Question 1 Question 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%. is PDQ’s tax liability? Question 1 answers $258,000 $350,000 $387,000 $645,000 Question 2 text Question 2 Question Benefits of an organized security exchange include: Question 2 answers ing companies raise new capital establishing and publicizing fair security prices providing a continuous market all of the above Question 3 text Question 3 Question Roxbury Brothers has sales of $2,250,000; a gross profit of $825,000; total operating costs of $620,000; income taxes of $74,800; and total assets of $995,000. is Roxbury’s Operating Income Return on Investment? Question 3 answers 36.67% 14.32% 20.60% 4.99% Question 4 text Question 4 Question General partners have unrestricted transferability of ownership, while limited partners must have the consent of all partners to transfer their ownership. Question 4 answers True False Question 5 text Question 5 Question Patti Corporation has current assets of $11,400, inventories of $4,000, and a current ratio of 2.6. is Patti’s acid test ratio? Question 5 answers 1.69 0.54 0.74 1.35 Question 6 text Question 6 Question Which of the following has the most significant influence on return on equity? Question 6 answers Common dividends Principal payments Accruals Operating income Question 7 text Question 7 Question 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? Question 7 answers liquidity leverage efficiency profitability Question 8 text Question 8 Question Which of the following represents the correct ordering of standard deviation of returns over the period 1926 to 2000 (from highest to lowest standard deviation of returns)? Question 8 answers T-bills, long-term corporate bonds, common stocks, Small firm common stocks small firm common stocks, common stocks, long-term corporate bonds, T-bills T-bills, common stocks, long-term corporate bonds, small firm common stocks long-term corporate bonds, T-bills, common stocks, small firm common stocks Question 9 text Question 9 Question Which of the following goals of the firm are synonymous (equivalent) to the maximization of shareholder wealth? Question 9 answers profit maximization risk minimization maximization of the total market value of the firm’s common stock none of the above Question 10 text Question 10 Question The investment banker does not underwrite the securities to be issued in which of the following? Question 10 answers initial public offering primary market transaction firm commitment best efforts Question 11 text Question 11 Question A “normal” yield curve is ________. Question 11 answers Downward sloping. Downward sloping, then upward sloping. Upward sloping. Upward sloping, then downward sloping. Question 12 text Question 12 Question If a firm has unused debt capacity and the general level of equity prices is depressed, financial executives will favor the issuance of debt securities over the issuance of new common stock. Question 12 answers True False Question 13 text Question 13 Question Savings are generally transferred to business firms by: Question 13 answers direct transfer of funds indirect transfer using the investment banker indirect transfer using the financial intermediary all of the above Question 14 text Question 14 Question Common stock is the most relied on financing method used by corporations. Question 14 answers True False Question 15 text Question 15 Question 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? Question 15 answers Why was money borrowed? Where did profits go? is the current level of inventory? How was the retirement of debt accomplished? Question 16 text Question 16 Question The quick ratio of a firm would be unaffected by which of the following? Question 16 answers land held for investment is sold for cash equipment is purchased, financed by a long-term debt issue inventories are sold for cash inventories are sold on a short-term credit basis Question 17 text Question 17 Question Which of the following are tax deductible items to a corporation: Question 17 answers interest expenses dividends to common stockholders dividends to preferred stockholders None of the above are tax deductible. Question 18 text Question 18 Question There is no legal distinction made between the assets of the business and the personal assets of any of the owners in the limited partnership. Question 18 answers True False Question 19 text Question 19 Question Which of the following ratios would be the best way to determine how customers are paying for their purchases? Question 19 answers Inventory turnover. Total asset turnover. Current ratio. Average collection period. Question 20 text Question 20 Question Management may use straight-line depreciation for reporting income to the shareholders while still using an accelerated method for calculating taxable income. Question 20 answers True False Question 21 text Question 21 Question Financial intermediaries: Question 21 answers offer indirect securities include the national and regional stock exchange usually are underwriting syndicates constitute the various secondary markets Question 22 text Question 22 Question “The markets are quick and the prices are right” describes a market that is: Question 22 answers effervescent effective efficient effluent Question 23 text Question 23 Question All risk is not equal because: Question 23 answers Some can be diversified away and some cannot Some risk is free while some is not Some risk is too small to be considered None of the above Question 24 text Question 24 Question DuPont analysis indicates that the return on assets equals the return on equity when total assets equals common equity. Question 24 answers True False Question 25 text Question 25 Question In making financial decisions, the relevant tax rate is the: Question 25 answers marginal tax rate. average (effective) tax rate. previous year’s tax rate. maximum allowable tax rate. Question 26 text Question 26 Question Margin requirements are set by: Question 26 answers the Chairman of the Federal Reserve. the Board of Governors of the Federal Reserve. the Secretary of the Treasury the Securities and Exchange Commission Question 27 text Question 27 Question 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 Question 27 answers $3,750 $3,375 $3,000 $2,250 Question 28 text Question 28 Question The quick ratio of a firm would be increased by which of the following? Question 28 answers land held for investment is sold for cash equipment is purchased, financed by a long-term debt issue inventories are sold for cash inventories are sold in exchange for a long-term note both a and c above Question 29 text Question 29 Question Advantages of private placements do not include which of the following: Question 29 answers more financing flexibility lower flotation costs investor protection through extensive regulation funds which are available more quickly than through a public offering Question 30 text Question 30 Question 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%. The firm paid dividends to preferred stockholders of $30,000, and the firm distributed $60,000 in dividend payments to common stockholders. is PDQ’s “Addition to Retained Earnings?” Question 30 answers $297,000 $327,000 $387,000 $477,000 Question 31 text Question 31 Question According to the SEC the correct sequence of events for a security issue is: Question 31 answers red herring, final prospectus, registration statement registration statement, red herring, final prospectus final prospectus, registration statement, red herring red herring, registration statement, final prospectus Question 32 text Question 32 Question A firm has after-tax cash flow from operations equal to $100,000. Operating working capital increased by $20,000, and the firm purchased $30,000 of fixed assets. The firm’s free cash flow (asset perspective) was: Question 32 answers $50,000 $90,000 $110,000 $150,000 None of the above Question 33 text Question 33 Question A firm may use a capital loss to offset a capital gain in the current year only. Question 33 answers True False Question 34 text Question 34 Question If a company’s average collection period is lower than the industry average, then the company may be: Question 34 answers offering credit terms to its customers that are too stringent allowing its customers too much time to pay their bills too tough in collecting its accounts both a and c above Question 35 text Question 35 Question Byron, Inc. has total current assets of $800,000; total current liabilities of $450,000; long-term assets of $300,000; and long-term debt of $200,000. How much is the firm’s total equity? Question 35 answers $1,150,000 $ 150,000 $ 450,000 $ 750,000 Question 36 text Question 36 Question The Securities and Exchange Commission is responsible for setting margin requirements. Question 36 answers True False Question 37 text Question 37 Question Which of the following is not a deductible business expense for income tax purposes? Question 37 answers Cost of goods sold. Dividends. Depreciation. Interest. Question 38 text Question 38 Question The corporation is a legal entity separate from it owners; thus it is possible for the corporation to continue even upon the death of one or more shareholders. Question 38 answers True False Question 39 text Question 39 Question Which of the following relationships is true regarding the costs of issuing the following securities? Question 39 answers common stock > bonds > preferred stock preferred stock > common stock > bonds bonds > common stock > preferred stock common stock > preferred stock > bonds Question 40 text Question 40 Question Byron, Inc. has total current assets of $800,000; long-term debt of $200,000; total current liabilities of $450,000; and long-term assets of $300,000. How much is the firm’s net working capital? Question 40 answers $ 75,000 $ 15,000 $225,000 $350,000 Question 41 text Question 41 Question The investment banker does not underwrite the securities to be issued in which of the following? Question 41 answers competitive bid purchase negotiated purchase commission or best efforts basis direct sale Question 42 text Question 42 Question An advantage of the OIROI ratio is that it: Question 42 answers ignores the firm’s financing policies. uses net income to measure efficiency. combines total asset turnover and gross profit margin. simply assumes that a firm is financed 50% by equity and 50% by debt. Question 43 text Question 43 Question Which of the following best reflects the mix of corporate securities issued in the U.S.? Question 43 answers 74% debt, 26% equity 55% debt, 45% equity 45% debt, 55% equity 26% debt, 74% equity Question 44 text Question 44 Question The SEC requires registration of a public issue in which of the following circumstances? Question 44 answers a railroad bond issue an issue of commercial paper a public utility issue an issue of $5,000,000 Question 45 text Question 45 Question 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. Question 45 answers True False Question 46 text Question 46 Question In a general partnership there is a distinction between business and personal assets. Question 46 answers True False Question 47 text Question 47 Question The effective legal definition of corporation is “an artificial being, invisible, intangible, and existing only in the contemplation of law.” Question 47 answers True False Question 48 text Question 48 Question In a typical year, when new funds are being raised, corporate debt markets outweigh corporate equity markets in terms of dollar volume. Question 48 answers True False Question 49 text Question 49 Question The U.S. tax system favors ________ as a means of raising capital. Question 49 answers common stock preferred stock debt none of the above Question 50 text Question 50 Question If an investor is said to be “risk averse” then that investor: Question 50 answers cannot be induced to take on any risk. will only take on additional risk if he/she expects to be compensated in the form of additional return. will only take on the least risk possible. is not behaving in a typical manner.
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