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Need help with finance questions?

1. Capital Expenditures are part of __________

a) Cash Flows from Operations

b) Cash Flows from Investing

c) Cash Flows from Financing

2. Suppose the firm were to buy Inventory on credit (both Current Assets and Current Liabilities will increase by the same amount). Which ratio will NOT be affected?

a) Current Ratio

b) Return on Assets

c) Equity Multiplier

d) Return on Equity

3. Which action could explain a firm having a high level of Operating Cash Flow but a low

level of free cash flow?

a. The company had a high level of Depreciation.

b. The company paid a large dividend.

c. The company made a large investment in a new plant.

d. The company issued new long-term debt.

4. Suppose firm A uses accelerated depreciation while firm B uses straight-line depreciation. Thus firm A has higher depreciation expenses (but lower values for Fixed Assets). Firm A will show a _________.

a. Higher Current Ratio

b. Lower Price to Earnings Ratio

c. Higher Fixed Asset Turnover

d. Lower Free Cash Flow

5. ___________ is the amount available for distribution to all investors after the company has made all investments in fixed assets and operating working capital.

a. Capital Expenditures

b. Free Cash Flow

c. Cash Flows from Financing

d. Additional Financing Needed

6. Which is about the problems associated with using financial statements is NOT CORRECT?

a. Different firms might follow different rules under GAAP

b. Firms might window dress in order to make their statements look better

c. Some firms might use Off Balance Sheet forms of financing

d. Balance sheets report market values of assets

7. Which ratio only uses information from the balance sheet?

a. Inventory Turnover

b. Return on Assets

c. Equity Multiplier

d. Times Interest Earned

8. If you were evaluating a corporation’s ability to meet current obligations, then you would most likely want to look at their ____________ ratios.

a. Liquidity

b. Productivity

c. Debt Management

d. Profitability

9 . The term "additional funds needed (AFN)" is generally defined as:

a. Funds that are obtained automatically from routine business transactions.

b. Funds that a firm must raise externally from non-spontaneous sources, such as issuing bonds.

c. The amount of assets required per dollar of sales.

d. The amount of internally generated cash in a given year minus the amount of cash needed to acquire the new assets needed to support growth.

10. Which of the following items is NOT included in current assets?

a. Accounts payable.

b. Inventory.

c. Accounts receivable.

d. Cash.

11. Which of the following statements is CORRECT?

a. For firms that use debt, Net Income is greater than Operating Income.

b. Operating Income is defined as: EBIT*(1-Tax Rate) + Depreciation and Amortization.

c. For most firms Free Cash Flow is greater than Operating Cash Flow

d. Free cash flow (FCF) is defined as follows:

EBIT*(1-Tax Rate) + Depreciation and Amortization - Capital expenditures - changes in NWC

12. Which of the following statements is CORRECT?

a. Accounts receivable are reported as a current liability on the balance sheet.

b. Dividends paid reduce the net income that is reported on a company's income statement.

c. If a company issues new long-term bonds during the current year, this will increase its reported current liabilities at the end of the year.

d. If a company pays more in dividends than it generates in net income, its equity as reported on the balance sheet will fall.

13. Considered alone, which of the following would increase a company's current ratio?

a. An increase in long term debt.

b. An increase in accounts payable.

c. An increase in fixed assets.

d. An increase in inventory.

Use the following information for questions 1-18:

Cash 900 Sales 6000

Acc Receivable XX COGS 4000

Inventory XX Dep 200

Fixed Assets 1400 EBIT 1800

Total Assets 3500 Interest XX

EBT XX

Current Liabilities 700 Taxes XX

Long Term Debt XX Net Income XX

CommonEquity XX

Total 3500

Dividends were 300, Capital Expenditures were 500, Ending Stock Price was $20 per share and there were 500 shares outstanding. Taxes are 40% of EBT.

Current Ratio 3 Net Profit Margin 15%

Times Int. Ern 6 ROE XX

FATO XX P/E XX

TATO XX M/B XX

Debt Ratio (Debt/Assets) .60

14. What is the firm’s Total Asset Turnover Ratio?

a) 0.58 b) 1.28 c) 1.71 d) 2.56

15. What is the firm’s Interest Expense?

a) 150 b) 200 c) 250 d) 300

16. What is the firm’s Return on Equity?

a) .15 b) .26 c) .51 d) .64

17. What is the firm’s Market to Book Ratio?

a) 2.8 b) 7.1 c) 14.8 d) 31.1

18. What is the firm’s Total Current Assets?

a) 750 b) 1400 c) 1800 d) 2100

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