Financial Management

221. In general, the cost of producing a product is based on material, labor, and:

  1. profit margin
  2. cost of goods sold
  3. overhead costs
  4. shipping costs
Correct answer: (C)
overhead costs

222. On the pro forma balance sheet, changes in the level of accounts payable will be determined from:

  1. the prior balance sheet
  2. the cash budget
  3. the pro forma income statement
  4. the monthly cash payments schedule
Correct answer: (D)
the monthly cash payments schedule

223. LThe more aggressive firm:

  1. substitutes higher fixed costs for variable costs
  2. substitutes lower fixed costs for variable costs
  3. has lower potential profit above the break-even point
  4. is normally more effectively managed
Correct answer: (A)
substitutes higher fixed costs for variable costs

224. The highly financially leverage firm will typically:

  1. has a higher EPS figure than the conservative firm
  2. has a lower EPS figure than the conservative firm
  3. uses less debt than the conservative firm
  4. will produce the same EPS figure as the conservative firm
Correct answer: (A)
has a higher EPS figure than the conservative firm

225. Degree of combined leverage:

  1. should be minimized by the financial manager
  2. affects only balance sheet items
  3. decreases the firm's operating profit
  4. shows the impact of sales or volume changes on bottom line EPS
Correct answer: (D)
shows the impact of sales or volume changes on bottom line EPS

226. The cash conversion cycle equals:

  1. inventory period + collection period-payables period
  2. payables period-inventory period-collection period
  3. payables period + inventory period-collection period
  4. inventory period-collection period + payables period
Correct answer: (A)
inventory period + collection period-payables period

227. Under normal conditions:

  1. long term rates are lower than short term rates
  2. the yield curve is downward sloping, or inverted
  3. intermediate rates are higher than long or short term rates
  4. short term rates are lower than long term rates
Correct answer: (D)
short term rates are lower than long term rates

228. The concept of float is best defined as:

  1. cheques written by the corporation that are still outstanding
  2. cheques written to the corporation that are still outstanding
  3. the difference between the firm's recorded cash balance and the amount credited to the firm's account by the bank
  4. what a boat does in water
Correct answer: (C)
the difference between the firm's recorded cash balance and the amount credited to the firm's account by the bank

229. Under normal conditions, the longer the maturity of the security:

  1. the higher the yield
  2. the lower the yield
  3. the greater the possibility of the yield curve changing
  4. the lower the level of interest rate risk
Correct answer: (A)
the higher the yield

230. The largest provider of short-term credit to the firm is:

  1. banks
  2. bondholders
  3. manufacturers or sellers of goods or services
  4. shareholders
Correct answer: (C)
manufacturers or sellers of goods or services
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