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Economic
Q:
We can be sure that, in and of itself, a stock dividend will not affect which of the following financial aspects of the firm? (Assume the stock has a par value.)
a. Market value per share.
b. Book value per share.
c. Common stock account.
d. Paid-in capital account.
e. Total assets.
Q:
For which of the following purchases would the absolute price elasticity of demand be smallest?A) A sports car B) Utilities C) Chewing gum D) A cell phone
Q:
Stock dividends
a. Have the same effects on financial statements as cash dividends.
b. Are similar to stock splits in that they do not change the fundamental position of current shareholders.
c. Must be accompanied by cash dividends.
d. Are viewed unfavorably by investors and thus should not be used.
e. Have no effect on a firm's balance sheet.
Q:
The marginal cost to society of reducing pollution increases with the increased use of pollution abatement becauseA) of the diminishing marginal utility of abatement. B) of the reduced demand for abatement.C) of the diminishing returns from abatement.D) of the high cost of abatement.
Q:
A stock split will cause a change in the total dollar amounts shown in which of the following balance sheet accounts?
a. Cash.
b. Common stock.
c. Paid-in capital.
d. Retained earnings.
e. None of the above.
Q:
Which of the following statements is correct?A) The Social Security program funnels transfers from retired individuals to the youngest children of low-income families.B) Social Security is an entitlement which is available to everyone, including those who have not contributed to the fund during their active work years.C) Social Security benefits are received by people who had contributed to the fund during their active work years.D) As a public transfer payment, Social Security benefit is available only to the poor.
Q:
Which of the following statements is correct?
a. In a reverse split, a company reduces the number of shares outstanding in order to stabilize and provide a floor for a rapidly declining stock price.
b. In theory, dividends are determined as a residual item. Therefore, in order to conserve earnings for better future earnings opportunities, the poorer the firm's investment opportunities, the lower its dividend payments should be.
c. The farther to the right the IOS is the higher a firm's dividend payout ratio, other things held constant.
d. Even if a stock split has no information content, and even if the dividend per share adjusted for the split does not increase, there can still be a real benefit (i.e., a higher value for shareholders) from such a split, but any such benefit is probably small.
Q:
Bilateral monopoly exists when
A) a single buyer confronts a single seller.
B) there are two monopolistic buyers trying to buy resources.
C) two labor unions are trying to represent the same group of workers.
D) a firm is both a monopoly in its output market and a monopsonist in its input market.
Q:
Other things held constant, which of the following will not affect the current ratio, assuming an initial current ratio greater than 1.0?
a. Fixed assets are sold for cash.
b. Long-term debt is issued to pay off current liabilities.
c. Accounts receivable are collected.
d. Cash is used to pay off accounts payable.
e. A bank loan is obtained, and the proceeds are credited to the firm's checking account.
Q:
The following table depicts both the product and labor markets for imported coffee. What is the total revenue when 15 workers per day are hired?Labor Input (workers per day)Total Physical ProductProduct Price ($)101005011110491212048131304714140461515045A) $5,000 B) $6,750 C) $7,350 D) $7,500
Q:
Other things held constant, if a firm holds cash balances in excess of their optimal level in a non-interest bearing account, this will tend to lower the firm's
a. Operating profit margin.
b. Total asset turnover.
c. Return on equity.
d. All of the above.
e. Answers b and c above.
Q:
Sam, who owns a carpentry shop, discovered that with 4 laborers he could produce 18 cabinets per day. With 5 laborers he produced 25 cabinets and with 6 laborers he produced 36 cabinets. What was the MPP of the 5th laborer?A) 8 cabinets B) 7 cabinets C) 6 cabinets D) 4 cabinets
Q:
All of the following represent cash outflows to the firm except
a. Taxes.
b. Interest payments.
c. Dividends.
d. Purchase of plant and equipment.
e. Depreciation.
Q:
The ʺcaptureʺ in the capture hypothesis occurs because A) regulators try to promote everyoneʹs best interest. B) society doesnʹt care for regulatory agencies.C) regulators always know what is in societyʹs best interest.D) regulators usually have been or will be associated with the industries they regulate.
Q:
Which of the following would be classified as a use of cash?
a. An increase in accounts payable.
b. A decrease in marketable securities.
c. A decrease in accounts receivable.
d. An increase in retained earnings.
e. An increase in inventories.
Q:
A network effect arises wheneverA) firms in an oligopolistic industry engage in limit pricing.B) firms in an oligopolistic industry engage in a zero-sum game.C) a consumerʹs willingness to purchase a good or service is influenced by how many others also buy or have bought the item.D) a producerʹs willingness to produce a good or service is influenced by how many other firms also produce or have produced the item.
Q:
Changes in balance sheet accounts are necessary for
a. A typical ratio analysis.
b. Pro forma balance sheet construction.
c. Statement of cash flows construction.
d. Profit and loss analysis.
e. Pro forma income statement construction.
Q:
A very high fixed cost and a relatively low marginal cost is associated withA) every type of good or product. B) an information product.C) a persuasive good. D) an experience good.
Q:
The book value of an asset is the market value less any accumulated depreciation.
a. True
b. False
Q:
The number of firms in a monopolistically competitive industry means thatA) firms will collude.B) existing firms in the industry will make sure new firms do not enter.C) firms will not cooperate to set a pure monopoly price. D) firms will try to set a common price.
Q:
The balance sheet lists ant their fair market value as of midnight on the annual fiscal end date for the firm.
a. True
b. False
Q:
The more substitutes there are for a monopolistʹs productA) the less elastic is the demand curve. B) the more elastic is the demand curve. C) the steeper is the demand curve.D) the more positively sloped the demand curve becomes.
Q:
From an investor's standpoint, predicting the future is the purpose of financial statement analysis.
a. True
b. False
Q:
In an increasing-cost industry, an increase in output will lead toA) an downward shift in the ATC curve. B) an downward shift in the MC curve.C) a reduction in long-run per-unit costs. D) an increase in long-run per-unit costs.
Q:
The four basic financial statements included in the annual report are the balance sheet, the income statement, the statement of cash flows, and the statement of reported earnings.
a. True
b. False
Q:
In the above figure, the market price charged by this profit -maximizing, perfectly competitive firm isA) $5 per unit of output. B) $10 per unit of output. C) $8 per unit of output. D) $14 per unit of output.
Q:
Financial statement analysis involves the analysis of a firm's financial position to identify its current strengths and weaknesses and to clearly identify the course of action to take advantage of those strengths and correct any weaknesses.
a. True
b. False
Q:
Refer to the above table. What are total variable costs at an output of 2 units?A) $50 B) $100 C) $150 D) $200
Q:
A firm whose days sales outstanding is much higher than the industry's average is likely to either be too "tight" in its credit policy or too "loose" in its collection policy.
a. True
b. False
Q:
The person most likely to receive a payment from a corporation in a year of losses is theA) bondholder. B) common stockholder. C) preferred stockholder. D) investment banker.
Q:
Using the direct method to determine cash flows from operations, start with net income, then add back all expenses not paid in cash and subtract all revenues that do not provide cash.
a. True
b. False
Q:
Accounting profits are total revenues minus
A) all relevant opportunity costs.
B) explicit and implicit costs.
C) explicit costs and all other relevant opportunity costs.
D) explicit costs.
Q:
Explain how utility analysis can be used to derive a downward sloping demand curve.
Q:
A positive number in the retained earnings account indicates that according to GAAP in the past the firm has earned income excess of all dividends paid.
a. True
b. False
Q:
During a period of lowering prices, the FIFO accounting method will produce a higher balance sheet inventory but a lower cost of goods sold than the LIFO accounting method.
a. True
b. False
Q:
A certain athlete loves donuts. He receives 100 units of utility for the first donut, an additional 80 for the second, an additional 60 for the third, another 40 for the fourth, and another 20 for the fifth. The marginal utility of the fourth donut is and the total utility from consuming four donuts is .A) 40; 40 B) 40; 280 C) 140; 280 D) 280; 100
Q:
Common stockholders' equity is the current market value of all common shares of stock outstanding.
a. True
b. False
Q:
For which of the following purchases would the absolute price elasticity of demand be greatest?A) A sports car B) Utilities C) Chewing gum D) A cell phone
Q:
Net fixed assets reflect the historical costs for property, plant, and equipment less accumulated depreciation.
a. True
b. False
Q:
The government imposes a tax on an industry that produces goods creating a negative externality. Yet the industry produces more than the optimum quantity of output. This meansA) the tax is more than the external cost associated with the product. B) the tax is less than the external cost associated with the product. C) the company should advertise the product more.D) the company should increase the production of the product.
Q:
Most annual reports include detailed financial data for the two most recent years, along with historical summaries of key accounting statistic for the past five or ten years.
a. True
b. False
Q:
The government finances Social Security throughA) excise taxes. B) payroll taxes.C) the sale of goods and services. D) state taxes.
Q:
Selling new stock is an equity transaction; it does not affect any asset or liability account and, therefore, does not appear on the statement of cash flows.
a. True
b. False
Q:
A firm that is a monopolist in the output market and a monopsonist in the input marketA) will hire the same amount of labor as if perfect competition prevailed in both markets, but pay a lower wage.B) will restrict the level of output but not that of employment compared to the perfectly competitive case.C) will hire less labor but pay the same wage compared to the perfectly competitive case.D) will hire less labor and pay a lower wage compared to the perfectly competitive case.
Q:
If a positive change in gross fixed assets is greater than the change in accumulated depreciation for a particular year, net fixed assets increase and this constitutes a source of funds.
a. True
b. False
Q:
The profit-maximizing combination of resources in a perfectly competitive situation occurs at the point at whichA) MRP of labor = price of labor (wage rate).B) MRP of land = price of land (rental rate per unit).C) MRP of capital = price of capital (cost per unit of service). D) All of the above are correct.
Q:
If sales decrease and financial leverage increases, we can say with certainty that the profit margin on sales will decrease.
a. True
b. False
Q:
Refer to the above figure. The firm is operating using MRP0. An increase in productivity has occurred. The relevant curve for the firm after the increase in productivityA) is MRP0.B) is MRP1.C) is MRP2.D) could be MRP1 or MRP2 depending upon whether the firm was earning a positive profit.
Q:
The fixed charge coverage ratio recognizes that firms often lease equipment under contract and thus, some firms must meet more than just their scheduled interest payments out of earnings. Therefore, the fixed charge coverage is more inclusive than the TIE ratio.
a. True
b. False
Q:
The capture hypothesis suggests thatA) marginal cost regulation is superior to average cost regulation.B) the well-focused interests of consumers will lead to the over-regulation of most industries.C) the firms being regulated will unduly influence the regulators.D) regulation will lead to over -entry and eventual losses for firms in the industry.
Q:
Suppose a firm wants to maintain a specific TIE ratio. If the firm knows the level of its debt, the interest rate it will pay on that debt and the applicable tax rate, the firm can then calculate the earnings level required to maintain its target TIE ratio.
a. True
b. False
Q:
For years, your parents claimed they had no desire to join a social web site. Recently, however, they joined one and said they did so because all their relatives have joined the same site with them. Your parentsʹ behavior is an example ofA) a switching cost. B) a network effect.C) the impact of positive market feedback. D) the impact of negative market feedback.
Q:
Suppose two firms with the same amount of assets pay the same interest rate on their debt and earn the same rate of return on their assets, and that ROA is positive. However, one firm has a higher debt ratio. Under these conditions, the firm with the higher debt ratio will also have a higher rate of return on common equity.
a. True
b. False
Q:
Marginal cost for an information product wouldA) first decrease and then increase as quantity increases.B) increase constantly as quantity increases. C) decrease constantly as quantity increases. D) remain constant as quantity increases.
Q:
The number of firms in a monopolistically competitive market means thatA) all firms will have substantial monopoly power since there are so few firms in the industry.B) each firm has a relatively small share of the total market since there are many firms in the industry.C) the firms will be likely to collude since there are only a few firms in the industry.D) firms will have a hard time earning non-negative profits since there are many firms in the industry.
Q:
We can use the fixed asset turnover ratio to legitimately compare firms in different industries as long as all the firms being compared are using the same proportion of fixed assets to total assets.
a. True
b. False
Q:
The inventory turnover and current ratios are related. The combination of a high current ratio and a low inventory turnover ratio relative to the industry norm might indicate that the firm is maintaining too high an inventory level or that part of the inventory is obsolete or damaged.
a. True
b. False
Q:
The price elasticity of demand for a monopolistA) is infinite since the monopolist is the only firm in the market.B) decreases as more competition occurs in the market. C) increases as similar products enter the market.D) is undefined due to the lack of competition.
Q:
Two firms have the same current ratio, 0.75, and the same amount of sales. However, Firm A has a higher inventory turnover ratio than Firm B. Therefore, we can conclude that the quick ratio of Firm A will be smaller than that of Firm B.
a. True
b. False
Q:
In a decreasing-cost industry, an increase in output will lead toA) an upward shift in the ATC curve. B) an upward shift in the MC curve.C) a reduction in long-run per-unit costs. D) an increase in long-run per-unit costs.
Q:
If the current ratio of Firm A is greater than the current ratio of Firm B, we cannot be sure that the quick ratio of Firm A is greater than that of Firm B. However, if the quick ratio of Firm A exceeds that of Firm B, we can be assured that Firm A's current ratio also exceeds B's current ratio.
a. True
b. False
Q:
Economists generally assume that firms attempt to maximizeA) total revenue. B) sales.C) marginal revenue. D) total economic profits.
Q:
Current cash flow from existing assets is highly relevant to the investor. However, the value of the firm depends primarily upon its growth opportunities. As a result, profit projections from those opportunities are the only relevant future flows with which investors are concerned.
a. True
b. False
Q:
Refer to the above table. What are total fixed costs at an output of 2 units?A) $50 B) $100 C) $150 D) $200
Q:
As long as sales revenues exceed all costs over part of an accounting period, a firm will avoid any cash shortage.
a. True
b. False
Q:
The most important source of financial capital for firms today isA) sale of bonds. B) sale of new issues of stock. C) trade of previously issued stock. D) reinvestment of profits.
Q:
Differences in cash flow cycles and variations in accounting methods among firms can invalidate financial comparisons between firms.
a. True
b. False
Q:
Economic profits are equal to
A) total revenues minus total fixed costs.
B) total revenues, after tax, minus cost of goods sold.
C) total revenues minus the implicit and explicit costs of all inputs used.
D) total revenues minus the opportunity cost of labor.
Q:
In accounting, emphasis is placed on determining net income. In finance, the primary emphasis also is on net income because that is what investors use to value the firm. However, a secondary consideration is cash flow because that's what is used to run the business.
a. True
b. False
Q:
Why is water much cheaper than diamonds even though water is essential to human lives while diamonds are not?
Q:
In order to accurately estimate cash flow from operations, depreciation must be added back to net income. The reason for this is that even though depreciation is deducted from revenue it is really a non-cash charge.
a. True
b. False
Q:
If marginal utility is zero,A) a rational consumer will consume one more unit.B) a rational consumer will consume one less unit next time.C) a rational consumer will not consume additional units beyond this point.D) a rational consumer will consume one more unit if the price is zero.
Q:
For which of the following would the absolute price elasticity of demand be greatest?A) Salt B) Tickets to the Super BowlC) Pepsi Cola D) Gasoline
Q:
The financial position of companies whose business is seasonal can be dramatically different depending upon the time of year chosen to construct financial statements. This time sensitivity is especially true with respect to the firm's balance sheet.
a. True
b. False
Q:
Output/HourPrivate MCMarginal BenefitExternal Marginal Costs1$10$200.20210.4018.500.40310.90170.70411.5016.501.20512.2014.001.80613.0013.002.80714.4012.004.00Use the information in the above table. The external marginal costs areA) increasing. B) decreasing.C) constant. D) inverse to quantity produced.
Q:
The time dimension is important in financial statement analysis. While the balance sheet and income statements represent the firm's financial position at a point in time, the statement of cash flows reports changes that were made to the firm's accounts over a period of time.
a. True
b. False
Q:
The Social Security system is a(n)A) ad valorem system. B) ability to pay system.C) progressive tax system. D) pay-as-you-go system.
Q:
The retained earnings account on the balance sheet does not represent cash and in fact, represents a claim against the existing assets of the firm. This implies that retained earnings are in fact the reinvested earnings of stockholders.
a. True
b. False
Q:
Retained earnings is the cash that has been generated by the firm through its operations which has not been paid out to stockholders as dividends. Retained earnings are kept in cash or near cash accounts and thus, these cash accounts, when added together, will always be equal to the total retained earnings of the firm.
a. True
b. False
Q:
A monopsonist finds its profit maximizing quantity of labor employed at the point at whichA) marginal revenue product is zero.B) marginal revenue product equals marginal factor cost. C) marginal factor cost is zero.D) total cost equals total revenue.