Finance 301 Final Exam Questions with Correct Answers
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Course
FIN 301
Institution
FIN 301
Spontaneously generated funds are generally defined as follows:
a: Funds that a firm must raise externally through borrowing or by selling new common or preferred stock.
b: Funds that arise out of normal business operations from its suppliers, employees, and the government, and they include s...
Finance 301 Final Exam Questions with
Correct Answers 2023-2024
Spontaneously generated funds are generally defined as follows:
a: Funds that a firm must raise externally through borrowing or by selling new common
or preferred stock.
b: Funds that arise out of normal business operations from its suppliers, employees,
and the government, and they include spontaneous increases in accounts payable and
accruals.
c: Assets required per dollar of sales.
d: 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.
e: A forecasting approach in which the forecasted percentage of sales for each item is
held constant. - Answer-b: funds that arise out of normal business operations from its
supplier4s, employees, and the government, and they include spontaneous increases in
accounts payable and accruals
Last year Wei Guan Inc. had $275 million of sales, and it had $270 million of fixed
assets that were used at 65% of capacity. In millions, by how much could Wei Guan's
sales increase before it is required to increase its fixed assets?
Debt equity ratio = 0.2
Sales = $5,000
Net income = $600
Total Debt = 3200
Total equity = total debt/debt-equity ratio
Total equity = 16,000
ROE = 600/16,000
ROE = 3.75%
Working capital management decisions include determining:
a: the number of employees needed to work during a particular shift.
b: the best method of producing a product.
c: if a competitor should be acquired.
d: when to replace obsolete equipment.
e: the minimum level of cash to be kept in a checking account. - Answer-e: the minimum
level of cash to be kept in a checking account
Which of the following statements is CORRECT?
a: One advantage of forming a corporation is that equity investors are usually exposed
to less liability than they would be in a partnership.
b: One disadvantage of operating a business as a proprietor is that the firm is subject to
double taxation because taxes are levied at both the firm level and the owner level.
c: If a partnership goes bankrupt, each partner is exposed to liabilities only up to the
amount of his or her investment in the business.
d: It is generally less expensive to form a corporation than a proprietorship because,
with a proprietorship, extensive legal documents are required.
, e: Corporations face fewer regulations than proprietorships. - Answer-a: One advantage
of forming a corporation is equity investors are usually exposed to less liability than they
would be in a partnership
Which of the following would generally indicate an improvement in a company's financial
position, holding other things constant?
a: The TIE declines.
b: The total assets turnover decreases.
c: The current ratio declines.
d: The quick ratio increases.
e: The DSO increases. - Answer-d: The quick ratio increases
Which of the following statements is CORRECT?
a: A reduction in the inventory turnover ratio will generally lead to an increase in the
ROE.
b: A reduction in inventories will have no effect on the current ratio.
c: An increase in inventories will have no effect on the current ratio.
d: If a firm increases its sales while holding its inventories constant, then, other things
held constant, its fixed assets turnover ratio will decline.
e: If a firm increases its sales while holding its inventories constant, then, other things
held constant, its inventory turnover ratio will increase. - Answer-e: If a firm increases its
sales while holding its inventories constant, then, other things held constant, its
inventory turnover ratio will increase
Which of the following statements is CORRECT?
a: The numerator used in the TIE ratio is earnings before taxes (EBT). EBT is used
because interest is paid with post-tax dollars, so the firm's ability to pay current interest
is affected by taxes.
b: The use of debt financing will tend to lower the basic earning power ratio, other things
held constant.
c: Other things held constant, increasing the total debt to total capital ratio will increase
the ROA.
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