PRE TEST - CHAPTER 2

The annual report contains four basic financial statements: the income statement, balance sheet,
statement of cash flows, and statement of stockholders equity.

True

False

The primary reason the annual report is important in finance is that it is used by investors when they
form expectations about the firm's future earnings and dividends, and the riskiness of those cash
flows.

True

False

Assets other than cash are expected to produce cash over time, but the amount of cash they
eventually produce could be higher or lower than the values at which these assets are carried on the
books.

True

False

The income statement shows the difference between a firm's income and its costs--i.e., its profits--
during a specified period of time. However, not all reported income comes in the form or cash, and
reported costs likewise may not correctly reflect cash outlays. Therefore, there may be a substantial
difference between a firm's reported profits and its actual cash flow for the same period.

True

False

The retained earnings account on the balance sheet does not represent cash. Rather, it represents
part of stockholders' claims against the firm's existing assets. This implies that retained earnings are
in fact stockholders' reinvested earnings.

True

False

To estimate the cash flow from operations, depreciation must be added back to net income because
it is a non-cash charge that has been deducted from revenue.

True
False

On the balance sheet, total assets must always equal total liabilities and equity.

True

False
QUIZ - CHAPTER 3 & 4

In general, what is changing as you read down the left-hand side of a balance sheet?
The assets are becoming more fully depreciated
The assets are increasing in value
The assets are increasing in maturity
The assets are becoming less liquid

Retained earnings result from

The sale of additional shares of stock to investors.
Income not paid to shareholders
An excess of assets over liabilities.
Market values that exceed book values.

If the balance sheet of a firm indicates that total assets exceed current liabilities plus shareholders'
equity, then the firm has
No retained earnings
Long-term debt
No accumulated depreciation
Current assets

Which of the following items should not be included in a listing of current assets?
Marketable securities
Accounts payable
Accounts receivable
Inventories

Beranek Corp. has $410,000 of assets, and it uses no debt--it is financed only with common equity.
The new CFO wants to employ enough debt to bring the debt/assets ratio to 40%, using the
proceeds from the borrowing to buy back common stock at its book value. How much must the
firm borrow to achieve the target debt ratio?
$155,800
$189,851
$164,000
$172,200

Which of the following assets is likely to be considered the most liquid?

Marketable securities
Net fixed assets
Patent
Inventories

Nikko Corp.'s total common equity at the end of last year was $305,000 and its net income after
taxes was $60,000. What was its ROE?
19.67%
16.87%
17.75%
18.69%
A balance sheet may be considered backward-looking from the perspective that it:
Works backward, starting with net income
Records historic, not current values.
Cannot forecast the future.
Records costs over many previous periods.

Orono Corp.'s sales last year were $435,000, its operating costs were $362,500, and its interest
charges were $12,500. What was the firm's times interest earned (TIE) ratio?
4.72
4.97
5.81
5.51

Net working capital is calculated by taking the difference between

Total assets and total liabilities
Inventory and accounts payable
Current assets and current liabilities
Cash and accounts payable

Which one of the following expense categories is subtracted from total revenues to help arrive at
a firm's EBIT?
Cash dividends
Depreciation expense
Interest expense
Tax liability

Helmuth Inc.'s latest net income was $1,250,000, and it had 225,000 shares outstanding. The
company wants to pay out 45% of its income. What dividend per share should it declare?
$2.14
$2.26
$2.38
$2.50

Companies E and P each reported the same earnings per share (EPS), but Companys stock trades
at a higher price. Which of the following statements is CORRECT?
Company E probably has fewer growth opportunities
Company E is probably judged by investors to be riskier.
Company E must have a higher market-to-book ratio.
Company E must pay a lower dividend.
If a payment of principal is due in 13 months on a long-term liability, that payment will now
appear on the balance sheet as:
A current liability
Long-term debt.
Cash
Interest expense
Depreciation expense is used to
Allocate costs to all departments of the firm
Determine when an asset is fully paid off
Allocate historical cost over the life of an asset
Equate the historical cost and market values of an asset.

An increase in depreciation expense will (other things equal)

Increase net income
Decrease net income.
Increase taxable income.
Decrease the market value of assets.

Which of the firm's financial statements most clearly recognizes the payment for new equipment?
Balance sheet
Income statement
Statement of cash flows
Common-size balance sheet

A balance sheet portrays the value of a firm's assets and liabilities

Over an annual period
Over any stated period of time
At any stated point in time
Only at the end of the calendar year

Net working capital is a measure of a company's (belum tahu jawabannya)

Goodwill
Short-term liabilities
Estimated cash reservoir
Shareholders' equity.

The gathering of related revenues and expenses into the same period, regardless of when they
were incurred, is
Cash-basis accounting
Market-value accounting
Book-value accounting
Accrual accounting.
PRE TEST – CHAPTER 6 (AFN)

The term additional funds needed (AFN) is generally defined as follows:

Funds that are obtained automatically from routine business transactions
Funds that a firm must raise externally from non-spontaneous sources, i.e., by borrowing or by
selling new stock to support operations
The amount of assets required per dollar of sales
The amount of internally generated cash in a given year minus the amount of cash needed to
acquire the new assets needed to support growth
A forecasting approach in which the forecasted percentage of sales for each balance sheet
account is held constant

A typical sales forecast, though concerned with future events, will usually be based on recent
historical trends and events as well as on forecasts of economic prospects.
True
False

Which of the following assumptions is embodied in the AFN equation?

None of the firm's ratios will change
Accounts payable and accruals are tied directly to sales
Common stock and long-term debt are tied directly to sales
Fixed assets, but not current assets, are tied directly to sales
Last years total assets were not optimal for last year’s sales

A firm will use spontaneous funds to the extent possible; however, due to credit terms, contracts
with workers, and tax laws there is little flexibility in their usage
True
False

Spontaneous funds are generally defined as follows

Assets required per dollar of sales
A forecasting approach in which the forecasted percentage of sales for each item is held constant
Funds that a firm must raise externally through short-term or long-term borrowing and/or by
selling new common or preferred stock
Funds that arise out of normal business operations from its suppliers, employees, and the
government, and they include immediate increases in accounts payable, accrued wages, and
accrued taxes
The amount of cash raised in a given year minus the amount of cash needed to finance the
additional capital expenditures and working capital needed to support the firm’s growth

Once a firm has defined its purpose, scope, and objectives, it must develop a strategy for achieving
its goals. Corporate strategies are detailed plans rather than broad approaches.
True
False

Which of the following is NOT a key element in strategic planning?

The mission statement
The statement of the corporation’s scope
The statement of cash flows
The statement of corporate objectives
The corporation's strategies
The capital intensity ratio is the amount of assets required per dollar of sales and it has a major
impact on a firm's capital requirements.
True
False

The capital intensity ratio is generally defined as follows

Sales divided by total assets, i.e., the total assets turnover ratio
The percentage of liabilities that increase spontaneously as a percentage of sales
The ratio of sales to current assets
The ratio of current assets to sales
The amount of assets required per dollar of sales, or A0*/S0
PRE TEST - CHAPTER 9 (BOND)

The long period of bond maturity leads to

more prices change
stable price
standing prices
mature prices

An annual interest payment divided by current price bond is considered as

Current yield
Maturity yield
Return yield
Earning yield

Which of the following bonds will have the greatest percentage increase in value if all interest
rates decrease by 1 percent?
20-year, zero coupon bond
10-year, zero coupon bond
20-year, 10 percent coupon bond
20-year, 5 percent coupon bond

All of the following may serve to reduce the coupon rate that would otherwise be required on a
bond issued at par, except a
Sinking fund
Restrictive covenant
Call provision
Change in rating from Aa to Aaa

Other things held constant, if a bond indenture contains a call provision, the yield to maturity that
would exist without such a call provision will generally be..... the YTM with a call provision
Higher than
Lower than
The same as
Unrelated to

If the coupon rate is equal to going rate of interest, then the bond will be sold
at par value
below its par value
more than its par value
seasoned par value

The bond which is offered below its face value is classified as

present value bond
original issue discount bond
coupon issued bond
discounted bond
The bond issued by small companies tend to have
high liquidity premium
high inflation premium
high default premium
high yield premium

One of the basic relationships in interest rate theory is that, other things held constant, for a given
change in the required rate of return, the ........ the time to maturity, the ....... the change in price.
longer; smaller
shorter; larger
longer; greater
shorter, shorter
kayaknya harusnya shorter, smaller deh

Which of the following events would make it more likely that a company would choose to call its
outstanding callable bonds?
A reduction in market interest rates
The company’s bonds are downgraded
An increase in the call premium
All above correct