is California Retailing ʹs EBIT? A) $850,000 B) $875,000 C) $900,000 D) $1,300,000 12) A corporation has annual sales of $18 million, total assets of $4 million, a debt ratio of 40%, depreciation expense of $200,000, and a tax rate of 40%. The corporationʹs total stockholdersʹ equity is equal to A) $5,600,000. B) $2,800,000. C) $2,400,000. D) $1,800,000. 13) A company borrows $2,000,000 and uses the money to purchase high technology machinery for its operations. These are examples of A) cash flow from financing and cash flow from operations. B) cash flow from investing and cash flow from operations. 2

C) cash flow from financing and cash flow from investing. D) cash flow from investing and cash flow from financing. 14) The Colorado Jet Boat Company had a cash balance of $3 million at the beginning of 2010. During 2010, Sales were $8 million and expenses were $7 million. Therefore, A) the cash balance at the end of 2010 is $4 million. B) the cash balance at the end of 2010 must be greater than $3 million. C) the cash balance at the end of 2010 must be less than $11 million. D) the cash balance at the end of 2010 cannot be determined from the information given.

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15) Based on the information in above table, the current ratio is A) 2.97. B) 2.46. C) 2.35. D) 2.23. 16) Based on the information in above table, the debt ratio is A) 28.12%. B) 34.74%. 4

C) 45.69%. D) 42.03%.

17) Based on the Table 4-1, the acid-test ratio is A) 1.71. B) 1.67. 5

C) 1.02. D) 0.98. 18) Based on the information in table 4-1, the times interest earned ratio is A) 32.33 times. B) 23.75 times. C) 19.00 times. D) 12.33 times. 19) Based on the information in Table 4-1, assuming that no preferred dividends were paid, the return on common equity is A) 55.15%. B) 44.86%. C) 38.83%. D) 17.56%. 20) Based on the information in Table 4-1, the fixed asset turnover ratio is A) 1.69. B) 2.17. C) 4.39. D) 4.80. 21) The five basic principles of finance include all of the following EXCEPT A) Cash flow is what matters. B) Money has a time value. C) Risk requires a reward. D) Incremental profits determine value. 22) Which of the following is an advantage of using private placements for debt? A) reduced costs from the elimination of the registration statement for the SEC, investment-banking underwriting fees and distribution costs B) lower interest costs C) fewer and less burdensome restrictive covenants D) the possibility of future SEC registration 23) The Securities and Exchange Commission (SEC) A) regulates only initial public offerings, or IPOs. B) regulates only primary market transactions to ensure investors are provided with adequate and accurate information on new securities. C) regulates both primary and secondary markets. D) regulates initial public offerings, but not seasoned equity offerings, in the primary market. 24) Rogue, Inc. has total current assets of $1,200,000; total current liabilities of $500,000; long ‐term assets of $800,000; and long ‐term debt of $600,000. How much is the firmʹs total equity? A) $1,200,000 B) $800,000 C) $900,000 D) $2,000,000 25) Rogue Industries reported the following items for the current year: Sales = $3,000,000; Cost of Goods

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Sold = $1,500,000; Depreciation Expense = $170,000; Administrative Expenses = $150,000; Interest Expense= $30,000; Marketing Expenses = $80,000; and Taxes = $300,000. Rogue ʹs gross profit is equal to A) $770,000. B) $1,070,000. C) $1,100,000. D) $1,500,000. 26) An income statement may be represented as follows: A) Sales ‐ Liabilities = Profits. B) Revenues ‐ Liabilities = Net Income. C) Sales ‐ Expenses = Retained Earnings. D) Sales ‐ Expenses = Profits. 27) When comparing inventory turnover ratios, other things being equal, A) a lower inventory turnover is preferred in order to keep inventory costs low. B) a higher inventory turnover is preferred to improve liquidity. C) higher inventory turnover results from old or obsolete inventory increasing the inventory balance on the balance sheet. D) higher inventory turnover results from an increase in the selling price of the product.

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