Corporations are owned by

stockholders

Jennings, Inc. has a tax liability of $170,000 on pretax income of $500,000. What is the average tax rate for Jennings, Inc.

34 percent

The goal of the firm is the maximization of:

wealth of the firm's owners

Strengths of the _____ form of business ownership include the owner receiving all profits, low organizational costs and ease of dissolution, and having income included on the owner's personal tax return.

sole proprietorship

The major securities traded in the capital markets are

stocks and bonds

If a corporation sells certain capital equipment for more than their initial purchase price, the difference between the sale price and the purchase price is called a(n)

capital gain

About 75 percent of all business firms are

Sole proprietorships

Finance can be defined as

The art and science of managing money

In the DuPont system, the return on total assets is equal to

(net profit margin) x (total asset turnover)

ABC, Inc. had operating profits of $100,000, taxes of $17,000, interest expense of $34,000 and preferred dividends of $5,000. What is the net profit after taxes?

$49,000

The financial leverage multiplier is an indicator of how much _________ a corporation is utilizing.

Total debt

In ratio analysis, a comparison to a standard industry ratio is made to isolate _____ deviations from the norm.

any

_________ is where the firm's ratio values are compared to those of a key competitor or group of competitors, primarily to identify areas for improvement.

Benchmarking

The _____ ratios are primarily measure of return.

profitability

ABC, Inc. extends credit terms of 45 days to its customers. Its credit collection would likely be considered poor if its average collection period was

57 days

A firm with sales of $1,000,000, net profits after taxes of $30,000, total assets of $1,500,000, and total liabilities of $750,000 has a return on equity of

4 percent

Pro forma statements are used for

profit planning.

A corporation raises $500,000 in long-term debt to acquire additional plant capacity. This is considered

a financing cash flow and investment cash flow, respectively.

A corporation sold a fixed asset for $100,000. This is

an investment cash flow and a source of funds.

Given the financial manager's preference for faster receipt of cash flows,

a shorter depreciable life is preferred to a longer one.

A firm has prepared the coming year's pro forma balance sheet resulting in a plug figure in a preliminary statement called "the external financing required" of $230,000. The firm should prepare to

arrange for a loan of $230,000.

_____ are periodic distribution of earnings to the _____.

dividends; stockholders

Cash disbursements may include all of the following EXCEPT

depreciation expense.

Cash flows associated with the purchase and sale of fixed assets and business interests are called

investment flows.

Which of the following legal forms of organization is most expensive to organize?

Corporations

The primary purpose in preparing pro forma financial statements is

for profit planning.

Which of the following transactions may result in a capital gain for the corporation.

A fixed asset is sold after two years of use for more than the original purchase price

Short-run financial plans and long-run financial plans generally cover periods ranging from ________ years and ________ years, respectively.

one to two; two to ten

The cash flows from operating activities section of the statement of cash flows considers

labor expense.

The annual rate of return is variously referred to as the

all of the above.

The following groups of ratios primarily measure risk.

WRONG ANSWER: Activity, debt, and profitability Feedback about answer: Risk is higher in a company that is not liquid or has too much debt.

A firm with a total asset turnover lower than industry standard may have

Insufficient sales

The beta of the market

is 1.

The key inputs for preparing pro forma income statements using the simplified approaches are the

sales forecast for the coming year and financial statements for the preceding year.

Ratios provide a ______ measure of a company's performance and condition.

Relative

Asset P has a beta of 0.9. The risk-free rate of return is 8 percent, while the return on the market portfolio of assets is 14 percent. The asset's required rate of return is

13.4 percent.

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%.

$70,000.

The _____ provides a financial summary of the firm's operating results during a specific period.

income statement

Taxes are generally higher in a ______.

corporation

The _____ of a business firm is measured by its ability to satisfy its short-term obligations as they come due.

liquidity

The key output(s) of the short-run financial planning process are a(n)

cash budget, pro forma income statement, and pro forma balance sheet.