1) Managerial finance

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

B) involves the design and delivery of advice and financial products.

C) recognizes funds on an accrual basis.

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



2) High cash flow is generally associated with a higher share price whereas higher risk tends to result in a lower share price.

A) True

B) False



3) When considering each financial decision alternative or possible action in terms of its impact on the share price of the firm’s stock, financial managers should accept only those actions that are expected to increase the firm’s profitability.

A) True

B) False



4) The wealth of corporate owners is measured by the share price of the stock.

A) True

B) False



5) The profit maximization goal ignores the timing of returns, does not directly consider cash flows, and ignores risk.

A) True

B) False



6 Stockholders expect to earn higher rates of return on investments of lower risk and lower rates of return on investments of higher risk.

A) True

B) False



7) The primary goal of the financial manager is

A) minimizing risk.

B) maximizing profit.

C) maximizing wealth.

D) minimizing return.



8) Profit maximization as a goal is not ideal because it does NOT directly consider

A) risk and cash flow.

B) cash flow and stock price.

C) risk and EPS.

D) EPS and stock price.



9) An effective ethics program can

A) weakened corporate value.

B) had no effect on a corporation’s value

C) enhance a corporation’s value.

D) be thought of as unimportant to corporate owners.



10) 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. Although 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

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

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

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

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



11) Marginal analysis states that financial decisions should be made and actions taken only when

A) demand equals supply.

B) benefits equal costs.

C) added benefits exceed added costs.

D) added benefits are greater than zero.



12) One way often used to insure that management decisions are in the best interest of the stockholders is to

A) threaten to fire managers who are seen as not performing adequately.

B) remove management’s perquisites.

C) tie management compensation to the performance of the company’s common stock price.

D) tie management compensation to the level of earnings per share.



13) The Sarbanes-Oxley Act of 2002 was passed in response to

A) insider trading activities.

B) false disclosures in financial reporting.

C) the decline in technology stocks.

D) all of the above



14) The key participants in financial transactions are individuals, businesses, and governments. Individuals are net ________ of funds, and businesses are net ________ of funds.

A) demanders; suppliers

B) users; providers

C) suppliers; demanders

D) purchasers; sellers



15) An efficient market is a market that allocates funds to their most productive use as a result of competition among wealth-maximizing investors.

A) True

B) False



16) The primary risk of mortgage-backed securities is

A) that the prices of housing will go down.

B) that the prices of housing will increase.

C) that the government will not be able to meet the guarantees on the cash flows.

D) that homeowners may not be able to, or choose not to, repay their loans.



17) The marginal tax rate represents the rate at which additional income is taxed.

A) True

B) False



18) Retained earnings represent the cumulative total of all earnings retained and reinvested in the firm since its inception.

A) True

B) False



19) The stockholder’s annual report must include

A) a statement of cash flows.

B) an income statement.

C) a balance sheet.

D) a statement of retained earnings.

E) all of the above.



20) Gross profits are defined as

A) operating profits minus depreciation.

B) operating profits minus cost of goods sold.

C) sales revenue minus operating expenses.

D) sales revenue minus cost of goods sold.



21) A firm had the following accounts and financial data for 2005.



The firm’s earnings available to common shareholders for 2005 were

A) -$224.25

B) $195.40

C) $302.40

D) $516.60



22) A firm had the following accounts and financial data for 2005.



The firm’s net profit after taxes for 2005 was ________.

A) -$206.40

B) $213.80

C) $320.40

D) $206.25



23) The firm’s creditors are primarily interested in the short-term liquidity of the company and its ability to make interest and principal payments.

A) True

B) False



24) Ratio analysis merely directs the analyst to potential areas of concern; it does not provide conclusive evidence as to the existence of a problem.

A) True

B) False



25) In ratio analysis, the financial statements being used for comparison should be dated at the same point in time during the year. If not, the effect of seasonality may produce erroneous conclusions and decisions.

A) True

B) False



26) ________ analysis involves the comparison of different firms’ financial ratios at the same point in time.

A) Time-series

B) Cross-sectional

C) Marginal

D) Quantitative



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