Liberty university busi 530 exam 1

 

[Solved] Liberty University BUSI 530 Exam 1

Liberty University BUSI530 Exam 1

Financial managers should only accept investment projects that:

Multiple Choice

•            

increase the current profits of the firm.

•            

can increase the firm’s market share.

•            

earn a higher rate of return than the firm currently earns on its existing projects.

Item 2

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Unlimited liability is faced by the owners of:

Multiple Choice

•            

corporations.

•            

partnerships and corporations.

•            

sole proprietorships and general partnerships.

Correct

•            

all forms of business organization.

Item 3

3/3 points awarded

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The term “capital structure” refers to:

Multiple Choice

•            

the mix of long-term debt and equity financing.

Correct

•            

the length of time needed to repay debt.

•            

whether or not the firm invests in capital budgeting projects.

•            

the types of assets a firm acquires.

Item 4

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Which of the following appears to be the most appropriate goal for corporate management?

•            

Maximizing market value of the company’s shares

Correct

•            

Maximizing the company’s market share

•            

Maximizing the current profits of the company —ANSWER INCORRECT

Incorrect

•            

Minimizing the company’s liabilities

Item 5

One continuing problem with managerial incentive compensation plans is that:

•            

the plans increase agency problems.

•            

managers prefer guaranteed salaries.

•            

their effectiveness is difficult to evaluate.

Correct

•             the plans do not reward shareholders.

3/3 points awarded

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Item 6

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In a partnership form of organization, income tax liability, if any, is incurred by:

Multiple Choice

•            

the partnership itself.

•            

the partners individually.

Correct

•            

both the partnership and the partners.

•            

neither the partnership nor the partners.

Item 7

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A board of directors is elected as a representative of the corporation’s:

Multiple Choice

•            

top management.

•            

stakeholders.

•            

shareholders.

Correct

•            

customers.

Item 8

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Which one of the following statements is not characteristic of mutual funds?

Multiple Choice

•            

They are always considered to be financial institutions.

Correct

•            

They raise money by selling shares to investors.

•            

They pool the savings of many investors.

•            

They offer professional management and portfolio diversification.

Item 9

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A capital investment that generates a 10% rate of return is worthwhile if:

Multiple Choice

•            

corporate bonds of similar risk offer 8% rates of return.

Correct

•            

corporate bonds of similar risk offer 11% rates of return.

•            

top-quality corporate bonds offer 10% rates of return.

•            

the expected rate of return on the stock market is 12%.

Item 10

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Which one of the following is least liquid?

Multiple Choice

•            

Foreign currency

•            

U.S. Treasury bonds

•            

Real estate

Correct

•            

Bank deposit

Item 11

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Which one of these enterprises generally acts as an underwriter for an initial public offering?

Multiple Choice

•            

Commercial bank

•            

Government

•            

Investment bank

Correct

•            

Insurance company

Item 12

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Foreign currencies are traded:

•            

only by banks in New York and London.

•            

over the counter.

Correct

•            

on both the NYSE and NASDAQ.

•             on the Intercontinental Exchange.

Item 13

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If Apple Computer Inc. is used as the model, then new firms should expect to raise capital in which one of these orders? Start with the first money raised.

Multiple Choice

•            

Owners, venture capitalists, suppliers, public investors

•            

Owners, suppliers, venture capitalists, public investors

Correct

•            

Venture capitalists, owners, public investors, suppliers

•            

Owners, public investors, venture capitalists, suppliers

Item 14

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Which one of these parties cannot invest in a hedge fund?

Multiple Choice

•            

Small retail investors

Correct

•            

Pension funds

•            

Insurance companies

•            

Wealthy individuals

Item 15

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In a statement of cash flows, which category includes depreciation expense as a line item?

Multiple Choice

•            

Cash provided by operations.

Correct

•            

Cash flows from investments.

•            

Cash provided by (used for) financing activities.

•            

Current liabilities.

Item 16

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Current period depreciation expense is listed:

Multiple Choice

•            

on the balance sheet.

•            

in the investment section of the cash flow statement.

•            

on the income statement.

Correct

•            

on neither the balance sheet nor the income statement; it is a noncash expense.

Item 17

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Interest expense appears in the operations section of the statement of cash flows because:

Multiple Choice

•            

firms cannot operate without incurring interest expense.

•            

its payment is not within managerial discretion.

Correct

•            

it is paid to finance a firm’s inventory.

•            

none of the options; interest expense appears in the financing section of the statement of cash flows.

Item 18

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In general, what is changing as you read down the left-hand side of a balance sheet?

Multiple Choice

•            

The assets are becoming more fully depreciated.

•            

The assets are increasing in value.

•            

The assets are increasing in maturity.

•            

The assets are becoming less liquid.

Correct

Item 19

What is the marginal corporate tax rate for large companies?

Multiple Choice

•            

15%

•            

34%

•            

35%

Correct

•            

39%

Item 20

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The income statement resembles a snapshot of the firm at a specific time.

True or False

True False Correct

Item 21

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The purchase of new equipment is a use of cash, and it reduces the firm’s net cash balance.

True or False

True Correct False

Item 22

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There is generally a bigger difference between the book value and the market value of fixed assets as compared to cash.

True or False

True Correct False

Item 23

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A deficiency of the standard measures of liquidity is that the measures:

Multiple Choice

•            

ignore a firm’s reserve borrowing capacity.

Correct

•            

fail to include accounts receivable as an asset.

•            

give inventories equal weighting in the quick ratio.

•            

do not include the current portions of long-term debt.

Item 24

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Efficiency ratios:

Multiple Choice

•            

include the quick ratio, asset turnover ratio, and return on equity.

•            

are used to measure how well the company uses its assets.

Correct

•            

are used to measure how liquid the company is.

•            

measure the profits generated by a firm’s equity and assets.

Item 25

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An asset turnover ratio of 1.75 can be interpreted as:

Multiple Choice

•            

$1.75 in sales are generated by every $1 of assets.

Correct

•            

$1.75 in additional assets are generated by every $1 of sales.

•            

$1.75 in assets are used to generate $1 of sales.

•            

$1 in sales are used to generate $1.75 in assets.

Item 26

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High levels of liquidity may indicate:

Multiple Choice

•            

low levels of net working capital.

•            

low profit margins.

•            

high levels of economic value added.

•            

inefficient use of assets.

Correct

Item 27

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In the past year, TVG had revenues of $3 million, cost of goods sold of $2.5 million, and depreciation expense of $200,000. The firm has a single issue of debt outstanding with a face value of $1million, market value of $.92 million, and a coupon rate of 8%. What is the firm’s times interest earned ratio?

Multiple Choice

•            

3.75

Correct

•            

2.98

•            

2.80

•            

3.40

84out of/90 Total points awarded Help opens in a new windowExit

Item 28

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Return on assets is always a larger number than the return on equity.

True or False

True False Correct

Item 29

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Which of the following actions could improve a firm’s current ratio if it is now less than 1.0?

Multiple Choice

•            

Converting marketable securities to cash

•            

Paying accounts payable with cash

•            

Buying inventory on credit

Correct

•            

Selling inventory at cost

Item 30

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The higher the times interest earned ratio, the higher the interest expense. False

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