Exam 1 Practice Questions
1. Managerial finance:
A) involves tasks such as budgeting, financial forecasting, cash management, and funds
procurement.
B) involves the design and delivery of advice and financial products.
C) recognizes funds on an accrual basis.
D) devotes the majority of its attention to the collection and presentation of financial data.
2. Johnson, Inc. has just ended the calendar year making a sale in the amount of $10,000 of
merchandise purchased during the year at a total cost of $7,000. Although the firm paid in full
for the merchandise during the year, it has yet to collect at year end from the customer. The net
profit and cash flow from this sale for the year are
A) $3,000 and $10,000, respectively.
B) $3,000 and -$7,000, respectively.
C) $7,000 and -$3,000, respectively.
D) $3,000 and $7,000, respectively.
3. Calculate net operating profit after taxes (NOPAT) if a firm has sales of $1,000,000, operating
profit (EBIT) of $100,000, interest expense of $50,000, and a tax rate of 30%.
A) $35,000
B) $700,000
C) $70,000
D) none of the above
4. Corporation A owns 15 percent of the stock of corporation B. Corporation B pays corporation A
$100,000 in dividends in 2002. Corporation A must pay tax on:
A) $100,000 of ordinary income.
B) $ 30,000 of ordinary income.
C) $ 70,000 of ordinary income.
D) $ 70,000 of capital gain.
5. The stockholder's annual report must include:
A) a statement of cash flows.
B) an income statement.
C) a balance sheet.
D) a statement of retained earnings.
E) all of the above.
6. A firm had the following accounts and financial data for 2005:
The firm's earnings per share, rounded to the nearest cent, for 2005 was ________.
A) $0.5335
B) $0.5125
C) $0.3204
D) $0.3024
7. Given the financial manager's preference for faster receipt of cash flows,
A) a longer depreciable life is preferred to a shorter one.
B) a shorter depreciable life is preferred to a longer one.
C) the manager is not concerned with depreciable lives, because depreciation is a non-cash
expense.
D) the manager is not concerned with depreciable lives, because once purchased, depreciation
is considered a sunk cost.
8. The statement of cash flows includes all of the following categories EXCEPT
A) operating flows.
B) investment flows.
C) financing flows.
D) equity flows.
Exam 1 Practice Questions - Answer Key
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A
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A
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B
D