This document appears to be a practice exam for a financial management course. It contains 25 multiple choice questions covering various topics related to corporate finance, financial markets, and accounting. The questions assess understanding of concepts like forms of business organization, agency theory, taxation, financial statement analysis, ratio analysis, time value of money, and different types of markets.

1. Fin 331 final exam | Business & Finance homework help
FIN/331 Final Exam 1Towson UniversityDepartment of FinancePrinciples of Financial
Management (FIN331)Exam
I Name_____________________________ID#_________________ 1. Which of the following
statements is CORRECT?a. One of the advantages of the corporate form of organization is
that it avoids double taxation.b. It is easier to transfer one’s ownership interest in a
partnership than in a corporation.c. One of the disadvantages of a sole proprietorship is
that the proprietor is exposed to unlimited liability.d. One of the advantages of a
corporation from a social standpoint is that every stockholder has equal voting rights, i.e.,
“one person, one vote.”e. Corporations of all types are subject to the corporate income
tax. 2. Which of the following is NOT to address the agency conflict between
shareholders and managers? a. Maximize salesb. Monitor managers’
activitiesc. Give incentives based on
performance d. Offer stock shares or stock
options e. Hostile takeover threat 3. What is the main advantage of S-corp
relative to C-corp? a. Profit marginb. Single taxationc. Limited
liabilityd. Dividend policye. Capital structure 4. Which of the following
mechanisms would be most likely to help motivate managers to act in the best interests of
shareholders?a. Decrease the use of restrictive covenants in bond agreements.b. Take
actions that reduce the possibility of a hostile takeover.c. Elect a board of directors that
allows managers greater freedom of action.d. Increase the proportion of executive
compensation that comes from stock options and reduce the proportion that is paid as cash
salaries.e. Eliminate a requirement that members of the board of directors have a
substantial investment in the firm’s stock. 5. If the projected net earnings is $5m and
the dividend payout ratio is 60%, what is the projected retained earnings at the end of the
next year if the retained earnings at the end of this year is
$10m? a. $6mb. $9mc. $10md. $11me. $12m 6. Which of the following
items is NOT normally considered to be a current asset?a. Accounts
receivable.b. Inventory.c. Bonds.d. Cash.e. Short-term, highly-liquid, marketable
securities. 7. The following information for Towsontown, Inc. is provided:Net
Sales: $88,000Operating Costs: $72,000 (doesn’t include
depreciation)Depreciation Expense: $ 7,200 (no amortization charges
occurred)Debt: $40,000Interest Rates: 10% AnnualTax
Rate: 34%How much net cash flow did Woodley generate over the past

2. year?a. $3,168 b. $3,268 c. $10,168 d. $10,368 e. $11,368 8. Ho
uston Pumps recently reported $185,250 of sales, $140,500 of operating costs other than
depreciation, and $9,250 of depreciation. The company had $35,250 of outstanding bonds
that carry a 6.75% interest rate, and its income tax rate was 35%. In order to sustain its
operations and thus generate future sales and cash flows, the firm was required to spend
$15,250 to buy new capital expenditure and to invest $6,850 in net working capital. What
was the firm’s free cash
flow?a. $10,225b. $10,736c. $11,273d. $11,837e. $12,429 9. Corpora
tions face the following tax schedule: Tax on
Base Percentage on Taxable Income of
Bracket Excess above BaseUp to
$50,000 $0 15%$50,000-
$75,000 7,500 25$75,000-
$100,000 13,750 34$100,000-
$335,000 22,250 39 Company Z has
$80,000 of taxable income from its operations, $5,000 of interest income, and $30,000 of
dividend income from preferred stock it holds in other corporations. What is Company Z’s
tax liability (For dividend, 70% is excluded from the taxable income. Taxable income for
dividend is Dividend income*(1 – Dividend exclusion
%))?a. $17,328b. $18,240c. $19,200d. $20,210e. $21,221 10. A company
expects sales to increase during the coming year, and it is using the AFN equation to
forecast the additional capital that it must raise. Which of the following conditions would
cause the AFN to increase?a. The company previously thought its fixed assets were being
operated at full capacity, but now it learns that it actually has excess capacity.b. The
company increases its dividend payout ratio.c. The company begins to pay employees
monthly rather than weekly.d. The company’s profit margin increases.e. The company
decides to stop taking discounts on purchased materials. 11. Chua Chang & Wu Inc. is
planning its operations for next year, and the CEO wants you to forecast the firm’s
additional funds needed (AFN). Data for use in your forecast are shown below. Based on
the AFN equation, what is the AFN for the coming year? Last year’s sales =
S0 $200,000 Last year’s accounts
payable $50,000Sales growth rate =
g 40% Last year’s notes
payable $15,000Last year’s total assets =
A*0 $135,000 Last year’s accruals $20,000Last
year’s profit margin = M 20.0% Target payout
ratio 25.0% a. -$14,440b. -$15,200c. -$16,000d. -
$16,800e. -$17,640 12. Which of the following statements is NOT
CORRECT?a. When a corporation’s shares are owned by a few individuals, we say that the
firm is “closely, or privately, held.”b. “Going public” establishes a firm’s true intrinsic value
and ensures that a liquid market will always exist for the firm’s shares.c. The stock of
publicly owned companies must generally be registered with and reported to a regulatory
agency such as the SEC.d. When stock in a closely held corporation is offered to the public

3. for the first time, the transaction is called “going public, or an IPO,” and the market for such
stock is called the new issue or IPO market.e. It is possible for a firm to go public and yet
not raise any additional new capital for the firm itself. 13. Which is a common way to
compare financial ratios against other companies in the same industry? a. Time-
Trend b. Cross-sectional c. Internal uses d. Benchmark e. None of the
above 14. Considered alone, which of the following would increase a company’s
current ratio?a. An increase in net fixed assets.b. An increase in accrued
liabilities.c. An increase in notes payable.d. An increase in accounts receivable.e. An
increase in accounts payable. 15. Towson, Inc. currently has $1,600,000 in accounts
receivables and its days sales outstanding (DSO) is 20 days. If accounts receivable comprise
50% of the company’s current assets and Towson has $4,800,000 in net fixed assets, what is
its total asset turnover
ratio?a. 2.651x b. 3.650x c. 3.520x d. 2.921x e. 3.920x 16. Dell
has an inventory period of 1 month, and an account receivable period of 0 (zero) months. It
also has a payable period of 6 months. What are the cash conversion cycle period and the
interest expense for Dell if they have annual net total (credit) sales volume of $10 billion?
The market interest rate is 6.0%.a. -5.0, $-250 m b. 6.0, $300m c. 1.0,
$100m d. 3.0, $150m e. 0.0, $100m 17. Ryngard Corp’s sales last year were
$38,000, and its total assets were $16,000. What was its total assets turnover ratio
(TAT)?a. 2.04b. 2.14c. 2.26d. 2.38e. 2.49 18. If your mark up ratio is 25%,
what is the margin ratio?a. 15%b. 20%c. 25%d. 28%e. 30% 19. Last year
Rennie Industries had sales of $305,000, assets of $175,000, a profit margin of 5.3%, and an
equity multiplier of 1.2. The CFO believes that the company could reduce its assets by
$51,000 without affecting either sales or costs. Had it reduced its assets by this amount,
and had the debt ratio, sales, and costs remained constant, how much would the ROE have
changed?a. 4.10%b. 4.56%c. 5.01%d. 5.52%e. 6.07% 20. Which ratio
may be greatly affected by the choice of short-term and long-term debt for a given amount
of total debt? a. Debt ratio b. Profit margin c. TIE d. Quick
ratio e. TAT 21. Cook, Inc. has a current ratio of 1.8x on current liabilities of
$200,000. The firm has $36,000 of inventories. The firm will issue notes payable and use
those funds to buy new inventories to meet the inventory requirement for the expansion.
Cook’s debt holders specifies that it must maintain a quick ratio at least 1.20x, or else it is in
default. How much new inventory can Cook raise before it violates its bond
contracts?a. $70,000 b. $80,000 c. $90,000 d. $72,000 e. $30,000 22.
Money markets are markets fora. Foreign currencies.b. Consumer automobile
loans.c. Common stocks.d. Long-term bonds.e. Short-term debt securities such as
Treasury bills and commercial paper. 23. Which of the following statements is
CORRECT?a. If you purchase 100 shares of Disney stock from your brother-in-law, this is
an example of a primary market transaction.b. If Disney issues additional shares of
common stock through an investment banker, this would be a secondary market
transaction.c. The NYSE is an example of an over-the-counter market.d. Only
institutions, and not individuals, can engage in derivative market transactions.e. As they
are generally defined, money market transactions involve debt securities with maturities of

4. less than one year. 24. Which one has nothing to do with IPO? a. New
issues b. Secondary market c. An influx of capital to issuer d. Investment
Banks possibly underwriting e. Public offering 25. Which of the following
statements is CORRECT?a. The most important difference between spot markets versus
futures markets is the maturity of the instruments that are traded. Spot market
transactions involve securities that have maturities of less than one year whereas futures
markets transactions involve securities with maturities greater than one year.b. Capital
market transactions involve only preferred stock or common stock.c. If General Electric
were to issue new stock this year, this would be considered a secondary market transaction
since the company already has stock outstanding.d. Both Nasdaq dealers and “specialists”
on the NYSE hold inventories of stocks.e. Money market transactions do not involve
securities denominated in currencies other than the U.S. dollar.