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UNIT 1 — MILESTONE 1
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You passed this Milestone
27 questions were answered correctly.
1
Which of the following would explain a company’s day sales outstanding ratio rising from 32 to 41.25?
The company's accounts receivable has decreased while the average inventory has increased.
The company's accounts receivable has decreased while the average inventory has remained constant.
The company's accounts receivable has remained constant while total sales has decreased.
The company's accounts receivable has decreased while total sales has increased.
CONCEPT
Asset Management Ratios
2
After a significant economic recession, prices and investing activity in the stock market began trending
consistently upward six years ago. In the last three months, this trend has reversed and prices have fallen
steadily.
How are the past three months of the stock market classified?
Primary bear market
Primary bull market2/15/2021 Sophia :: Welcome
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Secular bear market
Secular bull market
CONCEPT
Financial Markets
3
What expenses typically come first in the "Expenses" section of an income statement?
Selling, general and administrative expenses
Tax expenses
Irregular expenses
Non-operating expenses
CONCEPT
Standardizing Financial Statements
4
For which company can trend analysis be most useful?
A manufacturing company that has recently expanded into mining as well
An established hotel company that has made very few changes to its business model
A ride-sharing company whose business model has been rapidly adapting to market conditions
An insurance company that has recently been subject to new accounting laws2/15/2021 Sophia :: Welcome
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CONCEPT
Using Financial Ratios for Analysis
5
The primary factor behind all of finance is __________.
equity
time
money
debt
CONCEPT
Introducing Finance
6
If net income is $90 million and total assets are $480 million, then the ROA is __________.
25.00%
incalculable without EBIT data
incalculable without gross profit data
18.75%
CONCEPT
Profitability Ratios
7
When finalizing a pro forma income statement, what should be considered in addition to the sales
forecast?2/15/2021 Sophia :: Welcome
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Forecasted changes to owner's equity
Forecasted revenues
Forecasted market changes that may affect expenses
Forecasted target volume
CONCEPT
Forecasting the Income Statement
8
The purpose of a pro forma balance sheet is to __________.
prepare for a financial audit
analyze the effects of a sales forecast
compare previous accounting periods
analyze historical data
CONCEPT
Forecasting the Balance Sheet
9
If Company A has a TIE ratio of 3 and Company B has a TIE ratio of 1.2, then Company A is more likely
to __________ than Company B.
be able to honor its debt payments
be able to repay its long-term debt2/15/2021 Sophia :: Welcome
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need to use cash on hand to meet its interest obligations
default on its short-term debt
CONCEPT
Debt Management Ratios
10
Finn is interested in taking over a small business, but he wants to pay a fair price for it, so he consults their
income statements.
How can he determine the company's overall profitability in each quarter of the previous year?
Calculate total revenue minus total expenses
Calculate total revenue minus operating expenses
Calculate total revenue minus taxes paid
Calculate operating revenue minus operating expenses
CONCEPT
The Income Statement
11
Which statement best characterizes the impact of regulatory changes on corporate governance since the
1990s?
Oversight by boards of directors and independent auditors has decreased, allowing for greater corporate
flexibility.
Corporate governance has become untenable due to requirements that all conflicts of interest be
catalogued.2/15/2021 Sophia :: Welcome
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Corporate transparency and accountability have increased through revised reporting and oversight
requirements and stiffer penalties for fraud.
New regulations require corporate managers to prioritize the interests of external stakeholders over those
of shareholders.
CONCEPT
Corporate Governance
12
Tom and Wendy are launching a life coaching business. They plan to have an equal say in any managerial
business decisions and they plan to share any profits or losses. They are concerned about their exposure to
liability, so they have purchased some professional insurance policies. However, they are pleased with how
simple it has been to organize their business.
Which form of business structure have Tom and Wendy likely adopted?
Corporation
Partnership
S corporation
Sole proprietorship
CONCEPT
Types of Business Organizations
13
Consider the price to book ratios of the following companies:
Company A: 5.45
Company B: 14.30
Company C: 10.08
Company D: 19.62
Which company do investors believe will create the most value from its assets?
Company A2/15/2021 Sophia :: Welcome
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Company C
Company B
Company D
CONCEPT
Market Value Ratios
14
Under GAAP, how would dividends paid to company stockholders be accounted for on the statement of
cash flows?
As a decrease in cash flow from financing
As an increase in cash flow from financing
As a decrease in cash flow from investment
As an increase in cash flow from operations
CONCEPT
The Statement of Cash Flows
15
Ratios that measure a company's ability to manage its long-term debt are _________.
liquidity ratios
profitability ratios
leverage ratios2/15/2021 Sophia :: Welcome
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efficiency ratios
CONCEPT
Overview of Ratio Analysis
16
Which of the following is an example of an agency conflict?
Managerial self-dealing
Manager's salary
Board oversight
Shareholder voting rights
CONCEPT
Agency and Conflicts of Interest
17
Thomas is concerned about his company's ability to pay off its short-term debts.
If he wants to know more about his company's liquidity, what should he do?
Calculate his total assets
Calculate his net working capital
Calculate his debt to equity ratio
Calculate his total liabilities
CONCEPT2/15/2021 Sophia :: Welcome
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The Balance Sheet
18
Internet platforms have allowed for the greatest increase of what recent trend in finance?
Microfinancing
Algorithmic trading
Peer-to-peer lending
Impact investing
CONCEPT
Trends and Issues in Finance
19
Consider the following information:
Total current assets $42,123
Deferred income taxes $2,638
Inventories $4,873
Prepaid expenses $1,554
Other assets $6,263
Total current liabilities $38,902
What is the current ratio?
0.97
1.15
1.08
1.212/15/2021 Sophia :: Welcome
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CONCEPT
Liquidity Ratios
20
What is a question that should be asked about accounts receivable when forecasting?
Are we taking on too much debt?
What do we anticipate owing to our suppliers?
What percentage of sales will likely be made on credit?
What is the lead time needed to replenish goods?
CONCEPT
Analyzing Forecasts
21
The process of predicting what the market would pay for a company's investments and bonds is
__________.
valuation
appraisal
assessment
financial management
CONCEPT
Goals of Financial Management
22
Capacity planning answers the question "__________"2/15/2021 Sophia :: Welcome
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How will we decide which direction to go?
What will our revenue be?
How can we be most efficient?
How will we finance it?
CONCEPT
Financial Forecasting
23
Lucas is worried about his company's short-term viability.
What type of financial statement should he look at?
Income statement
Balance sheet
Statement of changes in equity
Cash flow statement
CONCEPT
Introducing Financial Statements
24
Why are ethical issues complicated for businesses that operate in the global economy?
Because their employees won't know what the laws are in other countries.2/15/2021 Sophia :: Welcome
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Because they tend to have more employees.
Because they don't have as much moral character as small, local businesses.
Because different cultures have different norms and values.
CONCEPT
Ethics: An Overview
25
One reason that ROE calculations are broken down into three components in the DuPont equation is that
__________.
it shows management where ROE improvements can be made
the numbers are more difficult to falsify
it hides problem areas from analysts
it highlights exceptional financial planning
CONCEPT
The DuPont Equation
26
By appropriately preparing a forecast budget, a company can avoid __________.
a net loss
inventory shortages
insolvency2/15/2021 Sophia :: Welcome
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regulation
CONCEPT
Building a Cash Budget
27
Which method of depreciation calculation gives a company an equal tax benefit from one year to the
next?
Salvage
Straight line
Declining balance
Activity-based
CONCEPT
Tax Considerations
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