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Financial Management
Week 5 Midterm Exam Part 1
This exam consist of 25 multiple choice questions and covers the material
in Chapters 1 through 3.
Submitted Answers, Correct Answers, Feedback
Question 1
2 out of 2 points
Cheers Inc. operates as a partnership. Now the partners have decided to convert the business
into a regular corporation. Which of the following statements is CORRECT?
Question 2
2 out of 2 points
Question 3
2 out of 2 points
Question 4
2 out of 2 points
Question 5
2 out of 2 points
Question 6
2 out of 2 points
Question 7
2 out of 2 points
Which of the following could explain why a business might choose to operate as a
corporation rather than as a sole proprietorship or a partnership?
Question 8
2 out of 2 points
Question 9
2 out of 2 points
Question 10
2 out of 2 points
Aubey Aircraft recently announced that its net income increased sharply from the previous
year, yet its net cash flow from operations declined. Which of the following could explain
this performance?
Question 11
2 out of 2 points
Question 12
0 out of 2 points
DeYoung Devices Inc., a new high-tech instrumentation firm, is building and equipping a
new manufacturing facility. Assume that currently its equipment must be depreciated on a
straight-line basis over 10 years, but Congress is considering legislation that would require
the firm to depreciate the equipment over 7 years. If the legislation becomes law, which of
the following would occur in the year following the change?
Question 13
2 out of 2 points
Which of the following would be most likely to occur in the year after Congress, in an effort
to increase tax revenue, passed legislation that forced companies to depreciate equipment
over longer lives? Assume that sales, other operating costs, and tax rates are not affected, and
assume that the same depreciation method is used for tax and stockholder reporting purposes.
Question 14
2 out of 2 points
Assume that Congress recently passed a provision that will enable Bartons Rare Books
(BRB) to double its depreciation expense for the upcoming year but will have no effect on its
sales revenue or tax rate. Prior to the new provision, BRBs net income after taxes was
forecasted to be $4 million. Which of the following best describes the impact of the new
provision on BRBs financial statements versus the statements without the provision?
Assume that the company uses the same depreciation method for tax and stockholder
reporting purposes.
Question 15
2 out of 2 points
Question 16
2 out of 2 points
Analysts following Armstrong Products recently noted that the companys operating net cash
flow increased over the prior year, yet cash as reported on the balance sheet decreased.
Which of the following factors could explain this situation?
Question 17
2 out of 2 points
Question 18
2 out of 2 points
Considered alone, which of the following would increase a companys current ratio?
Question 19
2 out of 2 points
A firms new president wants to strengthen the companys financial position. Which of the
following actions would make it financially stronger?
Question 20
The Cavendish Company recently issued new common stock and used the proceeds to pay
off some of its short-term notes payable. This action had no effect on the companys total
assets or operating income. Which of the following effects would occur as a result of this
action?
Question 21
2 out of 2 points
Question 22
2 out of 2 points
Companies A and C each reported the same earnings per share (EPS), but Company As stock
trades at a higher price. Which of the following statements is CORRECT?
Question 23
Question 24
2 out of 2 points
A firm wants to strengthen its financial position. Which of the following actions would
increase its current ratio?
Question 25
2 out of 2 points
Cordelion Communications is considering issuing new common stock and using the
proceeds to reduce its outstanding debt. The stock issue would have no effect on total
assets, the interest rate Cordelion pays, EBIT, or the tax rate. Which of the following is
likely to occur if the company goes ahead with the stock issue?