BUAD 306 Business Finance Fall 2013 Midterm Exam 1 There are 32 questions in the exam You have 90 minutes I agree that I will not give or receive unauthorized help during this test I understand that giving or receiving such help during the test is cheating and will result in a failure of the test and other possible repercussions according to University policy I pledge my honor that I have not violated the USC Student Conduct Code in this examination Name Print Clearly Signature Date ID Number Your grade will be based on answers recorded on your scantron not this paper Therefore make sure you fill in your scantron sheet as you go along because you will not be given any extra time at the end of the exam to fill out your form Fill the oval in completely with an appropriate pencil Students are responsible for any incorrect erasure so make sure you completely erase any unintended answers You are allowed to use calculators for this test but not any device that can connect wirelessly to other devices This test is closed book no notes are allowed Formulas are provided at the end of the test Do all of the following BEFORE answering any test questions 1 Write your name on the front side of the scantron sheet 2 Write your Student ID Number in the subject box 3 Write the test form letter in the Test No box EXAM FORM A 1 A conflict of interest between the stockholders and management of a firm is called a stockholders liability b corporate breakdown c the agency problem d corporate activism e legal liability 2 Which of the following are agency costs I forgoing an investment opportunity which would add to the market value of the owner s equity II paying a dividend to each of the existing shareholders III purchasing new equipment which increases the value of each share of stock IV hiring outside auditors to verify the accuracy of the company financial statements a II and III only b I and III only c I and IV only d II and IV only e I II IV only 3 Which of the following help convince managers to work in the best interest of the stockholders I compensation based on the value of the stock II stock option plans III threat of a company takeover IV threat of a proxy fight a I and II only b III and IV only c I II and III only d I III and IV only e I II III and IV 4 Which one of the following business types is best suited to raising large amounts of capital a Sole proprietorship b Limited liability company c Corporation d General partnership e Limited partnership 5 The primary goal of financial management is to a maximize current dividends per share of the existing stock b maximize the current value per share of the existing stock c avoid financial distress d minimize operational costs and maximize firm efficiency e maintain steady growth in both sales and net earnings 6 A business created as a distinct legal entity composed of one or more individuals or entities is called a a Corporation b Sole proprietorship c General partnership d Limited partnership e Unlimited liability company 7 Which one of the following statements is correct concerning corporations a The largest firms are usually corporations b The majority of firms are corporations c The stockholders are usually the managers of a corporation d The ability of a corporation to raise capital is quite limited e The income of a corporation is taxed as personal income of the stockholders 8 Which of the following are advantages of the corporate form of business ownership I limited liability for firm debt II double taxation III ability to raise capital IV unlimited firm life a I and II only b III and IV only c I III and IV only d II III and IV only e I II III and IV 9 What is Galaxy Interior s operating cash flow for 2011 rounded to nearest dollar a 2 985 b 1 374 c 4 267 d 3 818 e 2 114 10 What is Galaxy Interior s change in net working capital a 371 b 500 c 3 239 d 1 356 e 1 306 11 What is Galaxy Interior s net capital spending in 2011 a 1 229 b 382 c 1 611 d 500 e 1 738 12 The Widget Co purchased new machinery three years ago for 4 million The machinery can be sold to the Roman Co today for 2 million The Widget Co s current balance sheet shows net fixed assets of 2 500 000 current liabilities of 1 375 000 and net working capital of 725 000 If all the current assets were liquidated today the company would receive 1 9 million in cash The book value of the Widget Co s assets today is and the market value of those assets is a 4 600 000 3 900 000 b 4 600 000 3 125 000 c 5 000 000 3 125 000 d 5 000 000 3 900 000 e 6 500 000 3 900 000 13 Activities of a firm which require the spending of cash are known as a Sources of cash b Uses of cash c Cash collections d Cash receipts e Cash on hand 14 Which one of the following is a source of cash a Repurchase of common stock b Acquisition of debt c Purchase of inventory d Payment to a supplier e Granting credit to a customer 15 Which of the following ratios are measures of a firm s liquidity I cash coverage ratio II interval measure III debt equity ratio IV quick ratio a I and III only b II and IV only c I III and IV only d I II and III only e I II III and IV 16 Dee s has a fixed asset turnover rate of 1 12 and a total asset turnover rate of 0 91 Sam s has a fixed asset turnover rate of 1 15 and a total asset turnover rate of 0 88 Both companies have similar operations Based on this information Dee s must be doing which one of the following a Utilizing its fixed assets more efficiently than Sam s b Utilizing its total assets more efficiently than Sam s c Generating 1 in sales for every 1 12 in net fixed assets d Generating 1 12 in net income for every 1 in net fixed assets e Maintaining the same level of current assets as Sam s 17 A firm has sales of 3 200 net income of 390 total assets of 4 500 and total equity of 2 750 Interest expense is 50 What is the common size statement value of the interest expense a 0 89 percent b 1 56 percent c 3 69 percent d 10 26 percent e 14 55 percent 18 Reliable Cars has sales of 807 200 total assets of 1 105 100 and a profit margin of 9 68 percent The firm has a total debt …