Fin 200 final exam

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This work of FIN 200 Final Exam shows the solutions to the
following questions:
1) Corporate governance is the
A. governance of the company by the board of directors with
a focus on social responsibility.
B. relationship and exercise of oversight by the board of
directors of the company.
C. operation of a company by the chief executive officer
(CEO) and other senior executives on the management team.
D. relationship between the chief financial officer and
institutional investors.
2) Regarding risk levels, financial managers should
A. evaluate investor's desire for risk
B. pursue higher risk projects because they increase value
C. focus primarily on market fluctuations
D. avoid higher risk projects because they destroy value
3) One of the major disadvantages of a sole proprietorship is
A. low operating costs.
B. the simplicity of decision making.
C. low organizational costs.
D. that there is unlimited liability to the owner
4) Which of the following would represent a use of funds
and, indirectly, a reduction in cash balances?
A. the sale of new bonds by the firm
B. a decrease in marketable securities
C. an increase in accounts payable

2. D. an increase in inventories
5) Which of the following is an inflow of cash?
A. the retirement of the firm's bonds
B. the purchase of a new factory
C. the sale of the firm's bonds
D. funds spent in normal business operations
6) Which account represents the cumulative earnings of the
firm since its formation, minus dividends paid?
A. Accumulated depreciation
B. Common stock
C. Retained earnings
D. Paid-in capital
7) A quick ratio that is much smaller than the current ratio
reflects
A. that the firm will have a high return on assets.
B. a large portion of current assets is in inventory.
C. that the firm will have a high inventory turnover.
D. a small portion of current assets is in inventory.
8) For a given level of profitability as measured by profit
margin, the firm's return on equity will
A. decrease as its times-interest-earned ratio decreases.
B. decrease as its current ratio increases.
C. increase as its debt-to assets ratio increases.
D. increase as its debt-to-assets ratio decreases.
9) The most rigorous test of a firm's ability to pay its short-term
obligations is its
A. times-interest-earned ratio.
B. quick ratio.
C. debt-to-assets ratio.
D. current ratio.
10) Refer to the figure above. The firm's inventory turnover

3. ratio is
A. 0.1x.
B. 8x.
C. 2.7x.
D. 10x.
11) Refer to the figure above. The firm's debt to asset ratio is
A. 48%.
B. 33%.
C. 25%.
D. 58%.
12) Refer to the figure above. Megaframe's current ratio is
A. 3.2:1
B. 1.625:1
C. 1.5:1
D. 1.9:1
13) The percent-of-sales method of financial forecasting
A. provides a month-to-month breakdown of data.
B. requires more time than a cash budget approach.
C. assumes that balance sheet accounts maintain a constant
relationship to sales.
D. is more detailed than a cash budget approach.
14) In order to estimate production requirements, we
A. add beginning inventory to desired ending inventory and
subtract projected sales in units.
B. add projected sales in units to desired ending inventory
and subtract beginning inventory.
C. add beginning inventory to desired ending inventory and
divide by two.
D. add beginning inventory to projected sales in units and
subtract desired ending inventory.
15) In the percent-of-sales method, an increase in dividends

4. A. more information is needed.
B. has no effect on required new funds.
C. will increase required new funds.
D. will decrease required new funds.
16) In developing the pro forma income statement we follow
four important steps:
1) compute other expenses,
2) determine a production schedule,
3) establish a sales projection,
4) determine profit by completing the actual pro forma
statement.
What is the correct order for these four steps?
A. 3,2,1,4
B. 2,1,3,4
C. 1,2,3,4
D. 3,2,4,1
17) The pro forma income statement is important to the
overall process of constructing pro forma statements
because it allows us to determine a value for:
A. prepaid expenses.
B. interest expense.
C. change in retained earnings.
D. gross profit.
18) The difference between total receipts and total payments
is referred to as
A. cash balance.
B. net cash flow.
C. cumulative cash flow.
D. beginning cash flow.
19) Financial leverage deals with:
A. the entire balance sheet.

5. B. the entire income statement.
C. the relationship of fixed and variable costs.
D. the relationship of debt and equity in the capital structure.
20) The degree of operating leverage is computed as
A. percent change in operating income divided by percent
change in volume.
B. percent change in EPS divided by percent change in
operating income.
C. percent change in operating profit divided by percent
change in net income.
D. percent change in volume divided by percent change in
operating profit.
21) When a firm employs no debt
A. it will not be profitable.
B. its operating leverage is equal to its financial leverage.
C. it has a financial leverage of one.
D. it has a financial leverage of zero.
22) If a firm has a price of $4.00, variable cost per unit of
$2.50 and a breakeven point of 20,000 units, fixed costs are
equal to:
A. $50,000
B. $30,000
C. $13,333
D. $10,000
23) In break-even analysis, the contribution margin is defined
as
A. fixed cost minus variable cost.
B. variable cost minus fixed cost.
C. price minus variable cost.
D. price minus fixed cost.
24) If TechCor has fixed costs of $80,000, variable costs of

6. $1.20/unit, sales price/unit of $6, and depreciation expense
of $25,000, what is their cash breakeven in units?
A. 45,833
B. 21,875
C. 9,167
D. 11,458
25) When the yield curve is upward sloping, generally a
financial manager should:
A. lease
B. wait for future financing
C. utilize long-term financing
D. utilize short-term financing
26) Normally, permanent current assets should be financed
by
A. internally generated funds.
B. borrowed funds.
C. long-term funds.
D. short-term funds.
27) During tight money periods
A. the relationship between short and long-term rates
remains unchanged.
B. short-term rates are equal to long-term rates.
C. long-term rates are higher than short-term rates.
D. short-term rates are higher than long-term rates.
28) An aggressive working capital policy would have which of
following characteristics?
A. A short average collection period.
B. A high ratio of short-term debt to long-term sources of
funds.
C. A high ratio of long-term debt to fixed assets.
D. A low ratio of short-term debt to fixed assets.

7. 29) Risk exposure due to heavy short-term borrowing can be
compensated for by
A. carrying more receivables to increase cash flow.
B. carrying highly liquid assets.
C. carrying illiquid assets.
D. carrying longer term, more profitable current assets.
30) An aggressive, risk-oriented firm will likel...
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