Question Details

MARKETING QUIZ
   Question 1 		
 	Which of the following best describes the goal of the firm? 				
	 
 
	the maximization of the total market value of the firm's common stock 
 
	profit maximization 
 
	risk minimization 
 
	all of the above 
				
   Question 2 		
 	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%. What is PDQ's tax liability? 				
	 
 
	$258,000 
 
	$350,000 
 
	$387,000 
 
	$645,000 
				
   Question 3 		
 	To assist firms in issuing securities, the investment banker will lower their portion of the flotation costs when marketing riskier securities. 				
	 
 
True
 
False
				
   Question 4 		
 	Real assets are tangible, whereas financial assets merely reflect claims for future payment on other economic units. 				
	 
 
True
 
False
				
   Question 5 		
 	Corporations receive the majority of their financing through common stock sales. 				
	 
 
True
 
False


	
				
   Question 6 		
 	Which of the below belongs on the asset side of a balance sheet? 				
	 
 
	Depreciation expense. 
 
	Accounts receivable. 
 
	Common stock. 
 
	Accruals. 
				
   Question 7 	2 points   	  
 	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. What is Roxbury's Operating Income Return on Investment? 				
	 
 
	36.67% 
 
	14.32% 
 
	20.60% 
 
	4.99% 
				
   Question 8 		
 	The cash conversion cycle exceeds the sum of days of sales outstanding and days of sales in inventory. 				
	 
 
True
 
False
				
   Question 9 		
 	Investors expect to receive the highest returns from government-issued securities because the government will not default on securities that it has issued. 				
	 
 
True
 
False
				
   Question 10 		
 	Benefits of an organized security exchange include: 				
	 
 
	helping companies raise new capital 
 
	establishing and publicizing fair security prices 
 
	providing a continuous market 
 
	all of the above 
				
   Question 11 		
 	Which of the following is a real asset? 				
	 
 
	preferred stock 
 
	inventory 
 
	bonds 
 
	commissions 
				
   Question 12 		
 	Management may use straight-line depreciation for reporting income to the shareholders while still using an accelerated method for calculating taxable income. 				
	 
 
True
 
False
				
   Question 13 		
 	How can management use financial ratios? 				
	 
 
	To show how to obtain a guaranteed return. 
 
	To pinpoint shareholder fraud. 
 
	To identify some of the financial strengths and weaknesses of a company. 
 
	None of the above. 
				
   Question 14 	2 points   	   

 	Common stock is the most relied on financing method used by corporations. 				
	 
 
True
 
False
				
   Question 15 	2 points   	
 	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. 				
	 
 
True
 
False
	
				
   Question 16 		
 	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. 				
	 
 
True
 
False
				
   Question 17 	2 points   	
 	A corporation's capital losses can be carried back three years and, if any loss still remains, it may be carried forward: 				
	 
 
	1 year 
 
	3 years 
 
	5 years 
 
	7 years 
				
   Question 18 		
 	In a general partnership there is a distinction between business and personal assets. 				
	 
 
True
 
False
				
   Question 19 		
 	If you were given current assets and current liabilities, what ratio could you compute? 				
	 
 
	accounts receivable turnover ratio 
 
	net profit margin 
 
	current ratio 
 
	current debt margin 
				
   Question 20 		
 	Patti Corporation has current assets of $11,400, inventories of $4,000, and a current ratio of 2.6. What is Patti's acid test ratio? 				
	 
 
	1.69 
 
	0.54 
 
	0.74 
 
	1.35 
				
   Question 21 		
 	If a company's average collection period is lower than the industry average, then the company may be: 				
	 
 
	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 22 		
 	Which of the following has the most significant influence on return on equity? 				
	 
 
	Common dividends 
 
	Principal payments 
 
	Accruals 
 
	Operating income 
				
   Question 23 		
 	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? 				
	 
 
	$ 75,000 
 
	$ 15,000 
 
	$225,000 
 
	$350,000 
				
   Question 24 		
 	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: 				
	 
 
	$50,000 
 
	$90,000 
 
	$110,000 
 
	$150,000 
 
	None of the above 
				
   Question 25 		
 	An example of a primary market transaction involving a money market security is: 				
	 
 
	A new issue of a security with a very short maturity 
 
	A new issue of a security with a very long maturity 
 
	The transfer of a previously-issued security with a very short maturity 
 
	The transfer of a previously-issued security with a very long maturity 
				
   Question 26 		
 	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%. What is PDQ's net income? 				
	 
 
	$258,000 
 
	$350,000 
 
	$387,000 
 
	$645,000 
				
   Question 27 		
 	The effective legal definition of corporation is "an artificial being, invisible, intangible, and existing only in the contemplation of law." 				
	 
 
True
 
False
				
   Question 28 		
 	A corporation may normally exclude what percentage of dividend income received from another corporation? 				
	 
 
	70% 
 
	50% 
 
	35% 
 
	30% 
				
   Question 29 		
 	According to the SEC the correct sequence of events for a security issue is: 				
	 
 
	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 30 		
 	Which of the following relationships is true regarding the costs of issuing the following securities? 				
	 
 
	common stock > bonds > preferred stock 
 
	preferred stock > common stock > bonds 
 
	bonds > common stock > preferred stock 
 
	common stock > preferred stock > bonds 
				
   Question 31 		
 	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. 				
	 
 
True
 
False
				
   Question 32 		
 	Which of the following ratios would be the most useful to assess the risk associated with a firm being able to pay off its short-term line of credit? 				
	 
 
	Return on equity. 
 
	The acid test ratio. 
 
	The operating profit margin. 
 
	The fixed asset turnover. 
				
   Question 33 		
 	Why is the quick ratio a more refined liquidity measure than the current ratio? 				
	 
 
	It measures how "quickly" cash and other liquid assets flow through the company. 
 
	Inventories are generally the least liquid of the firm's current assets. 
 
	Inventories are generally among the most liquid of the firm's current assets. 
 
	Cash is the most liquid current asset. 



				
   Question 34 		
 	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 				
	 
 
	$3,750 
 
	$3,375 
 
	$3,000 
 
	$2,250 
				
   Question 35 		
 	Maximization of shareholder wealth as a goal is superior to profit maximization because: 				
	 
 
	it considers the time value of the money 
 
	it considers the time value of money and factors in uncertainty 
 
	it ensures high stock prices 
 
	it considers social benefits 
				
   Question 36 		
 	An advantage of the OIROI ratio is that it: 				
	 
 
	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 37 		
 	You are considering an investment in a U.S. corporate bond but you are not sure what rate of interest it should pay. Assume that the real risk-free rate of interest is 1.0%; inflation is expected to be 2.0%; the maturity risk premium is 1.5%; and, the default risk premium for AAA rated corporate bonds is 3%. What rate of interest should the U.S. corporate bond pay? 				
	 
 
	7.5% 
 
	4.5% 
 
	3.5% 
 
	3.0% 
				
   Question 38 		
 	According to the text, which of the following is not likely to have induced U.S. firms to expand globally? 				
	 
 
	The collapse of communism 
 
	The information technology revolution 
 
	Increased regulation in the U.S. 
 
	Increased price competition in the U.S. 
				
   Question 39 		
 	In a typical year, when new funds are being raised, corporate debt markets outweigh corporate equity markets in terms of dollar volume. 				
	 
 
True
 
False
				
   Question 40 	2 points   	   

 	Which of the following are tax-deductible for a corporation? 				
	 
 
	common stock dividends 
 
	interest expense 
 
	preferred stock dividends 
 
	all of the above 
				
   Question 41 		
 	Because they occur in private, less strict regulations are placed on the private placement of securities. 				
	 
 
True
 
False

	
				
   Question 42 		
 	Which of the following represents an attempt to measure the net results of the firm's operations (revenues versus expenses) over a given time period? 				
	 
 
	Balance Sheet 
 
	Statement of Cash Flows 
 
	Income Statement 
 
	Sources and Uses of Funds Statement 
				
   Question 43 		
 	In 2002 Clanton, Inc. had a gross profit of $27,000 on sales of $110,000. Clanton's operating expenses for 2002 were $13,000, and its net profit margin was .0585. Clanton had no interest expense in 2002. What was Clanton's gross profit margin for 2002? 				
	 
 
	0.127 
 
	0.325 
 
	0.245 
 
	0.364 
				
   Question 44 		
 	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? 				
	 
 
	liquidity 
 
	leverage 
 
	efficiency 
 
	profitability 
				
   Question 45 		
 	Margin requirements are set by: 				
	 
 
	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 46 		
 	One of the benefits of organized security exchanges is that they are said to provide a _____ market. 				
	 
 
	continuous 
 
	connected 
 
	convenient 
 
	cumbersome 
				
   Question 47 		
 	DuPont analysis indicates that the return on assets equals the return on equity when total assets equals common equity. 				
	 
 
True
 
False
				
   Question 48 		
 	The investment banker does not underwrite the securities to be issued in which of the following? 				
	 
 
	initial public offering 
 
	primary market transaction 
 
	firm commitment 
 
	best efforts 
				
   Question 49 		
 	Capital market instruments include: 				
	 
 
	negotiable certificates of deposit 
 
	corporate equities 
 
	commercial paper 
 
	Treasury bills 
				
   Question 50 		
 	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. What is PDQ's "Addition to Retained Earnings?" 				
	 
 
	$297,000 
 
	$327,000 
 
	$387,000 
 
	$477,000 
				
                                                                                                     
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