[Solved] Liberty University BUSI 530 Exam 1
Liberty University BUSI530 Exam 1
Financial managers should only accept investment projects that:
Multiple Choice
•
increase the current profits of the firm.
•
can increase the firm’s market share.
•
earn a higher rate of return than the firm currently earns on its existing projects.
Item 2
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Unlimited liability is faced by the owners of:
Multiple Choice
•
corporations.
•
partnerships and corporations.
•
sole proprietorships and general partnerships.
Correct
•
all forms of business organization.
Item 3
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The term “capital structure” refers to:
Multiple Choice
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the mix of long-term debt and equity financing.
Correct
•
the length of time needed to repay debt.
•
whether or not the firm invests in capital budgeting projects.
•
the types of assets a firm acquires.
Item 4
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Which of the following appears to be the most appropriate goal for corporate management?
•
Maximizing market value of the company’s shares
Correct
•
Maximizing the company’s market share
•
Maximizing the current profits of the company —ANSWER INCORRECT
Incorrect
•
Minimizing the company’s liabilities
Item 5
One continuing problem with managerial incentive compensation plans is that:
•
the plans increase agency problems.
•
managers prefer guaranteed salaries.
•
their effectiveness is difficult to evaluate.
Correct
• the plans do not reward shareholders.
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Item 6
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In a partnership form of organization, income tax liability, if any, is incurred by:
Multiple Choice
•
the partnership itself.
•
the partners individually.
Correct
•
both the partnership and the partners.
•
neither the partnership nor the partners.
Item 7
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A board of directors is elected as a representative of the corporation’s:
Multiple Choice
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top management.
•
stakeholders.
•
shareholders.
Correct
•
customers.
Item 8
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Which one of the following statements is not characteristic of mutual funds?
Multiple Choice
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They are always considered to be financial institutions.
Correct
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They raise money by selling shares to investors.
•
They pool the savings of many investors.
•
They offer professional management and portfolio diversification.
Item 9
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A capital investment that generates a 10% rate of return is worthwhile if:
Multiple Choice
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corporate bonds of similar risk offer 8% rates of return.
Correct
•
corporate bonds of similar risk offer 11% rates of return.
•
top-quality corporate bonds offer 10% rates of return.
•
the expected rate of return on the stock market is 12%.
Item 10
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Which one of the following is least liquid?
Multiple Choice
•
Foreign currency
•
U.S. Treasury bonds
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Real estate
Correct
•
Bank deposit
Item 11
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Which one of these enterprises generally acts as an underwriter for an initial public offering?
Multiple Choice
•
Commercial bank
•
Government
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Investment bank
Correct
•
Insurance company
Item 12
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Foreign currencies are traded:
•
only by banks in New York and London.
•
over the counter.
Correct
•
on both the NYSE and NASDAQ.
• on the Intercontinental Exchange.
Item 13
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If Apple Computer Inc. is used as the model, then new firms should expect to raise capital in which one of these orders? Start with the first money raised.
Multiple Choice
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Owners, venture capitalists, suppliers, public investors
•
Owners, suppliers, venture capitalists, public investors
Correct
•
Venture capitalists, owners, public investors, suppliers
•
Owners, public investors, venture capitalists, suppliers
Item 14
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Which one of these parties cannot invest in a hedge fund?
Multiple Choice
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Small retail investors
Correct
•
Pension funds
•
Insurance companies
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Wealthy individuals
Item 15
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Item 15
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In a statement of cash flows, which category includes depreciation expense as a line item?
Multiple Choice
•
Cash provided by operations.
Correct
•
Cash flows from investments.
•
Cash provided by (used for) financing activities.
•
Current liabilities.
Item 16
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Item 16
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Current period depreciation expense is listed:
Multiple Choice
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on the balance sheet.
•
in the investment section of the cash flow statement.
•
on the income statement.
Correct
•
on neither the balance sheet nor the income statement; it is a noncash expense.
Item 17
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Item 17
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Interest expense appears in the operations section of the statement of cash flows because:
Multiple Choice
•
firms cannot operate without incurring interest expense.
•
its payment is not within managerial discretion.
Correct
•
it is paid to finance a firm’s inventory.
•
none of the options; interest expense appears in the financing section of the statement of cash flows.
Item 18
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In general, what is changing as you read down the left-hand side of a balance sheet?
Multiple Choice
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The assets are becoming more fully depreciated.
•
The assets are increasing in value.
•
The assets are increasing in maturity.
•
The assets are becoming less liquid.
Correct
Item 19
What is the marginal corporate tax rate for large companies?
Multiple Choice
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15%
•
34%
•
35%
Correct
•
39%
Item 20
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The income statement resembles a snapshot of the firm at a specific time.
True or False
True False Correct
Item 21
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The purchase of new equipment is a use of cash, and it reduces the firm’s net cash balance.
True or False
True Correct False
Item 22
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There is generally a bigger difference between the book value and the market value of fixed assets as compared to cash.
True or False
True Correct False
Item 23
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A deficiency of the standard measures of liquidity is that the measures:
Multiple Choice
•
ignore a firm’s reserve borrowing capacity.
Correct
•
fail to include accounts receivable as an asset.
•
give inventories equal weighting in the quick ratio.
•
do not include the current portions of long-term debt.
Item 24
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Efficiency ratios:
Multiple Choice
•
include the quick ratio, asset turnover ratio, and return on equity.
•
are used to measure how well the company uses its assets.
Correct
•
are used to measure how liquid the company is.
•
measure the profits generated by a firm’s equity and assets.
Item 25
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An asset turnover ratio of 1.75 can be interpreted as:
Multiple Choice
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$1.75 in sales are generated by every $1 of assets.
Correct
•
$1.75 in additional assets are generated by every $1 of sales.
•
$1.75 in assets are used to generate $1 of sales.
•
$1 in sales are used to generate $1.75 in assets.
Item 26
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High levels of liquidity may indicate:
Multiple Choice
•
low levels of net working capital.
•
low profit margins.
•
high levels of economic value added.
•
inefficient use of assets.
Correct
Item 27
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In the past year, TVG had revenues of $3 million, cost of goods sold of $2.5 million, and depreciation expense of $200,000. The firm has a single issue of debt outstanding with a face value of $1million, market value of $.92 million, and a coupon rate of 8%. What is the firm’s times interest earned ratio?
Multiple Choice
•
3.75
Correct
•
2.98
•
2.80
•
3.40
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Item 28
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Return on assets is always a larger number than the return on equity.
True or False
True False Correct
Item 29
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Which of the following actions could improve a firm’s current ratio if it is now less than 1.0?
Multiple Choice
•
Converting marketable securities to cash
•
Paying accounts payable with cash
•
Buying inventory on credit
Correct
•
Selling inventory at cost
Item 30
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The higher the times interest earned ratio, the higher the interest expense. False
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