C214 Practice Questions

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C214 Financial Management Study Guide Problems 09/06/19 The following questions are for practicing both calculations and concepts for C214 – Financial Management. Some of the questions have been used in Topic Reviews in the Financial Management e-text. This list of questions does not cover everything you may encounter in an assessment. They are in the same order as the topics presented in the e-text. There is a companion answer sheet available. For solutions, please see your Course Instructor. Overview of Finance 1. Trading on the NYSE is executed without a specialist (i.e. a market maker). True/False 2. Stocks and bonds are two types of financial instruments True/False 3. The matching principle in accrual accounting requires that: a. Revenues be recognized when the earnings process is complete and matches expenses to revenues recognized. b. Expenses are matched to the year in which they are incurred c. Revenues are matched to the year in which they are booked d. Revenues should be large enough to match expenses 4. A high-quality customer just purchased $500,000 worth of product from your company. The contract calls for immediate delivery of the product with a cash payment of $300,000 today and $200,000 to be paid 60 days. The expense associated with the product is $300,000, of which $100,000 has not been paid to your supplier. Under accrual based accounting system, you will most likely report: a. revenues of $300,000 and expenses of $300,000. b. revenues of $300,000 and expenses of $200,000. c. revenues of $500,000 and expenses of $300,000. d. revenues of $500,000 and expenses of $200,000. Income Statement/Balance Sheet 5. A firm reported retained earnings of $300 in 12/31/20x2. For 12/31/20x3, the firm reports retained earnings of $400 and pays dividends of $25. What was net income in 20x3? a. 300 b. 400 c. 125

d. 100 6. A basic equation for the balance sheet is: a. Equity = Assets – Liabilities b. Liabilities = Equity + Assets c. Assets = Liabilities – Equity d. Assets = Equity – Liabilities 7. Why is the Balance Sheet known as a permanent statement? a. Because the statement is sent to the SEC. b. Because the other statements are reset at the end of the fiscal year c. Because it is printed out and archived d. Because it persists in the minds of the shareholders. 8. How do you calculate the change in Retained Earnings? a. Ending Retained Earnings – Change in Cash b. EBIT divided by Total Assets + Dividends c. EBIT – Change in Cash – Dividends d. Net Income – Dividends 9. Which of the following is generally true? a. Gross Profit and Operating Income are the same b. Cost of Goods Sold + Operating Expenses = Net Income c. Operating Income and EBIT are the same d. EBIT + Income Taxes = Net income 10. Which components are part of total assets? a. Cash, Accounts Receivable, Short Term Debt b. Cash Accounts Receivable, Inventory, Long Term Assets c. Accounts Payable, Long Term Assets, Long Term Debt d. Accounts Payable, Net Income, Equity 11. Which components are part of current assets? a. Cash, Accounts Receivable, Property Plant & Equipment b. Accounts Receivable, Accounts Payable, Inventory c. Long Term Debt, Property Plant & Equipment, Common Stock d. Inventory, Cash, Accounts Receivable, Short Term Investments 12. Which components are part of Total Liabilities? a. Accounts Payable, Accounts Receivable, Short Term Debt b. Long Term Debt, Common Stock, Retained Earnings c. Bonds, Accounts Payable, Mortgage d. Common Stock, Long Term Debt, Short Term Investments Statement of Cash Flows 13. Intel reported the following for 2014: Net Income 100,000

Depreciation 20,000 Change in A/R 10,000 What is the cash flow from operating activities? a. 100,000 b. 110,000 c. 120,000 d. (130,000) 14. Which of the following accounts are only included in Cash Flow from Financing (CFF)? a. Accounts Receivable, Accrued Expenses, Net Income b. Dividends Paid, Property Plant and Equipment, Cash c. Net Income, Common Stock, Accrued Expenses d. Common Stock, Dividends Paid, Bonds Payable 15. The Statement of Cash Flows is: a. Calculated for the same period of time as the Income Statement b. Is calculated based on the Income Statement and the changes in the Balance Sheet c. Is one of the three basic accounting statements d. All the above. 16. Intel reported the following for 2014: Gross Equipment (1/1/14) 50,000 Gross Equipment (12/31/14) 65,000 Net income 100,000 Depreciation 20,000 What is the cash flow from investing activities for 2014? a. 100,000 b. 80,000 c. (15,000) d. 15,000 17. What is the Cash Flow from Operations given the following information? Net Income 450,000 Change in Accounts Receivable 120,000 Change in Inventory - 90,000 Change in PP&E 60,000 Depreciation Expense 110,000 Change in Accounts Payable 50,000 Change in Accrued Expenses - 75,000 Change in Common Stock 300,000 a. $570,000 b. $410,000 c. $505,000 d. $375,000

18. What is the Cash Flow from Investing? Increase in Gross PP&E 125,000 Beginning Net PP&E 750,000 Ending Net PP&E 850,000 Depreciation Expense 25,000 a. (850,000) b. (125,000) c. 150,000 d. ( 75,000) 19. What is the Cash Flow from Investing? Beginning Net PP&E 250,000 Ending Net PP&E 300,000 Depreciation Expense 40,000 Change in Long Term Investments 100,000 Change in Short Term Investments 50,000 a. 190,000 outflow b. 150,000 inflow c. 340,000 outflow d. 90,000 inflow 20. What is the Cash Flow from Financing? Accounts Payable 100,000 Accrued Expenses 50,000 Increase in Mortgage Payable 300,000 Decrease in Bonds Payable 75,000 Dividends Paid 80,000 a. 505,000 b. 225,000 c. 230,000 d. 145,000 21. When Fixed Assets increase what happens to Cash? a. Cash stays the same b. Cash increases c. Cash decreases d. Assets decrease 22. Last year a firm recorded Net PP&E of $4,600 while this year the same firm recorded Net PP&E of $4,500. If the depreciation expense for last year and this year are $500 and $800 respectively, what is the CFI of the company? (assume no asset disposals) a. 100 outflow b. 900 outflow c. 100 inflow d. 700 outflow 23. Which is the purpose of the statement of cash flows?

a. serves as the replacement for the income statement and balance sheet b. explains the change in cash balance at one point in time c. explains the change in cash over the course of the specified timeframe d. both (a) and (b) above 24. Financial data for Intel is given below for 2014:  EBIT 1,000,000  Depreciation 30,000  Change in working capital (10,000)  Net capital expenditures 15,000  Tax rate 40% Compute the Free Cash Flow for 2014 a. 610,000 b. 675,000 c. 625,000 d. 600,000 Financial Ratios 25. Suppose the inventory turnover of a company is higher than the industry. Based on this observation, which of the following is most likely? a. The firm has lower liquidity than the industry average. b. The firm has too much inventory thus impairing overall liquidity. c. The firm has too little inventory resulting in lost sales or stock-outs. d. The firm has low sales volume. 26. Intel provides the following data for 2014:  A/R 600  Inventory 800  Fixed Assets 1,000  A/P 500  Long term debt 900  Common Stock 400 What is the current ratio? a. 1.2 b. 1.5 c. 2.0 d. 2.8 27. If a company wishes to obtain a bank loan, will it want to have a higher current ratio or a lower current ratio? a. higher b. lower c. the same d. it doesn’t matter 28. A company has cash of 100, accounts receivable of 250, inventory of 300,

and accounts payable of 300. What is the quick ratio? a. 0.33 b. 2.17 c. 1.00 d. 1.17 29. A company has cash sales of 200 and credit sales of 750. It’s average accounts receivable is 90. What is the A/R turnover? a. Turnover: 2.22 b. Turnover: 10.56 c. Turnover 8.33 d. Turnover 3.75 30. The OIROI (Operating Income Return on Investment) uses what elements on the income statement? a. Operating Income, EBIT, Total Liabilities b. EBIT, Total Assets c. Sales, Total Assets, Equity d. Net Margin, Total Current Assets 31. Why would a company be interested in the TAT (Total Asset Turnover) ratio? a. How efficient assets are at producing income b. What the turnover of sales is to liabilities c. How efficient assets are at producing sales d. How efficient assets are to liabilities and equity 32. If a company has current assets of 80 and fixed assets of 120, if Sales are 150 and EBIT is 35, what is the Fixed Asset Turnover? a. 5.71 b. 2.29 c. 0.80 d. 1.25 33. If a company has current assets of 90 and fixed assets of 140, if it has debt of 125, what is its debt ratio? a. 1.12 b. 0.54 c. 1.36 d. 1.84 34. A company has sales of 300, expenses of 200 and interest expense of 25, what is its Times Interest Earned ratio? a. 2.00 b. 4.00 c. 1.75 d. 3.00

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