Question1) Regarding risk levels, financial managers should A. focus p

1) Regarding risk levels, financial managers should A. focus primarily on market fluctuations B. evaluate investor’s desire for risk C. avoid higher risk projects because they destroy value D. pursue higher risk projects because they increase value

2) Maximization of shareholder wealth is a concept in which A. virtually all earnings are paid as dividends to common stockholders. B. optimally increasing the long-term value of the firm is emphasized. C. profits are maximized on a quarterly basis. D. increased earnings is of primary importance.

3) Insider trading occurs when A. lawyers, investment bankers, and others buy common stock in companies represented by their firms. B. someone has information not available to the public which they use to profit from trading in stocks. C. any stock transactions occur in violation of the Federal Trade Commissions restrictions on monopolies. D. corporate officers buy stock in their company.

4) The statement of cash flows does NOT include which of the following sections? A. cash flows from investing activities B. cash flows from operating activities C. cash flows from financing activities D. cash flows from sales activities

5) Which of the following is an inflow of cash? A. the sale of the firm’s bonds B. funds spent in normal business operations C. the retirement of the firm’s bonds D. the purchase of a new factory

6) An increase in investments in long-term securities will: A. increase cash flow from financing activities. B. increase cash flow from investing activities. C. decrease cash flow from financing activities. D. decrease cash flow from investing activities.

7) In examining the liquidity ratios, the primary emphasis is the firm’s A. ability to pay short-term obligations on time. B. ability to effectively employ its resources. C. ability to earn an adequate return. D. overall debt position.

8) For a given level of profitability as measured by profit margin, the firm’s return on equity will A. increase as its debt-to assets ratio increases. B. increase as its debt-to-assets ratio decreases. C. decrease as its times-interest-earned ratio decreases. D. decrease as its current ratio increases.

9) If a firm has both interest expense and lease payments, A. times interest earned will be the same as fixed charge coverage. B. times interest earned will be smaller than fixed charge coverage. C. fixed charge coverage cannot be computed. D. times interest earned will be greater than fixed charge coverage.

Refer to the figure above. The firm’s debt to asset ratio is A. 25%. B. 58%. C. 48%. D. 33%.

11) Refer to the figure above. Megaframe’s current ratio is A. 1.5:1 B. 1.9:1 C. 3.2:1 D. 1.625:1

12) A firm’s long term assets = $75,000, total assets = $200,000, inventory = $25,000 and current liabilities = $50,000. A. current ratio = 1.5; quick ratio = 2.0 B. current ratio = 0.5; quick ratio = 1.5 C. current ratio = 2.5; quick ratio = 2.0 D. current ratio = 1.0; quick ratio = 2.0

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