A) Time-Trend B) Cross-sectional comparative C) Internal uses D) Benchmark Answers are in blueChapter1. An Overview of Financial Management1. What is the sequential approach? A) Profit maximization B) Agency conflict C) Efficient management D) Satisfying stakeholders to maximize shareholder wealth maximization E) None f the above D) (Spring 2009 1)2. Which of the following is NOT to address the agency conflict between shareholders and managers? A) maximize sales B) monitor managers’ activities C) give incentives based on performance D) offer stock shares E) offer stock options A) (Spring 2009 1)3. What is the main advantage of S-corp relative to C-corp? A) Profit margin B) Single taxation C) limited liability D) Dividend policy E) None B) S-corp Distribution is taxed only once at personal income tax rate. In other words, a single taxation (Spring 2009 1)4. What is the main advantage of sole proprietorship relative to S-corporation? A) Profit margin B) Single taxation C) limited liability D) Dividend policy E) None E) (Fall 2008 1) 5. Which of the following is the reason that the management may fail to try to achieve the objective of the firm? A) Maximize sales B) Maximize profits C) Avoid financial distress D) Agency conflict E) Maximize the current stock price D) (Fall 2008 1)Chapter3. Financial Statements, Cash Flow, and Taxes1. Which one is an intangible real asset? A) building B) stocks and bonds C) patent D) equipment E) currency C) (Spring 2009 1)2. While preparing a pro forma B/S, you have realized that A > L+E, you want to balance the B/S with increased long-term debt. What is (are) the problem(s) you may run into? A) increased debt B) increased liquidity C) decreased profit D) liquidity problem E) both increased debt and liquidity problem A) Obviously, you have increased debt. Since it is long-term debt, you do not have a liquidity problem you may experience with short-term debt (=> you need to have enough cash or cashable assets to cover any bills to pay). (Spring 2009 3)3. ABC company is increasing its equity by selling additional shares to the public and also by converting its retained earnings. The total amount to be raised is $1,000. Given that the size of retained earnings is $300, how much should be raised externally by issuing new shares if $400 is raised externally by issuing new debt securities? A) $700 B) $705 C) $1,000 D) $1,005 E) $300 E) Total funding (=financing) needed = 1,000, Internal funding from using retained earnings = 300, external fundingby issuing new common stock shares = 400 => 1000-300-400=300 = amount to be raised by issuing new debt securities like CP, Bonds, etc. (Spring 2009 3)4. In order to force your pro forma B/S to balance, what do you need to do when estimated assets exceed the sum of liabilities and equity? A) excess cash B) cumulative retained earnings C) increased sales D) increased spontaneous account E) external funding needed E) (Spring 2009 3)5. One example of mismatching between the financing needs and funding is financing a short-term project with long-term funding, which one is a good example of such a mismatch? A) CP (commercial paper) to build a production facility B) CP to hire temporaries C) long-term bonds to build a factory D) issue new common stock shares to hire temps E) none of the above D) What is the other types of mismatching? What are matching examples? (Spring 2009 3)6. Which accounts are closely related to sales? A) variable, spontaneous B) variable, discretionary C) fixed, spontaneous D) fixed, discretionary E) none A) (Spring 2009 3)7. Given the information below for 2008, please estimate the 2008 CGS using the percentage-of-sales method when $450 of the CGS is variable and the rest is fixed.Information: Sales $1,000, GGS $900, Sales are expect to increase 10% next year. A) $945 B) $965 C) $995 D) $960 E) $1,100 A) 450*1.1 + 450 fixed = 945. (Spring 2009 3)8. Which one is NOT a real asset? A) building B) intangible asset C) patent D) equipment E) stocks and bonds E) Stocks and bonds are sources of a fund of a company, which are part of equity and liabilities respectively (Fall 2008 1)9. Which one is NOT a GAAP limitation? A) Different valuation method B) Different choices of account methods C) Important information can be omitted D) Need to analyze D) (Fall 2008 1)10. While preparing a pro forma B/S, you have realized that A > L+E, you want to balance the B/S with increased short-term debt. What is (are) the problem(s) you may run into? a) increased debt b) increased liquidity c) decreased profitability d) liquidity problem e) both increased debt and liquidity problem e) Increasing short-term debt will worsen current ratio (CA/CL), which might cause liquidity problem. Also, increase in short-term debt means increase in total debt (short-term debt is a part of total debt). (Fall 2008 2)11. The current sales and CGS are $10m and $7m respectively. What are the Gross (Profit) Margin for this year and for the next year if the sales amount is expected to increase 20% and a percentage of sales method is used to estimate the next year’s CGS? A) 20%, 20%, B) 20%, 30%, C) 30%, 20%, D) 30%, 30%, E) 30%, 40% d) Sales – CGS = GM. GPM = GM / Sales This year: GPM = (10-7) / 10 = 30% Next year: Sales = 10 * 1.2 = 12, CGS = 12 * (7 / 10) =8.4, GPM = (12 – 8.4) / 12 = 30% (Fall 2008 2)12. ABC company is increasing its equity by selling additional shares to the public and also by converting its retained earnings. The total amount to be raised is $1,000. Given that the size of retained earnings is $300, how much shouldbe raised externally (by issuing new shares)? a) $700 b) $705 c) $1,000 d) $1,005 e) $300 a) Total amount to be raised = AFN = $1,000. This AFN is insufficient fund of ABC to purchase asset. Source of fund comes from the LHS of B/S. For the rest of internal source of fund, it should be raised externally. Therefore $700 should be raised externally ($1,000 = $300 + X, X = $700) (Fall 2008 Final)13. In order to force your pro forma B/S to balance,
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