Financial Management Final Exam - 185 Questions & Answers Which of the following would represent a use of funds and, indirectly, a reduction in cash
... [Show More] balances? A. An increase in inventories B. A decrease in marketable securities C. An increase in accounts payable D. The sale of new bonds by the firm In the percent-of-sales method A. as the dividend payout ratio rises, the required new funds declines. B. the dividend payout ratio does not affect new funds. C. as the dividend payout ratio goes up, the required new funds also rises. D. None of the options. The increasing percentage ownership of public corporations by institutional investors has A. had no effect on corporate management. B. created higher returns for the stock market in general. C. created more pressure on public companies to manage their firms more efficiently. D. taken away the voice of the individual investor. The difference between total receipts and total payments is referred to as A. cumulative cash flow. B. beginning cash flow. C. net cash flow. D. cash balance. Maximization of shareholder wealth is a concept in which A. increased earnings is of primary importance. B. profits are maximized on a quarterly basis. C. virtually all earnings are paid as dividends to common stockholders. D. optimally increasing the long-term value of the firm is emphasized. In the percent-of-sales method, an increase in dividends A. will increase required new funds. B. will decrease required new funds. C. has no effect on required new funds. D. More information is needed. As mergers, acquisitions, and restructuring have increased in importance, agency theory has become more important in assessing whether A. a stock repurchase should be undertaken. B. shareholder goals are truly being achieved by managers in the long run. C. managers are actually agents or only employees of the firm. D. managers and owners are actually the same people with the same interests. Capital markets do not include which of the following securities? A. Common stock B. Commercial paper C. Government bonds D. Preferred stock Regarding risk levels, financial managers should A. Pursue higher risk projects because they increase value B. Avoid higher risk projects because they destroy value C. Focus primarily on market fluctuations D. Evaluate investors desire for risk Increasing interest expense will have what effect on EBIT? A. It will have no effect. B. Increase it. C. Decrease it. D. There is not enough information to tell. Earnings per share is A. operating profit divided by number of shares outstanding. B. net income divided by number of shares outstanding. C. net income divided by stockholders' equity. D. net income minus preferred dividends divided by number of shares outstanding. When a firm's earnings are falling more rapidly than its stock price, its P/E ratio will A. remain the same. B. go up. C. go down. D. either go up or down. Which of the following would not be included in the balance sheet investment account? A. Stocks of other corporations B. Long-term government bonds C. Marketable securities D. Investments in other corporations The Sarbanes-Oxley Act set up the Public Company Accounting Oversight Board with the responsibility for all of the following except A. auditing standards within companies. B. controlling the quality of audits. C. certifying the competence of financial executives. D. setting rules and standards for the independence of auditors. Net worth is equal to stockholders' equity A. plus dividends. B. minus preferred stock. C. plus preferred stock. D. minus liabilities. Companies that perform well A. can sell their stock for a lower price. B. can minimize dilution when issuing new shares. C. can issue debt at a lower interest rate. D. can minimize dilution when issuing new shares and can issue debt at a lower interest rate. Total stockholders' equity consists of A. preferred stock and common stock. B. common stock and retained earnings. C. common stock and capital paid in excess of par. D. preferred stock, common stock, capital paid in excess of par, and retained earnings. The orientation of book value per share is ________, while the orientation of market value per share is _________. A. short term; long term B. future; historical C. historical; future D. long term; short term In the development of the pro forma financial statements, the last step in the process is the development of the A. cash budget. B. pro forma balance sheet. C. pro forma income statement. D. capital budget. Investors and financial analysts wanting to evaluate the operating efficiency of a firm's managers would probably look primarily at the firm's A. debt utilization ratios. B. liquidity ratios. C. asset utilization ratios. D. profitability ratios. An increase in investments in long-term securities will A. increase cash flow from investing activities. B. decrease cash flow from investing activities. C. increase cash flow from financing activities. D. decrease cash flow from financing activities. The financial markets allocate capital to corporations by A. reflecting expectations of the market participants in the price of the corporation's stock. B. requiring higher returns from companies with lower risk than their competitors. C. rewarding companies with expected high returns with lower relative stock prices. D. relying on the opinion of investment bankers. Free cash flow is equal to cash flow from operating activities A. plus capital expenditures, minus dividends. B. minus capital expenditures, plus dividends. C. plus capital expenditures, plus dividends. D. minus capital expenditures, minus dividends. Assuming a tax rate of 30%, the after-tax cost of a $100,000 dividend payment is A. $100,000 B. $70,000 C. $30,000 D. None of the options The best indication of the operational efficiency of management is A. net income. B. earnings per share. C. earnings before interest and taxes (EBIT). D. gross profit. The primary disadvantage of accrual accounting is that A. it does not match revenues and expenses in the period in which they are incurred. B. it does not appropriately measure accounting profit. C. it does not recognize accounts receivable. D. it does not adequately show the actual cash flows of the firm. Which of the following would indicate an accurate statement of cash flows? A. Net cash flow is equal to marketable securities balance B. Net cash flows from financing activities are equal to the change in stockholder's equity C. Net cash flow is equal to the ending cash balance D. Net cash flow is equal to the change in the cash balance An increase of $100,000 in inventory would result in a(n) A. Decrease of net cash flow. B. Increase in net cash flow. C. Decrease in marketable securities. D. Increase in bonds payable. One of the primary factors evaluated when a company is pursuing a leveraged buyout is A. Net cash flow. B. Free cash flow. C. Cash flow from financing activities. D. Cash flow from investing activities. Backdating of options is A. A fair method to award top-performing employees. B. Illegal. C. Not to be reported unless a gain is provided to an employee. [Show Less]