Question 1 Question PDQ Corp. has sales of $3,000,000; the firm’s cost of goods sold is $1,425,000; and its total operating expenses are $700,000. The firm’s interest expense is $230,000, and the corporate tax rate is 40%. What is PDQ’s tax liability?Question 1 answers$258,000$350,000$387,000$645,000Question 2 text Question 2 QuestionBenefits of an organized security exchange include:Question 2 answershelping companies raise new capitalestablishing and publicizing fair security pricesproviding a continuous marketall of the aboveQuestion 3 text Question 3 QuestionRoxbury Brothers has sales of $2,250,000; a gross profit of $825,000; total operating costs of $620,000; income taxes of $74,800; and total assets of $995,000. What is Roxbury’s Operating Income Return on Investment?Question 3 answers36.67%14.32%20.60%4.99%Question 4 text Question 4 QuestionGeneral partners have unrestricted transferability of ownership, while limited partners must have the consent of all partners to transfer their ownership.Question 4 answersTrueFalseQuestion 5 text Question 5 QuestionPatti Corporation has current assets of $11,400, inventories of $4,000, and a current ratio of 2.6. What is Patti’s acid test ratio?Question 5 answers1.690.540.741.35Question 6 text Question 6 QuestionWhich of the following has the most significant influence on return on equity?

Question 6 answersCommon dividendsPrincipal paymentsAccrualsOperating incomeQuestion 7 text Question 7 QuestionA firm that wants to know if it has enough cash to meet its bills would be most likely to use which kind of ratio?Question 7 answersliquidityleverageefficiencyprofitabilityQuestion 8 text Question 8 QuestionWhich of the following represents the correct ordering of standard deviation of returns over the period 1926 to 2000 (from highest to lowest standard deviation of returns)?Question 8 answersT-bills, long-term corporate bonds, common stocks, Small firm common stockssmall firm common stocks, common stocks, long-term corporate bonds, T-billsT-bills, common stocks, long-term corporate bonds, small firm common stockslong-term corporate bonds, T-bills, common stocks, small firm common stocksQuestion 9 text Question 9 QuestionWhich of the following goals of the firm are synonymous (equivalent) to the maximization of shareholder wealth?Question 9 answersprofit maximizationrisk minimizationmaximization of the total market value of the firm’s common stocknone of the aboveQuestion 10 text Question 10 QuestionThe investment banker does not underwrite the securities to be issued in which of the following?Question 10 answersinitial public offeringprimary market transactionfirm commitmentbest effortsQuestion 11 text Question 11 QuestionA “normal” yield curve is ________.Question 11 answersDownward sloping.Downward sloping, then upward sloping.Upward sloping.Upward sloping, then downward sloping.Question 12 text Question 12 QuestionIf a firm has unused debt capacity and the general level of equity prices is depressed, financial executives will favor the issuance of debt securities over the issuance of new common stock.Question 12 answersTrueFalseQuestion 13 text Question 13 QuestionSavings are generally transferred to business firms by:Question 13 answersdirect transfer of fundsindirect transfer using the investment bankerindirect transfer using the financial intermediaryall of the aboveQuestion 14 text Question 14 QuestionCommon stock is the most relied on financing method used by corporations.Question 14 answersTrueFalseQuestion 15 text Question 15 QuestionA Cash Flow Statement can be used to answer a variety of questions. Which of the following would this statement not be likely to answer?Question 15 answersWhy was money borrowed?Where did profits go?What is the current level of inventory?How was the retirement of debt accomplished?Question 16 text Question 16 QuestionThe quick ratio of a firm would be unaffected by which of the following?Question 16 answersland held for investment is sold for cashequipment is purchased, financed by a long-term debt issueinventories are sold for cashinventories are sold on a short-term credit basisQuestion 17 text Question 17 QuestionWhich of the following are tax deductible items to a corporation:Question 17 answersinterest expensesdividends to common stockholdersdividends to preferred stockholdersNone of the above are tax deductible.Question 18 text Question 18 QuestionThere is no legal distinction made between the assets of the business and the personal assets of any of the owners in the limited partnership.Question 18 answersTrueFalseQuestion 19 text Question 19 QuestionWhich of the following ratios would be the best way to determine how customers are paying for their purchases?Question 19 answersInventory turnover.Total asset turnover.Current ratio.Average collection period.Question 20 text Question 20 QuestionManagement may use straight-line depreciation for reporting income to the shareholders while still using an accelerated method for calculating taxable income.Question 20 answersTrueFalseQuestion 21 text Question 21 QuestionFinancial intermediaries:Question 21 answersoffer indirect securitiesinclude the national and regional stock exchangeusually are underwriting syndicatesconstitute the various secondary marketsQuestion 22 text Question 22 Question”The markets are quick and the prices are right” describes a market that is:Question 22 answerseffervescenteffectiveefficienteffluentQuestion 23 text Question 23 QuestionAll risk is not equal because:Question 23 answersSome can be diversified away and some cannotSome risk is free while some is notSome risk is too small to be consideredNone of the aboveQuestion 24 text Question 24 QuestionDuPont analysis indicates that the return on assets equals the return on equity when total assets equals common equity.Question 24 answersTrueFalseQuestion 25 text Question 25 QuestionIn making financial decisions, the relevant tax rate is the:Question 25 answersmarginal tax rate.average (effective) tax rate.previous year’s tax rate.maximum allowable tax rate.Question 26 text Question 26 QuestionMargin requirements are set by:Question 26 answersthe Chairman of the Federal Reserve.the Board of Governors of the Federal Reserve.the Secretary of the Treasurythe Securities and Exchange CommissionQuestion 27 text Question 27 QuestionBased on the information in the table, calculate the after tax cash flow from operations for 2002 (no assets were disposed of during the year, and there was no change in interest payable or taxes payable):Jones CompanyFinancial InformationDecember 2001 December 2002Net income $1,500 $3,000Accounts receivable 750 750Accumulated depreciation 1,125 1,500Common stock 4,500 5,250Paid-in capital 7,500 8,250Retained earnings 1,500 2,250Accounts payable 750 750Question 27 answers$3,750$3,375$3,000$2,250Question 28 text Question 28 QuestionThe quick ratio of a firm would be increased by which of the following?Question 28 answersland held for investment is sold for cashequipment is purchased, financed by a long-term debt issueinventories are sold for cashinventories are sold in exchange for a long-term noteboth a and c aboveQuestion 29 text Question 29 QuestionAdvantages of private placements do not include which of the following:Question 29 answersmore financing flexibilitylower flotation costsinvestor protection through extensive regulationfunds which are available more quickly than through a public offeringQuestion 30 text Question 30 QuestionPDQ Corp. has sales of $3,000,000; the firm’s cost of goods sold is $1,425,000; and its total operating expenses are $700,000. The firm’s interest expense is $230,000, and the corporate tax rate is 40%. The firm paid dividends to preferred stockholders of $30,000, and the firm distributed $60,000 in dividend payments to common stockholders. What is PDQ’s “Addition to Retained Earnings?”Question 30 answers$297,000$327,000$387,000$477,000Question 31 text Question 31 QuestionAccording to the SEC the correct sequence of events for a security issue is:Question 31 answersred herring, final prospectus, registration statementregistration statement, red herring, final prospectusfinal prospectus, registration statement, red herringred herring, registration statement, final prospectusQuestion 32 text Question 32 QuestionA firm has after-tax cash flow from operations equal to $100,000. Operating working capital increased by $20,000, and the firm purchased $30,000 of fixed assets. The firm’s free cash flow (asset perspective) was:Question 32 answers$50,000$90,000$110,000$150,000None of the aboveQuestion 33 text Question 33 QuestionA firm may use a capital loss to offset a capital gain in the current year only.Question 33 answersTrueFalseQuestion 34 text Question 34 QuestionIf a company’s average collection period is lower than the industry average, then the company may be:Question 34 answersoffering credit terms to its customers that are too stringentallowing its customers too much time to pay their billstoo tough in collecting its accountsboth a and c aboveQuestion 35 text Question 35 QuestionByron, Inc. has total current assets of $800,000; total current liabilities of $450,000; long-term assets of $300,000; and long-term debt of $200,000. How much is the firm’s total equity?Question 35 answers$1,150,000$ 150,000$ 450,000$ 750,000Question 36 text Question 36 QuestionThe Securities and Exchange Commission is responsible for setting margin requirements.Question 36 answersTrueFalseQuestion 37 text Question 37 QuestionWhich of the following is not a deductible business expense for income tax purposes?Question 37 answersCost of goods sold.Dividends.Depreciation.Interest.Question 38 text Question 38 QuestionThe corporation is a legal entity separate from it owners; thus it is possible for the corporation to continue even upon the death of one or more shareholders.Question 38 answersTrueFalseQuestion 39 text Question 39 QuestionWhich of the following relationships is true regarding the costs of issuing the following securities?Question 39 answerscommon stock > bonds > preferred stockpreferred stock > common stock > bondsbonds > common stock > preferred stockcommon stock > preferred stock > bondsQuestion 40 text Question 40 QuestionByron, Inc. has total current assets of $800,000; long-term debt of $200,000; total current liabilities of $450,000; and long-term assets of $300,000. How much is the firm’s net working capital?Question 40 answers$ 75,000$ 15,000$225,000$350,000Question 41 text Question 41 QuestionThe investment banker does not underwrite the securities to be issued in which of the following?Question 41 answerscompetitive bid purchasenegotiated purchasecommission or best efforts basisdirect saleQuestion 42 text Question 42 QuestionAn advantage of the OIROI ratio is that it:Question 42 answersignores the firm’s financing policies.uses net income to measure efficiency.combines total asset turnover and gross profit margin.simply assumes that a firm is financed 50% by equity and 50% by debt.Question 43 text Question 43 QuestionWhich of the following best reflects the mix of corporate securities issued in the U.S.?Question 43 answers74% debt, 26% equity55% debt, 45% equity45% debt, 55% equity26% debt, 74% equityQuestion 44 text Question 44 QuestionThe SEC requires registration of a public issue in which of the following circumstances?Question 44 answersa railroad bond issuean issue of commercial papera public utility issuean issue of $5,000,000Question 45 text Question 45 QuestionThe procedure by which significant changes may be made to a partnership, such as admission of a new partner or termination of the partnership, are governed by each state so no partnership agreement is needed.Question 45 answersTrueFalseQuestion 46 text Question 46 QuestionIn a general partnership there is a distinction between business and personal assets.Question 46 answersTrueFalseQuestion 47 text Question 47 QuestionThe effective legal definition of corporation is “an artificial being, invisible, intangible, and existing only in the contemplation of law.”Question 47 answersTrueFalseQuestion 48 text Question 48 QuestionIn a typical year, when new funds are being raised, corporate debt markets outweigh corporate equity markets in terms of dollar volume.Question 48 answersTrueFalseQuestion 49 text Question 49 QuestionThe U.S. tax system favors ________ as a means of raising capital.Question 49 answerscommon stockpreferred stockdebtnone of the aboveQuestion 50 text Question 50 QuestionIf an investor is said to be “risk averse” then that investor:Question 50 answerscannot be induced to take on any risk.will only take on additional risk if he/she expects to be compensated in the form of additional return.will only take on the least risk possible.is not behaving in a typical manner.Question 1 QuestionPDQ Corp. has sales of $3,000,000; the firm’s cost of goods sold is $1,425,000; and its total operating expenses are $700,000. The firm’s interest expense is $230,000, and the corporate tax rate is 40%. What is PDQ’s tax liability?Question 1 answers$258,000$350,000$387,000$645,000Question 2 text Question 2 QuestionBenefits of an organized security exchange include:Question 2 answershelping companies raise new capitalestablishing and publicizing fair security pricesproviding a continuous marketall of the aboveQuestion 3 text Question 3 QuestionRoxbury Brothers has sales of $2,250,000; a gross profit of $825,000; total operating costs of $620,000; income taxes of $74,800; and total assets of $995,000. What is Roxbury’s Operating Income Return on Investment?Question 3 answers36.67%14.32%20.60%4.99%Question 4 text Question 4 QuestionGeneral partners have unrestricted transferability of ownership, while limited partners must have the consent of all partners to transfer their ownership.Question 4 answersTrueFalseQuestion 5 text Question 5 QuestionPatti Corporation has current assets of $11,400, inventories of $4,000, and a current ratio of 2.6. What is Patti’s acid test ratio?Question 5 answers1.690.540.741.35Question 6 text Question 6 QuestionWhich of the following has the most significant influence on return on equity?Question 6 answersCommon dividendsPrincipal paymentsAccrualsOperating incomeQuestion 7 text Question 7 QuestionA firm that wants to know if it has enough cash to meet its bills would be most likely to use which kind of ratio?Question 7 answersliquidityleverageefficiencyprofitabilityQuestion 8 text Question 8 QuestionWhich of the following represents the correct ordering of standard deviation of returns over the period 1926 to 2000 (from highest to lowest standard deviation of returns)?Question 8 answersT-bills, long-term corporate bonds, common stocks, Small firm common stockssmall firm common stocks, common stocks, long-term corporate bonds, T-billsT-bills, common stocks, long-term corporate bonds, small firm common stockslong-term corporate bonds, T-bills, common stocks, small firm common stocksQuestion 9 text Question 9 QuestionWhich of the following goals of the firm are synonymous (equivalent) to the maximization of shareholder wealth?Question 9 answersprofit maximizationrisk minimizationmaximization of the total market value of the firm’s common stocknone of the aboveQuestion 10 text Question 10 QuestionThe investment banker does not underwrite the securities to be issued in which of the following?Question 10 answersinitial public offeringprimary market transactionfirm commitmentbest effortsQuestion 11 text Question 11 QuestionA “normal” yield curve is ________.Question 11 answersDownward sloping.Downward sloping, then upward sloping.Upward sloping.Upward sloping, then downward sloping.Question 12 text Question 12 QuestionIf a firm has unused debt capacity and the general level of equity prices is depressed, financial executives will favor the issuance of debt securities over the issuance of new common stock.Question 12 answersTrueFalseQuestion 13 text Question 13 QuestionSavings are generally transferred to business firms by:Question 13 answersdirect transfer of fundsindirect transfer using the investment bankerindirect transfer using the financial intermediaryall of the aboveQuestion 14 text Question 14 QuestionCommon stock is the most relied on financing method used by corporations.Question 14 answersTrueFalseQuestion 15 text Question 15 QuestionA Cash Flow Statement can be used to answer a variety of questions. Which of the following would this statement not be likely to answer?Question 15 answersWhy was money borrowed?Where did profits go?What is the current level of inventory?How was the retirement of debt accomplished?Question 16 text Question 16 QuestionThe quick ratio of a firm would be unaffected by which of the following?Question 16 answersland held for investment is sold for cashequipment is purchased, financed by a long-term debt issueinventories are sold for cashinventories are sold on a short-term credit basisQuestion 17 text Question 17 QuestionWhich of the following are tax deductible items to a corporation:Question 17 answersinterest expensesdividends to common stockholdersdividends to preferred stockholdersNone of the above are tax deductible.Question 18 text Question 18 QuestionThere is no legal distinction made between the assets of the business and the personal assets of any of the owners in the limited partnership.Question 18 answersTrueFalseQuestion 19 text Question 19 QuestionWhich of the following ratios would be the best way to determine how customers are paying for their purchases?Question 19 answersInventory turnover.Total asset turnover.Current ratio.Average collection period.Question 20 text Question 20 QuestionManagement may use straight-line depreciation for reporting income to the shareholders while still using an accelerated method for calculating taxable income.Question 20 answersTrueFalseQuestion 21 text Question 21 QuestionFinancial intermediaries:Question 21 answersoffer indirect securitiesinclude the national and regional stock exchangeusually are underwriting syndicatesconstitute the various secondary marketsQuestion 22 text Question 22 Question”The markets are quick and the prices are right” describes a market that is:Question 22 answerseffervescenteffectiveefficienteffluentQuestion 23 text Question 23 QuestionAll risk is not equal because:Question 23 answersSome can be diversified away and some cannotSome risk is free while some is notSome risk is too small to be consideredNone of the aboveQuestion 24 text Question 24 QuestionDuPont analysis indicates that the return on assets equals the return on equity when total assets equals common equity.Question 24 answersTrueFalseQuestion 25 text Question 25 QuestionIn making financial decisions, the relevant tax rate is the:Question 25 answersmarginal tax rate.average (effective) tax rate.previous year’s tax rate.maximum allowable tax rate.Question 26 text Question 26 QuestionMargin requirements are set by:Question 26 answersthe Chairman of the Federal Reserve.the Board of Governors of the Federal Reserve.the Secretary of the Treasurythe Securities and Exchange CommissionQuestion 27 text Question 27 QuestionBased on the information in the table, calculate the after tax cash flow from operations for 2002 (no assets were disposed of during the year, and there was no change in interest payable or taxes payable):Jones CompanyFinancial InformationDecember 2001 December 2002Net income $1,500 $3,000Accounts receivable 750 750Accumulated depreciation 1,125 1,500Common stock 4,500 5,250Paid-in capital 7,500 8,250Retained earnings 1,500 2,250Accounts payable 750 750Question 27 answers$3,750$3,375$3,000$2,250Question 28 text Question 28 QuestionThe quick ratio of a firm would be increased by which of the following?Question 28 answersland held for investment is sold for cashequipment is purchased, financed by a long-term debt issueinventories are sold for cashinventories are sold in exchange for a long-term noteboth a and c aboveQuestion 29 text Question 29 QuestionAdvantages of private placements do not include which of the following:Question 29 answersmore financing flexibilitylower flotation costsinvestor protection through extensive regulationfunds which are available more quickly than through a public offeringQuestion 30 text Question 30 QuestionPDQ Corp. has sales of $3,000,000; the firm’s cost of goods sold is $1,425,000; and its total operating expenses are $700,000. The firm’s interest expense is $230,000, and the corporate tax rate is 40%. The firm paid dividends to preferred stockholders of $30,000, and the firm distributed $60,000 in dividend payments to common stockholders. What is PDQ’s “Addition to Retained Earnings?”Question 30 answers$297,000$327,000$387,000$477,000Question 31 text Question 31 QuestionAccording to the SEC the correct sequence of events for a security issue is:Question 31 answersred herring, final prospectus, registration statementregistration statement, red herring, final prospectusfinal prospectus, registration statement, red herringred herring, registration statement, final prospectusQuestion 32 text Question 32 QuestionA firm has after-tax cash flow from operations equal to $100,000. Operating working capital increased by $20,000, and the firm purchased $30,000 of fixed assets. The firm’s free cash flow (asset perspective) was:Question 32 answers$50,000$90,000$110,000$150,000None of the aboveQuestion 33 text Question 33 QuestionA firm may use a capital loss to offset a capital gain in the current year only.Question 33 answersTrueFalseQuestion 34 text Question 34 QuestionIf a company’s average collection period is lower than the industry average, then the company may be:Question 34 answersoffering credit terms to its customers that are too stringentallowing its customers too much time to pay their billstoo tough in collecting its accountsboth a and c aboveQuestion 35 text Question 35 QuestionByron, Inc. has total current assets of $800,000; total current liabilities of $450,000; long-term assets of $300,000; and long-term debt of $200,000. How much is the firm’s total equity?Question 35 answers$1,150,000$ 150,000$ 450,000$ 750,000Question 36 text Question 36 QuestionThe Securities and Exchange Commission is responsible for setting margin requirements.Question 36 answersTrueFalseQuestion 37 text Question 37 QuestionWhich of the following is not a deductible business expense for income tax purposes?Question 37 answersCost of goods sold.Dividends.Depreciation.Interest.Question 38 text Question 38 QuestionThe corporation is a legal entity separate from it owners; thus it is possible for the corporation to continue even upon the death of one or more shareholders.Question 38 answersTrueFalseQuestion 39 text Question 39 QuestionWhich of the following relationships is true regarding the costs of issuing the following securities?Question 39 answerscommon stock > bonds > preferred stockpreferred stock > common stock > bondsbonds > common stock > preferred stockcommon stock > preferred stock > bondsQuestion 40 text Question 40 QuestionByron, Inc. has total current assets of $800,000; long-term debt of $200,000; total current liabilities of $450,000; and long-term assets of $300,000. How much is the firm’s net working capital?Question 40 answers$ 75,000$ 15,000$225,000$350,000Question 41 text Question 41 QuestionThe investment banker does not underwrite the securities to be issued in which of the following?Question 41 answerscompetitive bid purchasenegotiated purchasecommission or best efforts basisdirect saleQuestion 42 text Question 42 QuestionAn advantage of the OIROI ratio is that it:Question 42 answersignores the firm’s financing policies.uses net income to measure efficiency.combines total asset turnover and gross profit margin.simply assumes that a firm is financed 50% by equity and 50% by debt.Question 43 text Question 43 QuestionWhich of the following best reflects the mix of corporate securities issued in the U.S.?Question 43 answers74% debt, 26% equity55% debt, 45% equity45% debt, 55% equity26% debt, 74% equityQuestion 44 text Question 44 QuestionThe SEC requires registration of a public issue in which of the following circumstances?Question 44 answersa railroad bond issuean issue of commercial papera public utility issuean issue of $5,000,000Question 45 text Question 45 QuestionThe procedure by which significant changes may be made to a partnership, such as admission of a new partner or termination of the partnership, are governed by each state so no partnership agreement is needed.Question 45 answersTrueFalseQuestion 46 text Question 46 QuestionIn a general partnership there is a distinction between business and personal assets.Question 46 answersTrueFalseQuestion 47 text Question 47 QuestionThe effective legal definition of corporation is “an artificial being, invisible, intangible, and existing only in the contemplation of law.”Question 47 answersTrueFalseQuestion 48 text Question 48 QuestionIn a typical year, when new funds are being raised, corporate debt markets outweigh corporate equity markets in terms of dollar volume.Question 48 answersTrueFalseQuestion 49 text Question 49 QuestionThe U.S. tax system favors ________ as a means of raising capital.Question 49 answerscommon stockpreferred stockdebtnone of the aboveQuestion 50 text Question 50 QuestionIf an investor is said to be “risk averse” then that investor:Question 50 answerscannot be induced to take on any risk.will only take on additional risk if he/she expects to be compensated in the form of additional return.will only take on the least risk possible.is not behaving in a typical manner.