Midterm Exam Name
Finance 5853
Summer 2006
Multiple Choice -- Circle the letter of the BEST answer (4 points each)
1. The easiest form of business organization in terms of formation and record-keeping is the
a. sole proprietorship
b. general or limited partnership
c. limited liability company
d. C or S corporation
e. All of the above are equally easy to form and keep records
2. The form of business organization that limits the number of shareholders and allows only one form of stock is the
a. sole proprietorship
b. limited liability company
c. C corporation
d. S corporation
e. None of the above
3. When the ownership and management of a venture are one and the same, strategies for minimizing taxes are employed. Which of the following strategies is NOT illegal?
a. Deducting personal expenses through the company
b. Filing taxes on a cash basis rather than on an accrual basis
c. Lending money to the owner in lieu of a salary or dividends
d. Undercounting inventory
e. All of the above are illegal tax strategies
4. Which of the following practices is NOT characteristic of a successful entrepreneurial venture?
a. Deliver high-quality products or services
b. Anticipate and obtain multiple rounds of financing as the venture grows
c. Expand rapidly into unrelated business lines in order to speed diversification
d. Identify and develop functional area managers and manage in a collaborative style
e. All of the above are characteristic of a successful entrepreneurial venture
5. A patent protects intellectual property rights for inventions that are useful, novel, and non-obvious. Which of the following is NOT a type of patent?
a. Utility patent
b. Design patent
c. Plant patent
d. Business method
e. All of the above are types of patents
6. The break-even point is NOT a function of which of the following?
a. income taxes
b. fixed costs
c. variable costs
d. contribution profit margin
e. all of the above are drivers of the break-even point
7. Changes in balance sheet accounts are necessary for
a. a typical ratio analysis
b. pro forma balance sheet construction
c. statement of cash flows construction
d. profit and loss analysis
e. pro form income statement construction
8. Financial ratios can be used for
a. examining a venture's performance over time
b. comparison with specific firms at a similar stage of maturity
c. to compare a venture's performance against an average for the industry
d. all of the above
e. none of the above
9. Which of the following would be the MOST important ratio to consider when looking at a venture's profitability?
a. net profit margin
b. total asset turnover
c. return on assets
d. debt-to-assets
e. none of the above
10. Which of the following would NOT be included in calculating a cash budget?
a. repayment of debt
b. loan to stockholder
c. tax payment
d. payment of account payable
e. all of the above would be included on the cash budget
11. Small firms will often forego cash discounts on payables because
a. the effective rate of interest paid is typically lower than on bank loans
b. trade credit improves your liquidity ratios
c. banks will refuse to loan funds to take advantage of discounts
d. suppliers won't cut you off if you owe them money
e. none of the above
12. An increase in which of the following is likely to increase a firm's ability to raise funds?
a. average collection period
b. debt ratio
c. times interest earned
d. bad debt percentage
e. none of the above
13. A firm which has a highly seasonal sales pattern
a. needs to have a cash budget that is broken into fewer intervals than a business which has a stable sales pattern
b. needs to have a cash budget that is broken into more intervals than a business which has a stable sales pattern
c. cannot generate a cash budget in a meaningful manner
d. None of the above
14. Heavy use of off-balance sheet lease financing will tend to
a. make a company appear more risky than it actually is because its stated debt ratio will appear higher.
b. make a company appear less risky than it actually is because its stated debt ratio will appear lower.
c. affect a company's cash flows but not its degree of risk.
d. have no effect on either cash flows or risk because the cash flows are already reflected in the income statement.
e. none of the above
15. Which of the following would NOT be considered a candidate for an SBA loan?
a. Working capital requirements
b. Investment property
c. Refinance existing debt
d. Expansion of business
e. All of the above are good candidates for an SBA loan
16. The advantage of considering the Economic Value Added (EVA) of a venture rather than Net Income is that EVA
a. reflects the cost of debt financing while Net Income does not
b. reflects the cost of equity financing while Net Income does not
c. reflects income taxes while Net Income does not
d. All of the above
e. None of the above
17. Which of the following is NOT a component of the cash conversion cycle?
a. accounts receivable turnover
b. inventory turnover
c. accounts payable turnover
d. fixed asset turnover
e. All of the above are components of the cash conversion cycle
18. The SEC’s Regulation D aggregates securities offerings within a twelve-month period. The purpose of such aggregation is to
a. prevent companies from making multiple offerings of exempt securities
b. prevent companies from circumventing restrictions on how much money can be raised in a single exempt offering
c. provide companies with time to educate investors so they qualify as “sophisticated” investors
d. allow companies to locate and identify accredited investors
e. None of the above
19. Name the Five C’s of Credit Analysis and a give a short definition of each. (4 points)
20. One of your suppliers offers credit terms of 2/10 net 45. You are aware of the high cost of foregoing cash discounts, but you are also in need of the available financing that a credit purchase provides. After investigating the supplier's industry, you have found that the average collection period for that industry is 62 days and so you feel confident that you can stretch out your payable to the supplier without seriously damaging your relationship with the supplier. If your account receivable factor's lending rate to you is 20%, how many total days would you have to stretch the payable in order to be indifferent between foregoing the cash discount or borrowing from your bank? (4 points)
21. Identify the five stages of the successful venture life cycle, what each stage consists of ("definition"), and the major source(s) of financing of each stage. (20 points)