Which one of the following actions best matches the primary goal of financial management? (Points : 3)

increasing the net working capital while lowering the long-term asset requirements

improving the operating efficiency, thereby increasing the market value of the stock

increasing the firm’s market share

reducing fixed costs and increasing variable costs

increasing the liquidity of the firm by transferring short-term debt into long-term debt

2. (TCO 1) When analyzing alternative capital structures for a firm, a financial manager must consider which of the following? (Points : 3)

type of loan

amount of funds needed

cost of funds

mix of debt and equity

all of the above

3. (TCO 1) Market value reflects which of the following: (Points : 3)

The amount someone is willing to pay today for an asset.

The value of the asset based on generally-accepted accounting principles.

The asset’s historical cost.

A and B only

None of the above

4. (TCO 1) Which of the following is true regarding income statements? (Points : 3)

It reveals the net cash flows of a firm over a stated period of time.

It reflects the financial position of a firm as of a particular date.

It records revenue only when cash is received for the product or service provided.

It records expenses based on the recognition principle.

None of the above is a true statement.

5. (TCO 1) Tato’s Pizza has sales of $625,000. They paid $43,000 in interest during the year and depreciation was $79,000. Administrative costs were $100,000 and other costs were $160,000. Assuming a tax rate of 35 percent, what is Tato’s Pizza net income?

(Points : 3)





6. (TCO 1) Home Best Hardware had $315,000 in taxable income last year. Using the tax rates provided in Table 2.3, what are the company’s income taxes? (Points : 3)




None of the above

7. (TCO 1) Pizza A had earnings after taxes of $390,000 in the year 2008, and 300,000 shares outstanding. In year 2009, earnings after taxes increased by 20 percent to $468,000 and 25,000 new shares were issued for a total of 325,000 shares. What is the EPS figure for 2009? (Points : 3)





8. (TCO 1) The financial statement that summarizes a firm’s operations over a period of time is called a(n): (Points : 3)

income statement.

cash flow statement.

production report.

balance sheet.

periodic operating statement.

9. (TCO 1) Best Electronics has EBIT of $450,000, interest of $30,000, taxes of $50,000, and depreciation of $80,000. What is the company’s operating cash flow? (Points : 3)






10. (TCO 3) You opened a new certificate of feposit with $13,000. Your broker indicated that this investment pays five percent interest, compounded quarterly. Which one of the following statements is correct concerning this investment? (Points : 3)

You will receive equal interest payments every three months over the life of the investment.

You could earn more interest by investing in an account paying five percent simple interest.

You would have earned more interest if you had invested in an account paying annual interest.

You will earn less and less interest each year over the life of the investment.

You will earn more interest in year 3, than you will in year 2.

11. (TCO 3) Mr. Smith will receive $7,500 a year for the next 14 years from his trust. If the interest rate on this investment is eight percent, what is the approximate current value of these future payments? (Points : 3)





12. (TCO 3) Paper Pro recently purchased a printing machine costing $97,000. The company financed this purchase at 8.25 percent interest, with monthly payments of $2,379.45. How many years will it take the firm to pay off this debt? (Points : 3)

3.0 years

4.0 years

4.25 years

4.5 years

5.0 years

(TCO 1) In a general partnership, each partner is personally liable for: (Points : 3)

the partnership debts that he or she personally obtained for the firm.

his or her proportionate share of all partnership debts, regardless of which partner incurred that debt.

the total debts of the partnership, even if he or she was unaware of those debts.

the debts of the partnership, up to the amount he or she invested in the firm.

all personal and partnership debts incurred by any partner, even if he or she was unaware of those debts.

2. (TCO 1) Which one of the following is classified as a current asset? (Points : 3)


accounts payable



note payable

3. (TCO 1) Explain agency theory. Provide an example of a potential agency problem for a corporation, and identify means by which the firm can help reduce or eliminate that problem. (Points : 8)

4. (TCO 3) What are some real-life scenarios where you can apply the time value of money? Present two or three scenarios. Briefly explain your rationale. (Points : 8)

5. (TCO 8) Explain some of the key risks associated with bonds. (Points : 8)

6. (TCO 6) What are some of the benefits of issuing bonds with call and put provisions? Explain your rationale.