FIN 534 Midterm Exam 2

FIN
534 Midterm Exam 2
1. Aubey Aircraft recently announced
that its net income increased sharply from the previous year, yet its net cash
flow from operations declined. Which of the following could explain this
performance?
2. Lucy’s Music Emporium opened its
doors on January 1, 2012, and it was granted permission to use the same
depreciation calculations for shareholder reporting and income tax purposes.
The company planned to depreciate its fixed assets over 20 years, but in
December 2012 management realized that the assets would last for only 15 years.
The firm’s accountants plan to report the 2012 financial statements based on
this new information. How would the new depreciation assumption affect the
company’s financial statements?
3. The LeMond Corporation just
purchased a new production line. Assume that the firm planned to depreciate the
equipment over 5 years on a straight-line basis, but Congress then passed a
provision that requires the company to depreciate the equipment on a
straight-line basis over 7 years. Other things held constant, which of the
following will occur as a result of this Congressional action? Assume that the
company uses the same depreciation method for tax and stockholder reporting
purposes.
4. Which of the following statements
is CORRECT?
5. Which of the following statements
is CORRECT?
6. Which of the following statements
is CORRECT?
7. Which of the following statements
is CORRECT?
8. Which of the following statements
is CORRECT?
9. Which of the following items
cannot be found on a firm’s balance sheet under current liabilities?
10. Which of the following items is
NOT included in current assets?
11. Assume that Congress recently
passed a provision that will enable Barton’s Rare Books (BRB) to double its
depreciation expense for the upcoming year but will have no effect on its sales
revenue or tax rate. Prior to the new provision, BRB’s net income after taxes
was forecasted to be $4 million. Which of the following best describes the
impact of the new provision on BRB’s financial statements versus the statements
without the provision? Assume that the company uses the same depreciation
method for tax and stockholder reporting purposes.
12. Danielle’s Sushi Shop last year
had (1) a negative net cash flow from operations, (2) a negative free cash
flow, and (3) an increase in cash as reported on its balance sheet. Which of
the following factors could explain this situation?
13. Which of the following
statements is CORRECT?
14. Which of the following
statements is CORRECT?
15. Which of the following
statements is CORRECT?
16. Which of the following
statements is CORRECT?
17. If a bank loan officer were
considering a company’s request for a loan, which of the following statements
would you consider to be CORRECT?
18. A firm’s new president wants to
strengthen the company’s financial position. Which of the following actions
would make it financially stronger?
19. Which of the following would
indicate an improvement in a company’s financial position, holding other things
constant?
20. Which of the following
statements is CORRECT?
21. Which of the following
statements is CORRECT?
22. Cordelion Communications is
considering issuing new common stock and using the proceeds to reduce its
outstanding debt. The stock issue would have no effect on total assets, the
interest rate Cordelion pays, EBIT, or the tax rate. Which of the following is
likely to occur if the company goes ahead with the stock issue?
23. Arshadi Corp.’s sales last year
were $52,000, and its total assets were $22,000. What was its total assets
turnover ratio (TATO)?
24. If the CEO of a large,
diversified, firm were filling out a fitness report on a division manager
(i.e., “grading” the manager), which of the following situations
would be likely to cause the manager to receive a better grade? In all cases,
assume that other things are held constant.
25. You observe that a firm’s ROE is
above the industry average, but its profit margin and debt ratio are both below
the industry average. Which of the following statements is CORRECT?
26. Which of the following would,
generally, indicate an improvement in a company’s financial position, holding
other things constant?
27. Companies A and C each reported
the same earnings per share (EPS), but Company A’s stock trades at a higher price.
Which of the following statements is CORRECT?
28. Companies Heidee and Leaudy are
virtually identical in that they are both profitable, and they have the same
total assets (TA), Sales (S), return on assets (ROA), and profit margin (PM).
However, Company Heidee has the higher debt ratio. Which of the following
statements is CORRECT?
29. Considered alone, which of the
following would increase a company’s current ratio?
30. Which of the following
statements is CORRECT?