Which of the following financial ratios

Which of the following financial ratios is the best measure of theoperatingeffectiveness of a firm’s management?

Question 1 answers

current ratio

net profit margin

quick ratio


Question 2 text Question 2          2 points Save

The corporation is a legal entity separate from it owners; thus it is possible for the corporation to continue even upon the death of one or more shareholders.

Question 2 answers



Question 3 text Question 3          2 points Save

In making financial decisions, the relevant tax rate is the:

Question 3 answers

marginal tax rate.

average (effective) tax rate.

previousyear’stax rate.

maximum allowable tax rate.

Question 4 text Question 4          2 points Save

Based on the information in the table, calculate the after tax cash flow from operations for 2002 (no assets were disposed of during the year, and there was no change in interest payable or taxes payable):


Jones Company

Financial Information

December 2001 December 2002


Net income $1,500 $3,000

Accounts receivable 750 750

Accumulated depreciation 1,125 1,500

Common stock 4,500 5,250

Paid-in capital 7,500 8,250

Retained earnings 1,500 2,250

Accounts payable 750 750

Question 4 answers





Question 5 text Question 5          2 points Save

Which of the following are tax deductible items to a corporation:

Question 5 answers

interest expenses

dividends to common stockholders

dividends to preferred stockholders

None of the above are tax deductible.

Question 6 text Question 6          2 points Save

The market price of the firm’s stock reflects the value of the firm as seen by its owners.

Question 6 answers



Question 7 text Question 7          2 points Save

Corporate debt markets clearly dominate the corporate equity markets when new funds are being raised.

Question 7 answers



Question 8 text Question 8          2 points Save

You are considering an investment in a U.S. Treasury bond but you are not sure what rate of interest it should pay. Assume that the real risk-free rate of interest is 1.0%; inflation is expected to be 2.0%; the maturity risk premium is 1.5%; and, the default risk premium for AAA rated corporate bonds is 3%. What rate of interest should the U.S. Treasury bond pay?

Question 8 answers





Question 9 text Question 9          2 points Save

The telecommunications system that provides a national information linkup among brokers and dealers operating in the over-the-counter market is called:

Question 9 answers





Question 10 text Question 10     2 points Save

Which of the following represents an attempt to measure the net results of the firm’s operations (revenues versus expenses) over a given time period?

Question 10 answers

Balance Sheet

Statement of Cash Flows


Sources and Uses of Funds Statement

Question 11 text Question 11     2 points Save

The goal of the firm should be:

Question 11 answers

maximization of profits (net income per share)

maximization of shareholder wealth

maximization of market share

maximization of sales

Question 12 text Question 12     2 points Save

The term structure of interest rates usually indicates that longer terms to maturity have higher expected returns.

Question 12 answers



Question 13 text Question 13     2 points Save

If a firm has unused debt capacity and the general level of equity prices is depressed, financial executives will favor the issuance of debt securities over the issuance of new common stock.

Question 13 answers



Question 14 text Question 14     2 points Save

Capital market instruments include:

Question 14 answers

negotiable certificates of deposit

corporate equities

commercial paper

Treasury bills

Question 15 text Question 15     2 points Save

“The markets are quick and the prices are right” describes a market that is:

Question 15 answers





Question 16 text Question 16     2 points Save

PDQ Corp. has sales of $3,000,000; the firm’s cost of goods sold is $1,425,000; and its total operating expenses are $700,000. The firm’s interest expense is $230,000, and thecorporatetax rate is 40%. The firm paid dividends to preferred stockholders of $30,000, and the firm distributed $60,000 in dividend payments to common stockholders. What is PDQ’s “Addition to Retained Earnings?”

Question 16 answers





Question 17 text Question 17     2 points Save

PDQ Corp. has sales of $3,000,000; the firm’s cost of goods sold is $1,425,000; and its total operating expenses are $700,000. What is PDQ’s EBIT?

Question 17 answers

$ 825,000

$ 875,000



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