1. A financial manager is considering two projects, A and B. A is expected to add $ 2 million to profits this year while B is expected to add $ 1 million to profits this year. Which of the following statements is most correct? (Points : 1) The manager should select project A because it maximizes profit. The manager should select the project that maximizes long-term profits, not just one year of profits. The manager should select project A or he is irrational. The manager should select the project that causes the stock price to increase the most, which could be A or B.
2. All of the following business organizations provided limited liability to their owners except: (Points : 1) General partnership S-type corporation Corporation Limited liability corporation
3. Which of the following statements about depreciation is true? (Points : 1) Depreciation is a noncash expense, but it is important because it affects a corporation’s tax liability. Depreciation must be calculated the same way for financial reporting and tax purposes. The choice of depreciation method had no impact on a firm's value because the same amount of depreciation is taken over the life of an asset regardless of the method used. A shareholder wealth maximizing corporation prefers to defer depreciation expense in order to increase current reported profits.
4. When a company repurchases its own common stock, it is likely that ______(Points : 1) The stock price will increase because the company views the stock as undervalued The stock price will decrease because the company is creating artificial demand for the stock. The stock price will remain the same as this is simply an internal transaction The board of directors will be fired for incompetence.
5. Which of the following will likely result in a greater use of external financing? (Points : 1) Higher corporate profits and higher interest rates Lower corporate profits and lower interest rates Higher corporate profits and lower interest rates Lower corporate profits and higher interest rates
6. Reynolds, Inc. needs to raise $ 5 million by selling common stock. Reynolds sells 1 million shares of stock at $ 5 each to Goldman Sachs, who then is responsible for selling the shares to investors. This is an example of a ______(Points : 1) Privileged subscription Standby agreement Negotiated purchase Commission or best efforts agreement
7. Spandra Electronics wants to raise money by selling stock. After talking to several investment banking firms, Spandra decides to hire Goldman Sachs to sell 5 million shares of its common stock. Goldman sells 4.5 shares and returns the rest to Spranda. This is an example of ______(Points : 1) A privileged subscription with a standby agreement A commission or best efforts agreement A privileged subscription with out a standby agreement A competitive bid purchase
8. Company A and Company B both report the same level of sales and net income. Therefore, ______(Points : 1) Both A and B will report the same earnings per share Both A and B will report the same gross profit margin Both A and B will report the same net profit margin Both A and C are true
9. Which of the following transactions will increase a corporation’s operating return on assets? (Points : 1) Sell stock and use the money to pay off some long term debt Sell 10 year bonds and use the money to pay off current liabilities Negotiate a new contract that lowers raw materials cost by 10 % Increase sales by 10 %
10. The quick ratio of a firm would be increased by which of the following? (Points : 1) $20,000 short term bank loan is used to pay current accounts payable? Equipment is purchased, financed by long term debt issue Inventories are sold for cash Inventories are sold in exchange for a long term note.