Tutorial- A+ Answers

Corporations receive the majority of their financing through common stock sales.

a. true

b. false



Q2. Britney and Christina Incorporated has a debt ratio of 0.42, noncurrent liabilities of $20,000 and total assets of $70,000. What is Britney and Christina's level of current liabilities?

a. $8,400

b. $9,400

c. $12,348

d. $10,600



Q3. Because they occur in private, less strict regulations are placed on the private placement of securities.

a. true

b. false



Q4. Which of the following financial ratios is the best measure of the operating effectiveness of a firm's management?

a. current ratio

b. net profit margin

c. quick ratio

d. OIROI



Q5. A firm that wants to know if it has enough cash to meet its bills would be most likely to use which kind of ratio?

a. liquidity

b. leverage

c. efficiency

d. profitability



Q6. DuPont analysis indicates that the return on assets equals the return on equity when total assets equals common equity.

a. true

b. false



Q7. A Cash Flow Statement can be used to answer a variety of questions. Which of the following would this statement not be likely to answer?

a. Why was money borrowed?

b. Where did profits go?

c. What is the current level of inventory?

d. How was the retirement of debt accomplished?



Q8. The procedure by which significant changes may be made to a partnership, such as admission of a new partner or termination of the partnership, are governed by each state so no partnership agreement is needed.

a. true

b. false



Q9. DuPont analysis indicates that the return on equity may be boosted above the return on assets by using leverage (debt).

a. true

b. false



Q10. A corporation may normally exclude what percentage of dividend income received from another corporation?

a. 70%

b. 50%

c. 35%

d. 30%



Q11. An advantage of the OIROI ratio is that it:

a. ignores the firm's financing policies.

b. uses net income to measure efficiency.
c. combines total asset turnover and gross profit margin.

d. simply assumes that a firm is financed 50% by equity and 50% by debt.



Q12. One of the benefits of organized security exchanges is that they are said to provide a _____ market.

a. continuous

b. connected

c. convenient

d. cumbersome



Q13. Margin requirements are set by:

a. the Chairman of the Federal Reserve.

b. the Board of Governors of the Federal Reserve.

c. the Secretary of the Treasury

d. the Securities and Exchange Commission

Q14. Based on the information in the table, calculate the after tax cash flow from operations for 2002 (no assets were disposed of during the year, and there was no change in interest payable or taxes payable):



Jones Company

Financial Information

December 2001 December 2002



Net income $1,500 $3,000

Accounts receivable 750 750

Accumulated depreciation 1,125 1,500

Common stock 4,500 5,250

Paid-in capital 7,500 8,250

Retained earnings 1,500 2,250

Accounts payable 750 750

a. $3,750

b. $3,375
c. $3,000

d. $2,250



Q15. The market price of the firm's stock reflects the value of the firm as seen by its owners.

a. true

b. false



Q16. PDQ Corp. has sales of $3,000,000; the firm's cost of goods sold is $1,425,000; and its total operating expenses are $700,000. The firm's interest expense is $230,000, and the corporate tax rate is 40%. What is PDQ's net income?

a. $258,000

b. $350,000

c. $387,000

d. $645,000



Q17. In 2002 Clanton, Inc. had a gross profit of $27,000 on sales of $110,000. Clanton's operating expenses for 2002 were $13,000, and its net profit margin was .0585. Clanton had no interest expense in 2002. What was Clanton's gross profit margin for 2002?

a. 0.127

b. 0.325

c. 0.245

d. 0.364



Q18. Common stock is the most relied on financing method used by corporations.

a. true

b. false



Q19. The SEC requires registration of a public issue in which of the following circumstances?

a. a railroad bond issue

b. an issue of commercial paper

c. a public utility issue

d. an issue of $5,000,000



Q20. The goal of the firm should be:

a. maximization of profits (net income per share)

b. maximization of shareholder wealth

c. maximization of market share

d. maximization of sales



Q21. Which of the following ratios would be the most useful to assess the risk associated with a firm being able to pay off its short-term line of credit?

a. Return on equity.

b. The acid test ratio.

c. The operating profit margin.

d. The fixed asset turnover.

Q22. In a typical year, when new funds are being raised, corporate debt markets outweigh corporate equity markets in terms of dollar volume.

a. true

b. false



Q23. 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


ANSWERS/ SOLUTIONS