1. Which one of the following actions best matches the primary goal of financial management?



 increasing the net working capital while lowering the long-term asset requirements

 improving the operating efficiency, thereby increasing the market value of the stock

 increasing the firm’s market share

 

 reducing fixed costs and increasing variable costs

 

 increasing the liquidity of the firm by transferring short-term debt into long-term debt



 



2. Working capital management includes which of the following?



 establishing the inventory level

 

 deciding when to pay suppliers

 

 determining the amount of cash needed on a daily basis

 

 establishing credit terms for customers

 

 all of the above

 



3. Market value is important to the financial manager because:



 It reflects the value of the asset, based on generally-accepted accounting principles.

 Is a crucial component of the balance sheet, and can impact the financial statements.

 Market value reflects the amount someone is willing to pay today for an asset.

 The market value of an asset reflects its historical cost.

 

 None of the above



 

 4. The income statement reflects:



 Income and expenses at the time when those items affect the cash flows of a firm.

 Income and expenses in accordance with GAAP.

 

 The cash flows in accordance with GAAP.

 

 The flow of cash into and out of a firm during a stated period of time.

 The flow of cash into and out of a firm as of a particular date.



 

5. Telemarket Inc. has sales of $625,000. They paid $43,000 in interest during the year and depreciation was $79,000. Administrative costs were $100,000 and other costs were $160,000. Assuming a tax rate of 35 percent, what is Telemarket’s taxable income?



 $157,950

 

 $322,000

 

 $243,000

 

 $200,000





6. Home Best Hardware had $315,000 in taxable income last year. Using the tax rates provided in Table 2.3, what is the marginal tax rate?



 35%

 

 39%

 

 34%

 

 32%



 

7. Pizza A had earnings after taxes of $600,000 in the year 2008, and 300,000 shares outstanding. In year 2009, earnings after taxes increased to $750,000, and 25,000 new shares were issued for a total of 325,000 shares. What is the EPS figure for 2008?



 $2.0

 

 $2.21

 

 $0.50

 

 $0.47



 

8. The income statement reflects:



 income and expenses at the time when those items affect the cash flows of a firm.

 income and expenses in accordance with GAAP.

 

 the cash flows in accordance with GAAP.

 

 the flow of cash into and out of a firm during a stated period of time.

 the flow of cash into and out of a firm as of a particular date.



 

9. Print Imaging has EBIT of $150,000, interest of $30,000, taxes of $50,000, and depreciation of $50,000. What is the company’s operating cash flow?



 $120,000

 

 $180,000

 

 $170,000

 

 $150,000

 

 $120,000



 

10. Mark deposited $1,000 today, in an account that pays eight percent interest, compounded semi-annually. Which one of the following statements is correct concerning this investment?



 Mark will earn more interest in year 4 than he will in year 3.

 

 Mark will receive equal interest payments every six months over the life of the investment.

 Mark would have earned more interest if he had invested in an account paying 8 percent simple interest.

 Mark would have earned more interest if he had invested in an account paying annual interest.

 Mark will earn less and less interest each year over the life of the investment.



 

11. Mr. Smith will receive $7,500 a year for the next 14 years from his trust. If the interest rate on this investment is eight percent, what is the approximate current value of these future payments?



 $61,800

 

 $53,500

 

 $113,400

 

 $97,200 

 



12. KED Engineering acquired an additional business unit for $310,000. The seller agreed to accept annual payments of $67,000 at an interest rate of 6.5 percent. How many years will it take KED Engineering to pay for this purchase?



 4.70 years

 

 5.68 years

 

 6.21 years

 

 7.84 years

 

 8.12 years



 

13. Fine Oak Woodworks is considering a project that has cash flows of $6,000, $4,000, and $3,000 for the next three years. If the appropriate discount rate of this project is 10 percent, which of the following statements is true?



 The current value of the project’s inflows is $13,000

 

 The approximate current value of the project’s inflows is $11,000

 The current value of the project’s inflows cannot be determined

 The project should be rejected because its present value is negative

 



14. You are considering two investments. Investment I is in a software company, and Investment II is an engineering company. The investments offer the following cash flows:

Year Software Company Engineering Company

1 $5,000 $15,000

2 $3,000 $8,000

3 $4,000 $9,000

4 $3,600 $11,000



If the appropriate discount rate is 10 percent, what is the approximate present value of the Engineering Company investment?



 $33,200

 

 $34,500

 

 $42,000

 

 $43,500

 



15. North Bank offers you an APR of 13.17 percent compounded monthly, and South Bank offers you an effective rate of 13.75 percent on a business loan. Which bank should you choose and why?



 South Bank because its effective rate is higher.

 

 North Bank because the APR is lower.

 

 South Bank because its effective rate is lower.

 

 North Bank because its effective rate is lower.

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