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GSU LAW 8001 - Take-Home Problem Set Two

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FI 3300 - CORPORATION FINANCE Take-Home Problem Set Two (THPS-2) Spring 2021 Directions: This problem set covers chapters 1, 3 and 4 in the textbook. Determine or compute an answer for each question/problem. After you have computed an answer for every question, enter your answers online via the “quiz” function entitled “THPS-2 ANSWER SUBMISSION FORM.” See the course calendar for when the answer submission form will open and close. I will post a detailed solution key to the problem set right after the Answer Submission Form closes. See the course calendar for the day(s) on which I will answer questions about these problems in the chat room. This is a take-home, open book, open notes financial statement analysis problem set. Work on this Assignment is to be yours alone - any discussion of either the questions on the assignment or your answers with anyone other than your instructor will be considered as cheating and, thus, as a violation of the GSU honor code. Remember, cheating hurts non-cheaters. If, by cheating, some students in the class earn higher grades than they would have earned working by themselves, this increases the class average and skews the final grade curve. As per the Class Watch program announcement, if you hear or learn about anyone (or a group) in the class who is violating the prior statement, please let me know. Your identity will be protected. _______________________________________________ 1. The primary goal of the management of a publicly traded corporation should be to ______________ a. create jobs. b. promote social good. c. maximize profits. d. maximize shareholder wealth. e. minimize risk. 2. A business organized as a separate legal entity is a: a. corporation. b. proprietor. c. government unit. d. partnership. e. None of the above. 3. In conducting a common-size balance sheet analysis, every balance sheet item is divided by __________ a. its corresponding base year balance sheet item. b. its corresponding base year income statement item. c. net sales or revenues. d. total assets. e. total liabilities. f. None of the above. 4. In conducting a common-size income statement analysis, every income statement item is divided by __________ a. its corresponding base year balance sheet item. b. its corresponding base year income statement item. c. net sales or revenues. d. total assets. e. total liabilities. f. None of the above.5. Finance is divided into three separate subject areas. Two of the subject areas of finance are Financial Markets and Institutions and Investments. The third subject area of finance is: a. International Cash Flow Management b. Banking c. Corporate Financial Management d. Accounting e. None of the above 6. The liability created by a business when it purchases coffee beans and coffee cups on credit from suppliers is termed a(n) a. account payable. b. account receivable. c. revenue. d. expense. e. None of the above. 7. The right to receive money in the future is called a(n) a. account payable. b. account receivable. c. liability. d. revenue. e. None of the above. 8. The cost of assets consumed or services used is also known as a. a revenue. b. an expense. c. a liability. d. an asset. e. None of the above. 9. The best definition of assets is the a. cash owned by the company. b. collections of resources belonging to the company and the claims on these resources. c. owners’ investment in the business. d. resources belonging to a company that have future benefit to the company. e. None of the above. 10. __________ is an accounting statement that lists a company’s assets, liabilities and equity. The statement is a stock measure that displays these account values at a specific point in time. a. The balance sheet b. The statement of cash flows c. The sources and uses statement d. The income statement e. None of the above11. On December 31, 2019, Galina, Inc. had a balance in its retained earnings account of $100,000. During the year Galina, Inc. had revenues of $80,000 and expenses of $45,000. In addition, the business paid cash dividends of $20,000. Given this information, what was Retained Eanrings on Galina, Inc.’s balance sheet on December 31, 2020? a. $100,000 b. $115,000 c. $135,000 d. $155,000 e. There is not enough information provided to answer this question. 12. Which of the following are items/accounts that typically appear on a balance sheet? a. net sales, cost of goods sold, retained earnings. b. net sales, inventories, notes payable. c. net sales, depreciation expense, advertising expense. d. cash, depreciation expense, taxes. e. cash, accounts receivable, inventories. 13. Which of the following is considered a profitability measure? a. Days sales in inventory. b. Fixed asset turnover. c. Price-earnings ratio. d. Cash coverage ratio. e. Return on assets. 14. Firm A has a Return on Equity (ROE) equal to 24%, while firm B has an ROE of 15% during the same year. Both firms have a total debt ratio (D/A) equal to 0.8. Firm A has an asset turnover ratio of 0.9, while firm B has an asset turnover ratio equal to 0.4. From this we know that a. Firm A has a higher net profit margin than firm B. b. Firm B has a higher net profit margin than firm A. c. Firm A and B have the same profit margin. d. You need more information to say anything about the firm's net profit margin. 15. If a firm has $100 in inventories, a current ratio equal to 1.2, and a quick ratio equal to 1.1, what is the firm's Net Working Capital? a. $0 b. $100 c. $200 d. $1,000 e. $1,200 16. Crimpton, Inc. had a current ratio of 2.0 at the end of 2019. Current assets and current liabilities increased by equal amounts during 2020. The effects on net working capital and on the current ratio, respectively, were: a. no effect; increase. b. no effect; decrease. c. increase; increase. d. decrease; decrease. e. None of the combinations listed above are always correct.17. Which of the following steps is most likely to decrease a company’s cash conversion cycle (assume that none of the following actions has any impact on sales or COGS)? Note: there more be more than one answer for this question – record the letter of all that apply (this is an all or nothing answer). a. Change its receivables policy from net 45 to net 30 (note that this action will decrease the firm’s average collection period from 45


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