FIN 5200 AU Unlimited Liability for General Partners Exam Practice

#1 A partnership:

Select one:

a. terminates at the death of any limited partner.

b. allows for easy transfer of interest from one general partner to another.

c. is taxed the same as a corporation.

d. creates an unlimited liability for all general partners for the partnership debts.

e. has the same ability to raise capital as a corporation does.

#2 The cheapest business entity to form is typically the:

Select one:

a. limited liability company.

b. general partnership.

c. sole proprietorship.

d. joint stock company.

e. limited partnership.

#3 The corporate treasurer oversees which one of these areas?

Select one:

a. financial accounting

b. financial planning

c. cost accounting

d. tax reporting

e. information systems

#4 The Securities Act of 1933 focuses on:

Select one:

a. all stock transactions.

b. Federal Deposit Insurance Corporation (FDIC) insurance.

c. the sales of existing securities.

d. the issuance of new securities.

e. insider trading.

#5 Which one of the following is least apt to help convince managers to work in the best interest of the stockholders?

Select one:

a. threat of a proxy fight

b. management compensation tied to the market value of the firm’s stock

c. implementation of a stock option plan

d. threat of a takeover of the firm by unsatisfied stockholders

e. pay raises based on length of service

#6 Assuming the number of shares outstanding remains constant, an increase in dividends per share will reduce the:

Select one:

a. cash flow from assets.

b. addition to retained earnings.

c. cash flow to stockholders.

d. earnings per share.

e. net income.

#7 At the beginning of the year, a firm has current assets of $16,200 and current liabilities of $13,280. At the end of the year, the current assets are $14,800 and the current liabilities are $14,210. What is the change in net working capital?

Select one:

a. $2,330

b. ?$2,330

c. $470

d. ?$50

e. ?$470

#8 Awnings Incorporated has beginning net fixed assets of $234,100 and ending net fixed assets of $243,600. Assets valued at $42,500 were sold during the year. Depreciation was $62,500. What is the amount of net capital spending?

Select one:

a. $72,000

b. $53,000

c. $29,500

d. ?$42,500

e. $9,500

#9 Brad’s Company has equipment with a book value of $500 that could be sold today at a 50 percent discount. Its inventory is valued at $450 and could be sold to a competitor for that amount. The firm has $100 in cash and customers owe the firm $250, all of which is collectible. What is the current market value of the firm’s assets?

Select one:

a. $1,050

b. $600

c. $100

d. $550

e. $1,300

#10 Deep Water Mining added $411 to retained earnings last year on sales of $24,646. The administrative expenses were $4,370, depreciation was $812, dividends paid were $285, and the interest expense was $103. What was the cost of goods sold if the firm’s tax rate was 35 percent?

Select one:

a. $18,290

b. $20,225

c. $24,385

d. $21,393

e. $14,815

#11 An increase in which one of the following accounts increases a firm’s current ratio without affecting its quick ratio?

Select one:

a. inventory

b. accounts payable

c. fixed assets

d. accounts receivable

e. cash

#12 Cado Industries has total debt of $6,800 and a debt-equity ratio of .36. What is the value of the total assets?

Select one:

a. $24,480

b. $25,360

c. $25,689

d. $18,889

e. $23,520

#13 If a firm decreases its operating costs, all else constant, then the:

Select one:

a. cash coverage ratio will decrease.

b. price-earnings ratio will decrease.

c. profit margin will decrease.

d. total asset turnover rate will increase.

e. return on assets will decrease.

#14 Puffy’s Pastries generates five cents of net income for every $1 in equity. Thus, Puffy’s has _______ of 5 percent.

Select one:

a. a return on assets

b. a return on equity

c. a price-earnings ratio

d. a profit margin

e. an EV multiple

#15 Two Sisters Dresses has net working capital of $43,800, net fixed assets of $232,400, net income of $43,900, and current liabilities of $51,300. The tax rate is 35 percent and the profit margin is 9.3 percent. How many dollars worth of sales are generated from every $1 in total assets?

Select one:

a. $1.73

b. $1.06

c. $1.32

d. $1.44

e. $.97

#16 A 3-year project is expected to produce a cash flow of $82,400 in the first year and $148,600 in the second year. The project has a present value of $303,764.34 at a discount rate of 12.75 percent. What is the expected cash flow in the third year of the project?

Select one:

a. $163,700

b. $164,900

c. $164,400

d. $163,100

e. $163,800

#17A car dealer is willing to lease you a car for $319 a month for 60 months. Payments are due on the first day of each month starting with the day you sign the lease contract. If your cost of money is 4.9 percent, compounded monthly, what is the current value of the lease?

Select one:

a. $16,235.42

b. $17,882.75

c. $16,689.54

d. $17,906.14

e. $17,014.34

#18A flow of unending and equal payments that occur at regular intervals of time is called a(n):

Select one:

a. amortized cash flow stream.

b. perpetuity.

c. amortization table.

d. annuity due.

e. indemnity.

#19A project is expected to produce cash flows of $48,000, $39,000, and $15,000 over the next three years, respectively. After three years, the project will be worthless. What is the present value of this project if the applicable discount rate is 15.25 percent?

Select one:

a. $97,808.17

b. $80,809.09

c. $73,457.96

d. $89,201.76

e. $93,132.48

#20An annuity costs $70,000 today, pays $3,500 a year, and earns a return of 4.5 percent. What is the length of the annuity time period?

Select one:

a. 52.31 years

b. 48.00 years

c. 49.48 years

d. 43.08 years

e. 54.96 years

#21Anna has $38,654 in a savings account that pays 2.3 percent interest. Assume she withdraws $10,000 today and another $10,000 one year from today. If she waits and withdraws the remaining entire balance four years from today, what will be the amount of that withdrawal?

Select one:

a. $20,676.53

b. $19,608.07

c. $20,916.78

d. $19,341.02

e. $20,109.08

#22Given a stated interest rate, which form of compounding will yield the highest effective rate of interest?

Select one:

a. semiannual compounding

b. monthly compounding

c. continuous compounding

d. daily compounding

e. annual compounding

#23A $25 investment returns $27.50 at the end of one year with no risk. Given this, you know that the NPV:

Select one:

a. must be positive at any given discount rate.

b. is zero at any given discount rate.

c. equals 1.0 if the required return is 10 percent.

d. is negative if the required return is less than 10 percent.

e. is zero if the required return is equal to 10 percent.

#24A financing project has an initial cash inflow of $42,000 and cash flows of ?$15,600, ?$22,200, and ?$18,000 for Years 1 to 3, respectively. The required rate of return is 13 percent. What is the internal rate of return? Should the project be accepted?

Select one:

a. 10.33%; accept

b. 15.26%; reject

c. 13.44%; accept

d. 15.26%; accept

e. 13.44%; reject

#25A project costing $6,200 initially should produce cash inflows of $2,860 a year for three years. After the three years, the project will be shut down and will be sold at the end of Year 4 for an estimated net cash amount of $3,300. What is the net present value of this project if the required rate of return is 11.3 percent?

Select one:

a. $1,980.02

b. $2,903.19

c. $2,474.76

d. $3,011.40

e. $935.56

#26A project has an initial cost of $2,250. The cash inflows are $0, $500, $900, and $700 for Years 1 to 4, respectively. What is the payback period?

Select one:

a. 2.97 years

b. 3.92 years

c. 2.84 years

d. 3.98 years

e. never

#27Anne is considering two independent projects with 2-year lives. Both projects have been assigned a discount rate of 13 percent. She has sufficient funds to finance one or both projects. Project A costs $38,500 and has cash flows of $19,400 and $28,700 for Years 1 and 2, respectively. Project B costs $41,000, and has cash flows of $25,000 and $22,000 for Years 1 and 2, respectively. Which project, or projects, if either, should you accept based on the profitability index method and what is the correct reason for that decision?

Select one:

a. You should only accept project A since it has the largest PI and the PI exceeds one.

b. You should accept both projects since both of their PIs are greater than 1.

c. You should accept Project A since it has the higher PI and you can only select one.

d. You should accept both projects since both of their PIs are positive.

e. Neither project is acceptable.

#28A firm starts its year with a positive net working capital. During the year, the firm acquires more short-term debt than it does short-term assets. This means that:

Select one:

a. the beginning current assets were less than the beginning current liabilities.

b. accounts payable increased and inventory decreased during the year.

c. both accounts receivable and inventory decreased during the year.

d. the ending net working capital will be negative.

e. the ending net working capital can be positive, negative, or equal to zero.

#29According to generally accepted accounting principles (GAAP), revenue is recognized as income when:

Select one:

a. the transaction is complete and the goods or services are delivered.

b. income taxes are paid on the revenue earned.

c. managers decide to recognize it.

d. payment is requested.

e. a contract is signed to perform a service or deliver a good.

#30Flo’s Flowers has a project costing $40,000 and cash flows of $8,500, $15,600, and $22,700 for Years 1 to 3, respectively. Based on the profitability index rule, should the project be accepted if the discount rate is 9.5 percent? Why or why not?

Select one:

a. Yes; because the PI is negative

b. Yes; because the PI is .95

c. No; because the PI is .95

d. No; because the PI is 1.03

e. Yes; because the PI is 1.03