Q&A Hero

Q: Primary sources of comparative financial data include a. Dun and Bradstreet b. New York Times c. Richard Moore, Inc. d. None of these are correct.

Q: A firm's return on equity is a function of its net profit margin, ____ and equity multiplier. a. current ratio b. cost of goods c. total asset turnover d. fixed asset turnover

Q: Financial ratio analysis is most often performed as a a. comparative analysis b. trend analysis c. point in time analysis d. both comparative and trend analysis

Q: The best accounting-based measure of a firm's profitability is a. gross profit margin b. net profit margin c. return on fixed assets d. return on total assets

Q: The greater the amount of financial leverage used by a firm, the greater its ____, all other things being equal. a. profitability b. liquidity c. risk d. size

Q: The fixed asset turnover ratio is influenced by a. the age of the assets employed b. the depreciation method used by the firm c. the firm's choice of a production technology d. all of these answers are correct

Q: The quick ratio is the same as current ratio except it does notconsider a. cash b. accounts receivable c. prepaid items d. inventories

Q: The primary weakness of the current ratio is a. it is difficult to calculate b. it includes some items, such as inventory, that may not be readily liquid c. it requires many years of past data d. it includes many non-current items in its calculation

Q: ____ indicate the firm's capacity to meet its debt obligations, both short-term and long-term. a. Liquidity ratios b. Activity ratios c. Financial leverage ratios d. Profitability ratios

Q: ____ indicate the ability of the firm to meet its short-term financial obligations a. Activity ratios b. Liquidity ratios c. Leverage ratios d. Profitability ratios

Q: The appropriate standard for comparison of financial ratios probably should be the a. best firm in the industry b. worst firm in the industry c. industry average d. better performing firms in the industry

Q: Which of the following financial ratios are market-based ratios? a. debt-to-equity b. price-to-earnings c. return on investment d. all of the above

Q: Explain the terms common stock at par and paid-in capital which are found on the balance sheet.

Q: What is the impact on fixed assets when firms use accelerated depreciation?

Q: What is a loss carryback?

Q: What is the difference between the marginal tax rate and the average tax rate?

Q: Big Bubba Burgers Corp. owns stock in Skinny Minnie Exercise Centers. Big Bubba will receive dividends of $14,000 from Skinny Minnie. What is Big Bubba's tax liability upon receipt of these dividends if Big Bubba is in the 40% tax bracket?a. $9,800b. $3,920c. $1,680d. $5,600

Q: All of the following are limitations of financial statements EXCEPT: a. recording of realized sales b. balance sheet quality c. aggressive reporting policy d. income statement quality

Q: Which of the following statements is/are correct about the Statement of Cash Flows? I. The indirect method of determining operating cash flows begins with net income and adjusts if by transactions that affect the reported income. II. The direct method of determining operation cash flows requires the firm to report cash inflows and cash outflows from operating activities. The resulting sum is the net cash from operating activities. a. I only b. II only c. Both I and II d. Neither I nor II

Q: Which of the following is an accurate description of operating cash flows? a. It refers to a method of valuing inventory. b. It refers to cash received on an accrual basis. c. It refers to cash received through bank loans. d. It refers to cash generated from or used by business operations of the firm.

Q: Corporations are required to report two types of earnings per share on the income statement. Which of the following statements is/are correct? I. One type of earnings per share is preferred stock earnings per share. II. One type of earnings per share is deferred earnings per share. a. I only b. II only c. Both I and II d. Neither I nor II

Q: Vroom Vroom Motors has the following income statement information.Revenue$52 000Cost of Goods Sold$ 9 600Wages$16 000Supplies$ 7 500Insurance Expense$ 400Depreciation Expense$ 2 000Interest Expense$ 7 330Vroom Vroom Motors is in the 40% tax bracket and has preferred stock dividends due of $3,000 and 15,000 common stock shares outstanding. Based on this information, what is Vroom Vroom Motors' tax liability?a. $5,775 c. $7,257b. $3,668 d. $2,150

Q: Vroom Vroom Motors has the following income statement information. Revenue $52 000 Cost of Goods Sold $ 9 600 Wages $16 000 Supplies $ 7 500 Insurance Expense $ 400 Depreciation Expense $ 2 000 Interest Expense $ 7 330 Vroom Vroom Motors is in the 40% tax bracket and has preferred stock dividends due of $3,000 and 15,000 common stock shares outstanding. Based on this information, what are Vroom Vroom Motors' earnings per share? a. $.17 b. $.25 c. $.37 d. $.55

Q: Shaggy Dog Leash Mfg. bought a piece of equipment that should last for 20 years. It cost $8,000 and is expected to have a salvage value of $1500. How much straight-line depreciation could the company write off each year? a. $450 b. $525 c. $400 d. $325

Q: Another name for long-term debt is: a. bank debt b. funded debt c. cautionary debt d. accrued debt

Q: All of the following are intangible assets listed on the balance sheet EXCEPT: a. goodwill b. trademarks c. plant, property & equipment d. patents

Q: How does a firm obtain goodwill? a. Good public works b. Acquisition of companies for more than book value. c. Environmentally friendly product production d. Global sales in underprivileged countries.

Q: All of the following are methods of valuing inventory EXCEPT: a. LIFO b. ABM c. FIFO d. LCM

Q: Last year Molex's net cash provided by operating activities was $14.1 million and its net cash used by investing activities was $20.7 million. If net cash provided by financing activities was $9.8 million, what was the net increase (or decrease) in cash and cash equivalents during the year? Molex started the year with $2.1 million in cash. a. $44.6 million b. $ 3.2 million c. $25.0 million d. $ 5.3 million

Q: Last year Curative Technologies Inc. reported earnings after-tax of $23 million. Included in the expenses were depreciation of $3.7 million and interest expenses of $2.9 million. The year-end balance sheets shows an increase in deferred taxes of $2.6 million to a total of $14.2 million. What is Curative Technologies' after-tax cash flow for last year? Assume a marginal tax rate of 40%. a. $20.1 million b. $32.2 million c. $29.3 million d. $26.4 million

Q: Last year Cell 2 had a net operating loss of $120,000 and a capital loss of $80,000. This year the firm has an operating income of $230,000 and a capital gain of $40,000. What is Cell 2's tax liability this year? Assume there are no other tax loss carry backs or carry forwards.a. $4,500b. $72,950c. $26,150d. $12,500

Q: Keegan Company had operating income of $740,000 in 2004, received $120,000 in preferred stock dividends, $20,000 in interest income and paid $15,000 in interest expenses. What is the tax liability for Keegan? a. $265,540 b. $294,100 c. $299,200 d. $270,640

Q: Taxable IncomeTax RateNot over $50,00015%$50,001 - $75,00025%$75,001 - $100,00034%$100,001 - $335,00039%*$335,001 - $10,000,00034%$10,000,001 - $15,000,00035%$15,000,001 - $18,333,33338%**Over $18,333,33335%*5% of this rate represents a phaseout of the benefits of the lower tax rates on the first $75,000 of taxable income.**3% of this rate represents a phaseout of the benefit of the lower tax rate (34% rather than 35%) on the first $10 million of taxable income.Using the rates above, determine the tax liability of Coastal Inc. in 2004 if the firm had the following stream of taxable income: YearTaxable Income2000($450,000)2001(80,000)200260,0002003145,0002004360,000a. $83,450b. $ 5,250c. $95,200d. none of the above

Q: For a corporation with ordinary taxable income of $425,000, what is the additional tax liability if $30,000 in dividends is received from shares it holds in another corporation? a. $7,140 b. $10,200 c. $11,700 d. $3,060

Q: What is the tax liability in 2004 for a corporation with taxable income of $425,000? a. $144,500 b. $132,750 c. $150,250 d. $122,700

Q: BET had a taxable income of $135,000 in 2004. What is its tax liability? a. $22,500 b. $52,650 c. $35,900 d. $15,900

Q: AMX corporation had operating income of $420,000 in 2004; received $12,000 in interest income; paid $22,000 in interest; received $20,000 in dividends; and paid $50,000 in dividends. What is the tax liability for AMX? a. $141,440 b. $146,200 c. $148,920 d. two of these answers are correct

Q: Triangle Systems had earnings after tax of $1,000,000 last year. Included in its expenses were $50,000 of interest, $100,000 of deferred taxes, and $150,000 of depreciation. In addition, the company paid dividends of $200,000 to its stockholders last year. What was Triangle's after-tax cash flow last year? a. $1,500,000 b. $1,300,000 c. $1,150,000 d. None of these are correct

Q: Last year, Monroe Products had $25,000 net cash provided by its operating activities. Its investing activities used $30,000, and its financing activities provided $10,000. Its cash and cash equivalents balance at the beginning of the year was $15,000. By how much did Monroe's cash and cash equivalents increase? a. -$10,000 b. $0 c. $5,000 d. None of these answers are correct

Q: The Ragin Cajun had an operating income (EBIT) of $260,000 last year. The firm had $18,000 in depreciation expenses, $15,000 in interest expenses, and $60,000 in selling, general, and administrative expenses. If the Cajun has a marginal tax rate of 40 percent, what was its after-tax cash flow for last year? a. $165,000 b. $129,000 c. $174,000 d. $147,000

Q: Corporate capital gains income is currently taxed at ____ ordinary income. a. 80 percent of the marginal tax rate on b. the same marginal rate as c. 50 percent of the marginal tax rate on d. none of these answers are correct

Q: ____ received by corporations are normally entitled to a 70 percent exclusion from federal income taxes. a. Capital gains income b. Dividend income c. Loss carrybacks and carryforwards d. none of these answers are correct

Q: Capital losses are a. taxed at the same marginal rate as ordinary income b. taxed at the 20% rate c. deductible only against capital gains d. used to reduce interest payments

Q: The marginal tax rate for a firm with taxable income of $105,000 is a. 30% b. 39% c. 15% d. 34%

Q: For most large U.S. corporations, the maximum capital gain tax rate is a. 14% b. 35% c. 50% d. 28%

Q: A corporation's net operating loss may be carried ____ years and ____ years to offset taxable income in those years. a. back 20, forward 2 b. back 3, forward 5 c. back 5, forward 15 d. back 2, forward 20

Q: Intercompany dividends, or dividends paid by one corporation to another, are normally entitled to a ____ percent exclusion from Federal income taxes. a. 15 b. 30 c. 50 d. 70

Q: Companies can avoid paying income taxes on inventory profits by using the ____ inventory valuation method. a. LIFO b. FIFO c. Priced out d. Priced in

Q: In preparing a statement of cash flows, the ____ method involves adjusting net income to reconcile it to net cash flows from operating activities. a. direct b. indirect c. accrual d. none of the above

Q: The ____ shows the effects of a company's operating, investing, and financing activities on its ____. a. income statement; cash flows b. balance sheet; cash flows c. statement of cash flows; cash flows d. none of the above

Q: The Financial Accounting Standard Board (FASB) requires companies to prepare their statement of cash flows using the a. indirect method b. direct method c. reconciliation method d. none of the above

Q: The financial statement that shows the effects of a company's operating, investing, and financing activities on its cash balance is known as the a. cash budget statement b. pro forma financial statement c. statement of cash flows d. breakeven analysis

Q: Deferred taxes may occur due to the use of a. different tax schedules b. different depreciation methods for taxes and financial reporting c. long-term equipment d. different cash flow methods

Q: ____ is defined as the systematic allocation of the cost of an asset over more than one time period. a. Deferral b. Expensing c. Optimization d. Depreciation

Q: The work of the external independent auditor includes a letter that states that the financial information represents fairly the financial position of the company and that these statements were: a. an accurate picture of the company's market position b. based on the company's accounting information system (AIS) c. constructed in conformity with generally accepted accounting principles d. developed using management's choice of accounting enhancement techniques

Q: The diluted earnings per share calculation takes into account the potential dilutive effect of ____. a. convertible bonds b. convertible preferred stock c. a and b d. neither a nor b

Q: Extraordinary expense items include costs associated with: a. plant closings b. corporate restructurings c. a and b d. none of the above

Q: Noncash expenses that firms may report in their income statement include: a. depreciation b. amortization c. a and b d. Neither a nor b

Q: Which of the following are not part of a firm's income statement? a. Cost of operations b. Property, plant, and equipment c. Selling, general, and administrative expenses d. Interest expense

Q: Which of the following are not part of "current assets?" a. Inventories b. Receivables c. Prepaid expenses d. Accounts payable

Q: Major components of a firm's balance sheet include: a. Sales b. Cost of goods sold c. Current assets d. a and b

Q: Explain how primary claims are sold.

Q: What are the significant changes in the regulation of financial markets that were accomplished by the passage of the Sarbanes-Oxley Act of 2002?

Q: All of the following are advantages to using financial intermediaries EXCEPT: a. The investor can select individual stocks. b. Financial intermediaries have a certain level of expertise. c. Financial intermediaries pool investors' money to provide diversification. d. Financial managers provide a risk management function.

Q: Which of the following is correct about bond quotations? a. The current yield is a cumulative return which considers both the interest and capital gains earned. b. The yield to maturity is determined by multiplying the coupon rate by par. c. The coupon rate is listed as a dollar amount. d. The quoted price of a bond is listed as a percent of par.

Q: Which of the following statements is/are correct about spreads? I. A spread is the difference between the brokerage commission and the capital gains that are earned. II. A spread is the amount of profit a dealer makes. a. I only b. II only c. Both I and II d. Neither I nor II

Q: Which of the following is a way that electronic communications networks (ECN) differ from organized stock exchanges or OTC dealers? a. Brokerage commissions are higher for the ECN due to SEC oversight. b. ECN participants can find out who the buyers and sellers are before the sale is made. c. It is an unreliable trading exchange since matches can only be made by the exchange. d. ECN's are designed to bring buyers and sellers together directly with complete anonymity.

Q: What is the form filed with the SEC prior to the annual shareholder meetings which details the matters to be discussed and voted upon? a. filing statement b. proxy statement c. agenda statement d. 10-K form

Q: Options can be used for limiting loss exposure. This is called: a. hedging b. speculating c. efficient marketing d. accommodation

Q: Which of the following statements regarding options is/are correct? I. An option gives the holder an obligation to buy or sell an asset at a set price. II. An option has a specified time period during which it can be exercised. a. I only b. II only c. Both I and II d. Neither I nor II

Q: There are three main types of derivative securities. Which of the following is NOT one of them? a. Options b. Futures contracts c. Bond contracts d. Forward contracts

Q: What term is used to identify the difference between the yield to maturity on a corporate bond as compared to the yield to maturity on a Treasury bond? a. current yield spread b. buying spread c. return spread d. default risk spread

Q: What is the difference between a realized returns and an expected returns a. Realized returns are easier to determine. b. Expected returns are more realistic. c. Prices and cash distributions for expected returns are estimated values. d. There is no difference between realized returns and expected returns.

Q: Stock quotations are designed to give the investor specific information. The P/E ratio indicates all of the following EXCEPT: a. It indicates how many dollars an investor will spend to receive one dollar of earnings. b. It indicates the rate of return that the investor should expect to receive. c. It is an indication of the risk inherent in the firm. d. It is based on many factors including growth potential and size of the firm.

Q: Which of the following statements about this stock quotation is/are correct? -2.5 42.17 16.52 WashCent WC 1.18 4.3 23 32995 27.16 +.85 I. Washington Central sold 32,995 shares during yesterday's trading. II. The highest price paid for Washington Central stock for this calendar year is $42.17. a. I only b. II only c. Both I and II d. Neither I nor II

Q: Lear purchased 100 shares of Biotech at $30 per share last year and sold them eleven months later for $24 per share. The shares split 2 for 1 shortly after Lear purchased the stock. If the stock paid $0.25 per share in dividends last year, what is Lear's holding period return? a. 61.67% b. -19.17% c. 21.67% d. 6.17%

Q: Two years ago you bought 100 shares of Biogen convertible preferred stock at $25 per share. The preferred stock had an annual dividend of $2.125 per share, and a total of $3.19 in dividends per share have been paid so far. Today the company announced that the stock is redeemable for $26.70 plus accrued and unpaid dividends, for a total of $27.76. Alternatively, holders may convert their shares of preferred stock at a conversion rate of 1.6393 shares of Biogen common stock for each share of preferred stock. If the closing price of Biogen common stock is $27.50, what is your holding period return? a. 93.08% b. 23.80% c. 80.32% d. none of the above

Q: Maher purchased 100 shares of Boston Chicken at $30 per share last spring and sold them in six months for $36 per share. The stock paid no dividend. What was Maher's holding period return? a. 40% b. 20% c. 10% d. 5%

Q: You bought 100 shares of KeyMid six months ago for $14 per share and sold it yesterday for $12. The company paid a total of $0.24 per share in dividends to you during the time you held the stock. What was your holding period return? a. -25.14% b. -16.67% c. -12.57% d. 16.00%

Q: If a treasury bond can be purchased for $9,450 today and the bond holder will receive $850 in interest and the $10,000 face value at maturity, what is the percentage holding period return? a. 14.8% b. 5.8% c. 6.7% d. none of the above