What is the primary goal of financial management? – Minimizing risk of the firm Custom Paper

1) What is the primary goal of financial management?
A. Minimizing risk of the firm
B. Maximizing shareholder wealth
C. Increased earnings
D. Maximizing cash flow
2) Regarding risk levels, financial managers should
A. evaluate investor’s desire for risk
B. focus primarily on market fluctuations
C. pursue higher risk projects because they increase value
D. avoid higher risk projects because they destroy value
3) Maximization of shareholder wealth is a concept in which
A. optimally increasing the long-term value of the firm is emphasized.
B. virtually all earnings are paid as dividends to common stockholders.
C. increased earnings is of primary importance.
D. profits are maximized on a quarterly basis.
4) An increase in investments in long-term securities will:
A. decrease cash flow from financing activities.
B. increase cash flow from financing activities.
C. increase cash flow from investing activities.
D. decrease cash flow from investing activities.
5) Which of the following is not a primary source of capital to the firm?
A. bonds
B. preferred stock
C. assets
D. common stock
6) The statement of cash flows does NOT include which of the following sections?
A. cash flows from financing activities
B. cash flows from investing activities
C. cash flows from operating activities
D. cash flows from sales activities
7) For a given level of profitability as measured by profit margin, the firm’s return on equity will
A. decrease as its current ratio increases.
B. decrease as its times-interest-earned ratio decreases.
C. increase as its debt-to-assets ratio decreases.
D. increase as its debt-to assets ratio increases.
8) In examining the liquidity ratios, the primary emphasis is the firm’s
A. overall debt position.
B. ability to earn an adequate return.
C. ability to effectively employ its resources.
D. ability to pay short-term obligations on time.
9) The most rigorous test of a firm’s ability to pay its short-term obligations is its
A. quick ratio.
B. times-interest-earned ratio.
C. current ratio.
D. debt-to-assets ratio.
10) A firm has current assets of $75,000 and total assets of $375,000. The firm’s sales are $900,000. The firm’s fixed asset turnover is
A. 12.0x
B. 5.0x
C. 3.0x
D. 2.4x
11) Refer to the figure above. The firm’s fixed asset turnover ratio is
A. 1.5x.
B. 0.1x.
C. 3.1x.
D. 2x.
12) Refer to the figure above. The firm’s inventory turnover ratio is
A. 8x.
B. 0.1x.
C. 10x.
D. 2.7x.
13) In order to estimate production requirements, we
A. add projected sales in units to desired ending inventory and subtract beginning inventory.
B. add beginning inventory to desired ending inventory and subtract projected sales in units.
C. add beginning inventory to projected sales in units and subtract desired ending inventory.
D. add beginning inventory to desired ending inventory and divide by two.
14) The percent-of-sales method of financial forecasting
A. requires more time than a cash budget approach.
B. provides a month-to-month breakdown of data.
C. is more detailed than a cash budget approach.
D. assumes that balance sheet accounts maintain a constant relationship to sales.
15) In general, the larger the portion of a firm’s sales that are on credit, the
A. higher will be the firm’s need to borrow.
B. more the firm can buy raw materials on credit.
C. lower will be the firm’s need to borrow.
D. more rapidly credit sales will be paid off.
16) A firm utilizing LIFO inventory accounting would, in calculating gross profits, assume that
A. all sales were from beginning inventory.
B. all sales were for cash.
C. all sales were from current production.
D. sales were from current production until current production was depleted, and then use sales from beginning inventory.
17) In developing the pro forma income statement we follow four important steps:
1) compute other expenses,
2) determine a production schedule,
3) establish a sales projection,
4) determine profit by completing the actual pro forma statement.
What is the correct order for these four steps?
A. 3,2,4,1
B. 3,2,1,4
C. 1,2,3,4
D. 2,1,3,4
18) The difference between total receipts and total payments is referred to as
A. cash balance.
B. net cash flow.
C. beginning cash flow.
D. cumulative cash flow.
19) The degree of operating leverage is computed as
A. percent change in operating income divided by percent change in volume.
B. percent change in EPS divided by percent change in operating income.
C. percent change in volume divided by percent change in operating profit.
D. percent change in operating profit divided by percent change in net income.
20) Firms with a high degree of operating leverage are
A. trading off higher fixed costs for lower per-unit variable costs.
B. significantly affected by changes in interest rates.
C. usually trading off lower levels of risk for higher profits.
D. easily capable of surviving large changes in sales volume
21) The concept of operating leverage involves the use of __________ to magnify returns at high levels of operation.
A. semi-variable costs
B. marginal costs
C. variable costs
D. fixed costs
22) The break-even point can be calculated as
A. fixed cost divided by contribution margin.
B. variable cost times contribution margin.
C. total costs divided by contribution margin.
D. variable costs divided by contribution margin.
23) Refer to the figure above. This firm’s break-even point is
A. 18,000 units
B. 7,142 units
C. 14,634 units
D. 4,800 units
24) A firm’s break-even point will rise if
A. variable cost per unit rises
B. price per unit rises
C. contribution margins increase
D. fixed costs decrease
25) Normally, permanent current assets should be financed by
A. internally generated funds.
B. borrowed funds.
C. short-term funds.
D. long-term funds.

26) During tight money periods
A. the relationship between short and long-term rates remains unchanged.
B. short-term rates are equal to long-term rates.
C. short-term rates are higher than long-term rates.
D. long-term rates are higher than short-term rates.

27) A conservatively financed firm would
A. use long-term financing for permanent current assets and fixed assets and a portion of the short-term fluctuating assets and use short-term financing for all other short-term assets
B. use equity to finance fixed assets, long-term debt to finance permanent assets, and short-term debt to finance fluctuating current assets.
C. finance a portion of permanent assets and short-term assets with short-term debt.
D. use long-term financing for all fixed assets and short-term financing for all other assets.

28) Which of the following combinations of asset structures and financing patterns is likely to create the most volatile earnings?
A. Liquid assets and heavy short-term borrowing
B. Liquid assets and heavy long-term borrowing
C. Illiquid assets and heavy long-term borrowing
D. Illiquid assets and heavy short-term borrowing
29) Which of the following combinations of asset structures and financing patterns is likely to create the least volatile earnings?
A. Liquid assets and heavy short-term borrowing
B. Liquid assets and heavy long-term borrowing
C. Illiquid assets and heavy long-term borrowing
D. Illiquid assets and heavy short-term borrowing

30) Which of the following is not a condition under which a prudent manager would accept some risk in financing?
A. Easy access to capital markets
B. Price of inventory is stable
C. Inventory is highly perishable
D. Predictable cash-flow patterns

31) How would electronic funds transfer affect the use of “float”?
A. Have no effect on its use
B. Virtually eliminate its use
C. Decrease its use somewhat
D. Increase its use somewhat

32) “Float” takes place because
A. a customer writes “hot” checks.
B. a lag exists between writing a check and clearing it through the banking system.
C. the level of cash on the firm’s books is equal to the level of cash in the bank.
D. a firm is early in paying its bills.

33) In managing cash and marketable securities, what should be the manager’s primary concern?
A. Maximization of liquid assets
B. Liquidity and safety
C. Maximization of profit
D. Acceptable return on investment

34) When developing a credit scoring report, many variables would be considered. Which of the following best represent the major factors Dun & Bradstreet would examine?
A. The age of the company, the number of employees, the level of current assets.
B. The company’s cash balances, return on equity, and its average tax rates.
C. The age of the management team, the dollar amount of sales, net profits, and long-term debt.
D. The financial statements, satisfactory or slow payment experiences, negative public records (suits, liens, judgments, bankruptcies).

35) Variables important to credit scoring models include
A. negative public records.
B. all of these variables apply.
C. age of company in years.
D. facility ownership.

36) The three primary policy variables to consider when extending credit include all of the following except
A. the level of inflation.
B. collection policy.
C. credit standards.
D. the terms of trade.

37) Which of the following is not a method for lenders to control pledged inventory?
A. Trust receipts
B. Factoring
C. Blanket inventory liens
D. Warehousing