BAM 513 -Financial Management

Text: Principles of Managerial Finance
12th Edition, 2009
ISBN: 0-321-52413-6
Lawrence J. Gitman
Pearson Education

Financial Management

Multiple Choice Questions (Enter your answers on the enclosed answer sheet)

1) Managerial finance

devotes the majority of its attention to the collection and presentation of financial data.

involves tasks such as budgeting, financial forecasting, cash management, and funds procurement.

involves the design and delivery of advice and financial products.

recognizes funds on an accrual basis.

2) Financial service

is concerned with the duties of the financial manager.

involves the design and delivery of advice and financial products.

handles accounting activities related to data processing.

provides guidelines for the efficient operation of the business.

3) A major weakness of a partnership is

difficulty liquidating or transferring ownership.

limited liability.

access to capital markets.

low organizational costs.

4) The primary economic principle used in managerial finance is

the crowding out effect.

the liquidity trap.

supply and demand.

marginal analysis.

Johnson, Inc. has just ended the calendar year making a sale in the amount of $10,000 of merchandise purchased during the year at a total cost of $7,000. Al- though the firm paid in full for the merchandise during the year, it has yet to collect at year end from the customer. The net profit and cash flow from this sale for the year are

$7,000 and -$3,000, respectively.

$3,000 and -$7,000, respectively.

$3,000 and $7,000, respectively.

$3,000 and $10,000, respectively.

By concentrating on cash flows within the firm the financial manager should be able
control expenses.
avoid insolvency.
prepare tax returns.
speak authoritatively to stockholders.
A firm has just ended its calendar year making a sale in the amount of $200,000 of
merchandise purchased during the year at a total cost of $150,500. Although the
firm paid in full for the merchandise during the year, it has yet to collect at year end
from the customer. The possible problem this firm may face is
high leverage.
low profitabi I ity.
lack of cash flow.
inability to receive credit.
8) Included in the primary activities of the financial manager are
financial analysis and planning.
making financing decisions.
analyzing and planning cash flows.
making investment decisions.
all of the above
9) The financial manager may be responsible for any of the following EXCEPT
analyzing the effects of more debt on the firm’s capital structure.
determining whether to accept or reject a capital asset acquisition.
analyzing budget and performance reports.
monitoring of quarterly tax payments.
10) Managing the firm’s assets includes all of the following EXCEPT
notes payable.
accounts receivable.
fixed assets.

11) The primary goal of the financial manager is
maximizing profit.
minimizing return.
minimizing risk.
maximizing wealth.
12) The wealth of the owners of a corporation is represented by
share value.
earnings per share.
cash flow.
13) All of the following are functions of security exchanges EXCEPT
aiding in new financing.
holding demand deposits.
allocating scarce capital.
creating continuous markets.
14) The major securities traded in the capital markets are
commercial paper and Treasury bills.
bonds and commercial paper.
Treasury bills and certificates of deposit.
stocks and bonds.
The average tax rate of a corporation with ordinary income of $105,000 and a tax li-
ability of $24,200 is
15 percent.
46 percent.
23 percent.
34 percent.
16) The statement of retained earnings reports all of the following EXCEPT
net profits after taxes.
preferred stock dividends.
common stock dividends.

17) Paid-in-capital in excess of par represents the amount of proceeds
from the original sale of stock.
at the current market value of common stock.
in excess of the par value from the original sale of common stock.
at the current book value of common stock.
18) The primary concern of creditors when assessing the strength of a firm is the firm’s
short-term liquidity.
share price.
19) is where the firm’s ratio values are compared to those of a key competitor or
group of competitors, primarily to identify areas for improvement.
Combined analysis
Time-series analysis
None of the above
20) Cross-sectional ratio analysis is used to
reflect the symptoms of a possible problem.
correct expected problems in operations.
isolate the causes of problems.
provide conclusive evidence of the existence of a problem.
21) The ratios are primarily measures of return.
The two categories of ratios that should be utilized to assess a firm’s true liquidity are
liquidity and profitability ratios.
current and quick ratios.
liquidity and activity ratios.
liquidity and debt ratios.

The measures the percentage of each sales dollar remaining after ALL ex-
penses, including taxes, have been deducted.
operating profit margin
earnings available to common shareholders
gross profit margin
net profit margin
24) All of the following are outflows of cash EXCEPT
a decrease in notes payable.
a decrease in accounts receivable.
an increase in accounts receivable.
an increase in inventory.
NICO Corporation had net fixed assets of $2,000,000 at the end of 2006 and
$1,800,000 at the end of 2005. In addition, the firm had a depreciation expense of
$200,000 during 2006 and $180,000 during 2005. Using this information, NICO’s
net fixed asset investment for 2006 was

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