ACCT233 Midterm exam multichoice questions

Question 9 missing (max of 4 of my answers are wrong out of the 32)

Question 1
The future value of an annuity of $1,000 each quarter for 10 years, deposited at 12%
compounded quarterly is
 75,401
 17,549
 93,049
 11,200

Question 2
Greg is interested In investing in a small company, and he thinks good buy co. might be a
good investment and has been given the following information and would like to know the
return of stockholder’s equity. Assume Good buy’s margin tax rate is 40%
 20%
 18%
 15%
 12%

Question 3
The two main inputs required to contrast a forma financial statement are the_____.
 The cash budget from last year and the sales forecast for the next year
 Actual financial statements for the last two years
 Actual financial statements and cash budget from the prior year
 Actual financial statements from last year and sales forecast for the next year

Question 4
Tool mart sells 1,400 electronic water pumps every year. These pumps cost $54.30 each. If
annual inventory carrying costs are 12% and the cost of placing an order is $90, what is the
firms EOQ?
 197
 122
 148
 139

Question 5
Tool mart sells 1,400 electronic water pumps every year. These pumps cost $54.30 each. If
annual inventory carrying costs are 12% and the cost of placing an order is $90, what is the
optimal ordering frequency?
 32
 37
 40
 51

Question 6
A firm offered credit terms of 2/10 net 45 by most of its suppliers but the frequently does
not have the cash available to take the discount. The firm has a credit line available at a local
bank at interest rate of 12%. The firm should_______.
 Give up the cash discount, financing the purchase with the line of credit
 Take the cash discount and pay on the first day of the cash discount period
 Take the cash discount and pay on the 45th day after the sale
 Take the cash discount, financing the purchase with the line of credit, the cheaper
source of funds

Question 7

The firm wants to shift $3,000 of current assets and 15% on fixed assets, the firms net
working capital would _____, and the risk if insolvency would____, respectively.
 Decreased; increase
 Increase; increase
 Increase; decrease
 Decrease; decrease

Question 8
A firm has an average age on inventory of 101 days, an average collection period of 49 days,
and an average payment period of 60. The firms cash conversion cycle is ___ days.
 52
 41
 60
 90

Question 10
Otago mining borrowed $100,000 for one year under a line of credit with a sated interest
rate of 7.5% and a 15% compensating balance. Normally, the firm keeps almost no money in
its checking account. Based on its information, the annual financing cost of the loan is ____.
 8.0%
 7.5%
 7.2%
 8.8%

Question 11
XYZ corporation borrowed $100,000 for six months from the bank. The rate is prime plus 2
percent. The prime rate was 8.5 percent at the beginning of the loan and changed to 9
percent after two months. This was the only change. How much did XYZ corporation pay?
  $18,212
 $2,476
 5,417
 21,500

Question 12

On evaluation of the firm’s collection efforts based on the aging schedule would
suggest_____.

 Overzealous collection efforts

 Satisfactory credit management
 Superior credit management
 Poor credit management

Question 13
In a line of credit arrangement, a firm pays interest on ___.

 Only the amount actually borrowed and commitment fees on any unused portion of
the loan
 The total line of credit
 The total full line of credit
 Only on the amount actually borrowed

Question 14
Which of the following is a limitation of ratio analysis

 Ratios that reveal large deviations from the norm merely indicate the possibility of a
problem
 Financial ratios cannot be used to assess a firms profitability
 Ration analysis assumes that inflation has no effect on a firm’s business
 It is difficult to assess audited financial statements for ratio analysis

Question 15
The _____ of a firm is the amount of time that elapses from a point when the firm inputs
material and labor into production process to the point when cash is collected from the sale
of the finished product that contains these production inputs.
  Average collection period
 Operating cycle
 Average age of inventory
 Cash conversion cycle

Question 16
Jane is planning to accumulate $40,000 by the end of 5 years by making 5 equal annual
deposits. If she plans to make her first deposit today and can earn an annual compound rate
of 9 percent on her investment, how much must each deposit be in order to accumulate the
$40,000
 $6,684
 6,132
 23,844
 9,434

Question 17
A firm has actual sales in November of $1,000 and projected sales in December and January
of $3,000 and $4,000 respectively. The firm makes 10% of its sales for cash, collected 40% of
its sales one month following the sale, and collects the balance two months following from
the sale. The firms total cash receipts in January _____.
 $400
 $3,300
 $2,000
 $2,100

Question 18
A firm’s P/E ratio tends to be higher if _____.
 Its risk is lower, and its growth prospects are higher
 Its risk is higher, and its growth prospects are low
 Its risk and growth prospects are higher
 Its risk and growth prospects are lower

Question 19
In economic conditions characterized by scarcity of short-term funds, a firm would best
choose the ___ financing strategy.

 Aggressive
 Conservative
 Permanent
 Seasonal

Question 20

In the month of august, a firm had total cash receipts of $10,000, total cash disbursements
of $8,000, depreciation expense of $1,000 and a beginning cash balance of $500. At the end
of august, the firm wants a minimum cash balance of $3,000. At the end of august, the firm
____.
  Required total financing of $500
 Had an excess cash balance $5,500
 Required total financing $2,500
 Had an excess cash balance of $500

Question 21
The first step in the preparation of a cash budget is:
 Estimation of future spending
 Estimation of future stock sales
 Estimation of asset value
 Estimation of cash receipt

Question 22
A weakness of the percent- of-sales method of preparation of pro forma income statement
_____.
 The assumption that the firm faces linear total revenue and total operating cost
functions
 That it forecasts income and then expresses the various income statement items as
percentages of projected income
 The difficulty faced in calculation and preparation such statements
 The assumption that the firm’s past financial condition is an accurate predictor of its
future

Question 23
The key dimension of credit selection which analyze an applicants record of meeting past
obligations is ___.
 Character
 Collateral
 Capacity
 Capital

Question 24
Revolving credit agreement are _____.
 Short term, unsecured promissory notes issued by a firm with high credit standing
 Guaranteed loans that specify the maximum amount that a firm can owe the bank at
any point in time
 Credit arrangements made in a cooperation with suppliers that allow a firm to roll
over accounts payable each month
 Non-guaranteed loans that specify the maximum amount that a firm can owe the
bank at any one time

Question 25
Which under the following is true of aggressive funding strategy of a firm?
 Under an aggressive funding strategy, a firms funds its seasonal requirements with
commercial paper and notes payable
 Under an aggressive funding strategy, a firm funds its seasonal requirement with
short-term debt
  Under an aggressive funding strategy, a firms funds its seasonal requirements with
bonds and short-term loans
 Under an aggressive funding strategy, a firm funds both its seasonal and its
permanent requirements with long-term debt

Question 26
Current ratio analysis is used to____.

 Correct expected problems and operations

 Isolate the cause of problems
 Measure relative performance of a firm with its peers
 Provide conclusive evidence of the existence of a problem

Question 27
The two major spontaneous liabilities that provide sources of short-term financing are____.

 A line of credit and term loans

 Accounts payable and accruals
 Accounts receivable and notes payable
 A line of credit and notes payable

Question 28
A firm has an average age of inventory of 101 days, an average collection period of 49 days,
and an average period of 60 days. The firm’s cash conversion cycle is ____ days.
 11
 108
 90
 150

Question 29
A firms total asset turnover increased from 0.75 to 0.90. Which of the following is true
about the given data?
 The firms stock price will go up because it is using assets more efficiently
 The firm is generating more dollars of sales per dollar of assets now than it has
before
 The firm is generating fewer dollars of sales per dollar of assets now than it was
before
 By cutting back on assets, the firm runs risk of creating problems like inventory
stockouts and production delays

Question 30
As credit standards are tightened, sales are expected to ____ and the investment in
accounts receivable is expected to ____.
 Decrease; increase
 Increase; increase
 Increase; decrease
 Decrease; decrease
Question 31
Appropriate collateral for a loan secured under a trust receipt inventory loan is ____.

 Pencils
 Vehicles
 Drill bits
 Bolts

Question 32
In its 2018 fiscal year, the data storage company, NetApp inc reported that it has
267.9million shares of common stock outstanding, trading at a price of about $68per share.
On the firms balance sheet, the value of common stock equity was reported as 2.067billion.
NetApp’s market/book ratio was________.
 68
 8.8
 7.7
 Greater than 100