Question 1: Firms with a high degree of operating leverage are
A. easily capable of surviving large changes in sales volume
B. usually trading off lower levels of risk for higher profits.
C. significantly affected by changes in interest rates.
D. trading off higher fixed costs for lower per-unit variable costs.
Question 2: Cash flow consists of illiquid cash equivalents which are difficult to convert to cash within 90 days.
True or False
Question 3: The income statement measures the increase in the assets of a firm over a period of time.
True or False
Question 4: Profitability ratios allow one to measure the ability of the firm to earn an adequate return on sales, total assets, and invested capital.
True or False
Question 5: Which of the following is not a condition under which a prudent manager would accept some risk in financing?
A. Predictable cash-flow patterns
B. Inventory is highly perishable
C. Price of inventory is stable
D. Easy access to capital markets
Question 6: As the dividend payout ratio declines more external funds are required.
True or False
Question 7: Agency theory deals with the issue of
A. when to hire an agent to represent the firm in negotiations.
B. the legal liabilities of a firm if an employee, acting as the firm's agent, injures someone.
C. the limitations placed on an employee acting as the firm's agent to obligate or bind the firm.
D. the conflicts that can arise between the viewpoints and motivations of a firm's owners and managers.
Question 8: Computerized cash management and electronic funds transfer allow firms to carry smaller cash balances.
True or False
Question 9: Stretching the payment period refers to the practice of trying to take a trade discount after the discount period.
True or False
Question 10: In the percent-of-sales method, an increase in dividends
A. will increase required new funds.
B. will decrease required new funds.
C. has no effect on required new funds.
D. more information is needed.
Question 11: The following is the balance sheet for 2003 for Marbell Inc.
Marbell Inc.
Balance Sheet
12/31/2003
|
Assets
|
Liabilities and Stockholders' Equity
|
|
Cash
|
S 15,000
|
Accts. Payable
|
$ 90,000
|
|
Accts. Rec.
|
90,000
|
Notes payalRelnon-spontaneous30,000
|
|
|
Inventory
|
60,000
|
Accrued expenses
|
7.500
|
|
Current Assets
|
165,000
|
Current Liabilities
|
127,500
|
|
Fixed assets (non-spontaneous)
|
60.000
|
Common stock
|
75,000
|
|
|
|
Retained earnings
|
22,500
|
|
Total assets
|
1225.000
|
Total Liabilities + S.E. Equity
|
1;25.000
|
Sales for 2002 were $300,000. Sales for 2003 have been projected to increase by 20%. Assuming that Marbell Inc. is operating below capacity, calculate the amount of new funds required to finance this growth. Marbell has an 8% return on sales and 70% is paid out as dividends.