1. The primary goal of financial management is to:

1.

The primary goal of financial management is to:

minimize operational costs and maximize firm efficiency.

maximize current dividends per share of the existing stock.

maximize the current value per share of the existing stock.

avoid financial distress.

maintain steady growth in both sales and net earnings.

2

Financial managers should primarily strive to:

maximize current dividends even if doing so adds financial distress costs to the firm.

minimize costs while increasing current dividends.

maximize the current value per share of existing stock.

maximize current market share in every market in which the firm participates.

maximize the current profits of the firm.

3.

If a firm is currently profitable, then:

its reported sales exceed its costs.

its cash flows are known with certainty.

its current cash inflows must exceed its current cash outflows.

it will always have sufficient cash to pay its bills in a timely manner.

the timing of the cash flows on proposed projects is irrelevant.

4. The owners of a limited liability company generally prefer:

having liability exposure similar to that of a general partner.

having liability exposure similar to that of a sole proprietor.

being taxed like a corporation.

being taxed personally on all business income.

being taxed like a corporation with liability like a partnership.

5.

First City Bank pays 6 percent simple interest on its savings account balances, whereas Second City Bank pays 6 percent interest compounded annually.

If you made a $69,000 deposit in each bank, how much more money would you earn from your Second City Bank account at the end of 10 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Difference in accounts

$

6.

a.

Compute the future value of $2,000 compounded annually for 10 years at 6 percent. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Future value

$

b.

Compute the future value of $2,000 compounded annually for 10 years at 11 percent. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Future value

$

c.

Compute the future value of $2,000 compounded annually for 15 years at 6 percent. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Future value

$

7.

What is the future value of $3,052 invested for 9 years at 5.00 percent compounded annually?

$4,450.57

$1,923.52

$4,720.69

$4,734.65

$4,748.62

8.

Six months ago, you purchased 1,200 shares of ABC stock for $21.20 a share and have received total dividend payments of $.60 a share. Today, you sold all of your shares for $22.20 a share. What is your total dollar return on this investment?

$1,440

$720

$3,840

$1,200

$1,920

9.

The excess return you earn by moving from a relatively risk-free investment to a risky investment is called the:

inflation premium.

geometric average return.

time premium.

risk premium.

arithmetic average return.

10.

Which one of the following accounts is included in stockholders’ equity?

intangible assets

plant and equipment

accumulated retained earnings

deferred taxes

long-term debt

11.

Shelton, Inc., has sales of $391,000, costs of $179,000, depreciation expense of $44,000, interest expense of $25,000, and a tax rate of 40 percent. (Do not round intermediate calculations.)

What is the net income for the firm?

Net income

$

Suppose the company paid out $34,000 in cash dividends. What is the addition to retained earnings?

Addition to retained earnings

$

12

Net working capital is defined as:

current assets plus fixed assets.

current assets minus current liabilities.

current assets plus stockholders’ equity.

fixed assets minus long-term liabilities.

total assets minus total liabilities.

13

Which one of these equations is an accurate expression of the balance sheet?

Stockholders’ equity ≡ Assets + Liabilities

Stockholders’ equity ≡ Assets −Liabilities

Liabilities ≡ Stockholders’ equity −Assets

Assets ≡ Stockholders’ equity −Liabilities

Assets ≡ Liabilities −Stockholders’ equity

14

Galaxy United, Inc.
2009 Income Statement
($ in millions)

Net sales

$8,450

Less: Cost of goods sold

7,220

Less: Depreciation

410

Earnings before interest and taxes

820

Less: Interest paid

83

Taxable Income

737

Less: Taxes

258

Net income

$ 479

Galaxy United, Inc.
2008 and 2009 Balance Sheets
($ in millions)

2008

2009

2008

2009

Cash

$ 110

$ 150

Accounts payable

$1,100

$1,130

Accounts rec.

940

780

Long-term debt

1,000

1,332

Inventory

1,490

1,510

Common stock

$3,110

$2,910

Sub-total

$2,540

$2,440

Retained earnings

520

698

Net fixed assets

3,190

3,630

Total assets

$5,730

$6,070

Total liab. & equity

$5,730

$6,070

What is the days’ sales in receivables? (use 2009 values)

41.0

33.7

24.9

47.5

80.4

15

A firm has sales of $1,360, net income of $227, net fixed assets of $469, and current assets of $329. The firm has $95 in inventory. What is the common-size statement value of inventory?

41.5 percent

11.9 percent

20.3 percent

7.0 percent

28.9 percent

16.

The Purple Martin has annual sales of $4,800, total debt of $1,360, total equity of $2,200, and a profit margin of 5 percent. What is the return on assets?

10.91 percent

6.74 percent

17.65 percent

8.72 percent

5.00 percent

17.

Al’s Sport Store has sales of $2,740, costs of goods sold of $2,100, inventory of $533, and accounts receivable of $444. How many days, on average, does it take the firm to sell its inventory assuming that all sales are on credit?

71.0

92.6

140.0

130.0

91.4

18

Jessica’s Boutique has cash of $47, accounts receivable of $70, accounts payable of $190, and inventory of $160. What is the value of the quick ratio?

2.07

1.46

.37

.62

.84

19.

One of the primary weaknesses of many financial planning models is that they:

ignore the size, risk, and timing of cash flows.

are iterative in nature.

ignore the goals and objectives of senior management.

rely too much on financial relationships and too little on accounting relationships.

ignore cash payouts to stockholders.

20

If a firm bases its growth projection on the rate of sustainable growth, shows positive net income, and has a dividend payout ratio of 30 percent, then the:

number of common shares outstanding will increase at the same rate of growth.

debt-equity ratio will remain constant while retained earnings increase.

debt-equity ratio will have to increase.

fixed assets will have to increase at the same rate, even if the firm is currently operating at only 78 percent of capacity.

fixed assets, the debt-equity ratio, and number of common shares outstanding will all increase.