Reference no: EM1315682

Multiple Choice questions on basic accounts and finance.

1. A firm has forecasted sales of $30,000 in April, $45,000 in May and $60,000 in June. All sales are on credit. 30% is collected the month of sale and the remainder the following month. What will be balance in accounts receivable at the beginning of July?

a.      $15,950

b.      $65,500

c.       $45,550

d.      $42,000

2. Assuming a tax rate of 50%, the after-tax cost of a $200,000 dividend payment is

a.      $200,000

b.      $100,000

c.       $-100,000

d.      none of the above.

3. The residual income of the firm belongs to

a.      creditors.

b.      preferred stockholders.

c.       common stockholders.

d.      bondholders.

4. When Patricia sells her General Motors common stock at the same time that Brian purchases the same amount of General Motor's stock, General Motors receives:

a.      the \"spread\" between the Bid and Ask of the transaction.

b.      the dollar amount of the transaction, less brokerage fees.

c.       only the par value of the common stock.

d.      nothing.

5. The financial markets allocate capital to corporations by

a.      reflecting expectations of the market participants in the prices of the corporation's securities.

b.      requiring higher returns from companies with lower risk than their competitors

c.       rewarding companies with expected high returns with lower relative stock prices

d.      relying on the opinion of investment bankers

6. Depreciation is a source of cash inflow because

a.      it is a tax-deductible non-cash expense.

b.      it supplies cash for future asset purchases.

c.       it is a tax-deductible cash expense.

d.      it is a taxable expense.

d.

7. The ABC Corp. had net income before taxes of $400,000 and sales of $2,000,000. If it is in the 50% tax bracket its after-tax profit margin is:

a.      5%

b.      10%

c.       20%

d.      25%

8. 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.

9. A firm with earnings per share of $5 and a price-earnings ratio of 15 will have a stock price of

a.      $20.00

b.      $75.00

c.       $3.00

d.      the market assigns a stock price independent of EPS and the P/E ratio.

10. Corporations that do not issue financial securities such as stock or debt obligations:

a.      will not be able to increase sales.

b.      cannot be profitable.

c.       generate sufficient funds to fulfill their needs.

do not face double taxation of their profits.