1. The field of finance is closely related to the fields of:
a) statistics and economics
b) statistics and risk analysis
c) economics and accounting
d) accounting and comparative return analysis
2. Which of the following properly lists balance sheet items in order of liquidity, from most liquid to least
liquid?
a) Accounts receivable, inventory, marketable securities, cash.
b) Cash, marketable securities, accounts receivable, inventory.
c) Inventory, marketable securities, cash, accounts receivable.
d) Cash, inventory, accounts receivable, marketable securities.
3. Amortization is considered a source of funds to the firm because
a) it is purely an accounting entry and doesn't involve a direct disbursement of funds, freeing up these
funds for other investments
b) it represents a reduction in asset holdings
c) it represents an increase in an asset account
d) amortization is not a source of funds
4. Receivables turnover is:
a) a profitability ratio
b) a debt utilization ratio
c) an asset utilization ratio
d) a liquidity ratio
5. Financial ratios are used to:
a) weigh and evaluate the operating performance of the firm
b) provide an absolute benchmark of industry performance
c) determine which firm will provide the highest return to investors
d) None of the above are correct
6. Profitability ratios measure
a) the speed at which the firm is turning over its assets
b) the ability of the firm to earn an adequate return on sales, total assets, and invested capital
c) the firm's ability to pay off short term obligations as they are due
d) the debt position of the firm in light of its assets and earning power
7. The construction of the pro forma income statement is based on:
a) the prior year's income statement
b) sales projections and the production plan
c) the cash budget
d) the cash budget and prior year's income statement
8. The primary purpose of the cash budget is:
a) to break the income statement down into monthly periods
b) to determine monthly cash receipts
c) to determine the collection pattern
d) to allow the firm to anticipate the need for outside funding
9. Operating leverage may be defined as:
a) the degree to which debt is used in financing the firm
b) the difference between price and variable costs
c) the extent to which capital assets and fixed costs are utilized
d) the difference between fixed costs and the contribution margin
10. Financial leverage:
a) reflects the firm's commitment to fixed, financial assets
b) has no impact on the earning of the firm
c) reflects the amount of debt used in the capital structure of the firm
d) primarily affects the left side of the balance sheet