ditional fixed assets. B. Issue long-term debt to buy invento | Information Science and Technology

ditional fixed assets.
B. Issue long-term debt to buy inventory.
C. Sell common stock to reduce current liabilities.
D. Sell fixed assets to reduce accounts payable.
25. The gross profit margin is unchanged, but the net profit margin declined over the same
Page 21 of 25
period. This could have happened if
A. cost of goods sold increased relative to sales.
B. sales increased relative to expenses.
C. Govt. increased the tax rate.
D. dividends were decreased
26. STAR Industries has a debt-to-equity ratio of 1.5 compared with the industry average
of 1.3. This means that the company
A. will not experience any difficulty with its creditors.
B. has less liquidity than other firms in the industry.
C. will be viewed as having high creditworthiness.
D. has greater than average financial risk when compared to other firms in its industry.
27. ABC Inc. operates as a partnership. Now the partners have decided to convert the business
into a corporation. Which of the following statements is CORRECT?
A. The ex-partners will now be exposed to less liability.
B. The company will probably be subject to fewer regulations and required disclosures.
C. The firm's investors will be exposed to less liability, but they will find it more difficult
to transfer their ownership.
D The firm will find it more difficult to raise additional capital to support its growth.
28. Profit maximization does not adequately describe the goal of the firm because:
A. profit maximization does not require the consideration of risk.
B. profit maximization ignores the timing of a project's return.
C. maximization of dividend payout ratio is a better description of the goal of the firm.
D. A and B.
29. What does the agency problem refer to?
A. The conflict that exists between the board of directors and the employees of the firm.
B. The problem associated with financial managers and Internal Revenue agents.
C. The conflict that exists between stockbrokers and investors.
D. The problem that results from potential conflicts of interest between the manager of a
business and the stockholders.
30. Why do investors prefer receiving cash sooner rather than later, according to finance theory?
A. Incremental profits are greater than accounting profits.
B. Money received earlier can be reinvested and returns can be increased.
C. Tax considerations are important when investing.
Page 22 of 25
D. Diversification leads to increased value.
31. A company can improve (lower) its debt-to-total assets ratio by doing which of the
following?
A. Borrow more. B. Shift short-term to long-term debt.
B. Shift long-term to short-term debt. D. Sell common stock.
32. Which of the following statements (in general) is correct?
A. A low receivables turnover is desirable.
B. The lower the total debt-to-equity ratio, the lower the financial risk for a firm.
C. An increase in net profit margin with no change in sales or assets means a poor ROI.
D. The higher the tax rate for a firm, the lower the interest coverage ratio.
33. Which of the following statements is correct?
A. If the NPV of a project is greater than 0, its PI will equal 0.
B. If the IRR of a project is 0%, its NPV, using a discount rate, k, greater than 0, will be 0.
C. If the PI of a project is less than 1, its NPV should be less than 0.
D. If the IRR of a project is greater than the discount rate, k, its PI will be less than 1 and its
NPV will be greater than 0.
34. To increase a given present value, the discount rate should be adjusted
A. upward. B. downward. C. No change. D. constant
35. Which of the following is not the responsibility of financial management?
A. allocation of funds to current and capital assets
B. obtaining the best mix of financing alternatives
C. preparation of the firm's accounting statements
D. development of an appropriate dividend policy
36. Which of the following statements regarding a 10-year monthly payment amortized mortgage
with a nominal interest rate of 12% is CORRECT?
A. The monthly payments will decline over time.
B. A smaller proportion of