Which of the following is true regarding corporate governance?A) The crisis in Corporate Governance

Which of the following is true regarding corporate governance?A) The crisis in Corporate Governance of the late 90’s and early 2000’s was primarily caused by Activist InvestorsB) It is typical in the Anglo-American model for a company to be owned by one majority shareholder that manages the company according their interestsC) From the 1980’s to the 1990’s it became easier to fire CEO’s for poor performanceD) Corporate Defense Mechanisms against takeovers were active in the 1980’s but are no longer prevalent in corporate governanceE) In the Rest of the World model, there are minority shareholders that own a company and are represented by a Board of Directors2.Why did Bernard Madoff’s Ponzi scheme fall apart?A) Too many new investors wanted him to manage their portfoliosB) The SEC investigation revealed his schemeC) There was a financial crisis and too many investors withdrew their moneyD) His auditor turned him inE) He lacked the name recognition to attract investors3.Assume a firm has $12.5 million in operating profit. The firm’s tax rate is 40%. What is the tax shield of the firm’s $50 million in debt that charges an 8% interest rate?A) $1.0 millionB) $20 millionC) $1.6 millionD) $2.4 millionE) $4.0 million4.In which managerial defense mechanism does the target company look to fend off a hostile takeover by providing big bonuses to their executives if employment is terminated?A) Crown JewelsB) GreenmailC) Golden ParachutesD) Poison PillE) The White Knight5.Which of the following events would increase a company’s cash flow?Event A: Accounts Receivable turnover ratio went from 10.0 to 8.0Event B: Accounts Payable turnover ratio went from 8.0 to 4.0Event C: Issued a dividend of $1.50 per shareEvent D: Bought $5M office buildingEvent E: Increase in inventoryA) Event CB) Event DC) Event ED) Event AE) Event B6.Which company had the highest growth rate in revenues?A) Company D: 2014 – $9, 2015 – $13B) Company A: 2014 – $300, 2015 – $400C) Company B: 2014 – $100, 2015 – $120D) Company A: 2014 – $12, 2015 – $16E) Company C: 2014 – $500, 2015 – $6507.On a common size balance sheet, Accounts payable is expressed as a percentage of what value?A) Total Liabilities & Shareholders’ EquityB) Total LiabilitiesC) Cost of Goods Sold (COGS)D) RevenueE) Shareholders’ Equity8.Which of the following is true of financial statements?A) Revenue is included on the cash flow statementB) Depreciation only affects the income statement, not the balance sheet or cash flow statementC) Total assets must equal total liability minus shareholders’ equityD) Balance sheets show the market value of assetsE) A company’s primary source of cash flow is typically from operating activities9.Calculate the ROE using the DuPont Model (strategic profit model) for a company with the following data:,Profit margin = 11%Total Asset Turnover = 2.4Inventory Turnover = 1.6Equity Multiplier = 0.75Current Ratio = 2.2A) 39%B) 13%C) 58%D) 18%E) 20%10.Which would most likely cause a profitable company to run out of cash?A) The company is delaying payments to its suppliersB) High liquidity ratiosC) The company is increasing inventory for an anticipated sales increaseD) The company has low profit marginsE) Customers are paying their bills more quickly11.Which of the following is TRUE regarding Company ABC given the following information?Current Assets = $350Fixed Assets = $120Current Liabilities = $200Long Term Debt = $110Sales = $600Net Income = $140A) Shareholders’ Equity = $160B) Return on Equity = 17%C) Debt to Equity Ratio = 0.92D) Current Ratio = .6E) Asset Turnover = 512.According to the Revenue Recognition Principle in GAAP:A) Companies can realize certain gains on their operating books, while omitting them from their tax booksB) Companies can realize revenue only if the transaction is profitableC) Dividends can be paid only after taxable income is positiveD) Expenses can be realized when cash payment is madeE) Revenue is recognized when a good or service is provided, not when the money is received13.Which financial ratio is of most interest to suppliers?A) Debt to equity ratioB) Total Asset TurnoverC) Current ratioD) Accounts payable TurnoverE) Return on Equity14.Nittany Co. purchased a new truck for its operations. Where is this transaction represented in the financial statements?A) Cost of Goods SoldB) Accounts ReceivableC) Depreciation ExpenseD) Property, Plant and EquipmentE) Inventory15.Given the following information, which is ratio is correct?Revenue: $8,000Operating Profit (EBIT): $2,000Interest Expense: $750Net Profit: $800Total Assets: $7,500A) Net Profit Margin = 4.29%B) Total Asset Turnover = 1.40C) Times Interest Earned = 2.7xD) Return on Assets = 11.4%E) Common Size Interest Expense = 5%16.Given the following information, which is true?Company 1 – Current Ratio: 2.3x, Times Interest Earned: 3.2x, Inventory Turnover: 6.0xCompany 2 – Current Ratio: 0.7x, Times Interest Earned: 1.4x, Inventory Turnover: 3.2xCompany 3 – Current Ratio: 1.3x, Times Interest Earned: 5.7x, Inventory Turnover: 3.4xA) Company 2 has the highest probability of defaulting on its debtB) Company 2 is the most liquid firmC) Company 1 is the least efficient at managing inventoryD) Lenders would view Company 3 as higher risk of default than company 2E) Company 3 is more liquid than Company 117.Given the following information, calculate X Company’s Cost of Goods Sold and Gross Margin.Revenue: $2,500SG&A: 650Taxes: 50Gross Profit: $1150A) Cost of Goods Sold= $700, Gross Margin = 28%B) Cost of Goods Sold= $1,350, Gross Margin = 46%C) Cost of Goods Sold= $500, Gross Margin=37%D) Cost of Goods Sold= $1,850, Gross Margin = 74%E) Cost of Goods Sold= $2,950, Gross Margin = 46%18.Which of the following statements is trueA) Issuance of stocks creates an Intangible AssetB) Changes in Accounts Payable is a cash flow from financing activitiesC) Purchase of Property, plant and equipment is a cash flow from investing activitiesD) Disposal of Fixed Assets is a cash flow from operating activitiesE) Stock purchase and dividend payments are cash flows from operating activities19.Which of the following is true regarding depreciation methods and deferred taxes?A) Using accelerated depreciation methods for fixed assets provides for higher reported net income than straight line depreciationB) Companies report lower depreciation and higher net income using accelerated depreciation for fixed assetsC) The primary source of deferred taxes is from companies’ use of accelerated depreciation in reporting net income to the Internal Revenue ServiceD) The primary source of deferred taxes is companies’ use of straight line depreciation when reporting to shareholdersE) Companies report higher depreciation and net income using straight line depreciation for fixed assets20.An apparel company sold its manufacturing facilities and recorded the proceeds as revenue. This is an example of which unethical behaviorA) fraudB) shifting expenses to a later periodC) recording revenue too soonD) boosting income with one-time gainE) income smoothing21.Given the following, calculate WACC for company XYZ:Debt: $1,200ROE: 15%Equity: $4,500Interest Cost on Debt: 5.0%Cost of Equity: 8.0%Tax Rate: 40.0%A) 8.0%B) 13%C) 4.05%D) 7.37%E) 6.95%22.What is the purpose of the unethical behavior known as income smoothing?A) To mask previous bad investmentsB) To increase the amount of assets reported on the balance sheetC) To appear more profitable than competitors in all fiscal quartersD) To increase the amount that can be paid in dividendsE) To make profits appear more consistent than they are23.Which of the following is true regarding capital budgeting?A) Capital budgeting is related to day to day financial operations of a businessB) A company should invest in projects with a positive ROIC) A company should invest in projects with a projected ROI D) A company should invest in projects with a projected ROI > than cost of capital (WACC)E) Issuing long term debt is an example of a capital budgeting decision24.Based on the following, which is true?Company 1 – Return on Assets: 12.0%, Net Profit Margin: 5.8%, Debt / Equity: 1.9xCompany 2 – Return on Assets: 15.0%, Net Profit Margin: 6.5%, Debt / Equity: 0.7xCompany 3 – Return on Assets: 10.0%, Net Profit Margin: 5.0%, Debt / Equity: 1.0xA) Company 2 is the least efficient at generating sales on its assetsB) Company 1 is the worst at generating profits from its assetsC) Company 1 is better at generating profits from its sales than Company 2D) Company 2 is the least leveraged firmE) Company 3 is the most leveraged firm25.Based on the following, which is true?Company 1 – A/R Days: 20, Inventory Days: 15, Payable Days: 25Company 2 – A/R Days: 10, Inventory Days: 25, Payable Days: 15A) Company 2 has a longer operating cycle and cash conversion cycleB) Company 1 has a longer operating cycle but a shorter cash conversion cycleC) Both companies’ have the same operating cycleD) Both companies receive payment from customers before paying suppliersE) Company 2 has a negative cash conversion cycle, meaning it pays its receives payment from customers before paying suppliers26.Which of the following is true regarding debt and equity financing?A) A company with a low tax rate has a greater advantage in using debt financing than a company with a high tax rateB) The optimum capital structure is where weighted average cost of capital (WACC) is maximizedC) The primary trade-off in capital structure decisions is tax savings and financial distress costs of debtD) As a company uses more equity financing, the value of the firm always increasesE) The disadvantage to equity financing is fixed financing cost of dividends27.What is one way of the top 5 ways to spot earnings mismanagement?A) Reserves have stayed consistent for the company over timeB) Earnings growth fluctuates year to yearC) Small and infrequent one-time chargesD) A company’s earnings are similar to the industry’s normE) Cash flow and earnings are not correlated28.Which of the following is true regarding capital structure?A) Companies with large amounts of intangible assets (pharmaceuticals, software) usually employ small amounts of debt because their assets cannot be used to collateralize loansB) Capital-intensive businesses (utilities) use mostly equity because their assets generate a large returnC) Small tech companies generally employ high amounts of debt so that they can grow quicklyD) Firms in risky industries (biotech) use large amounts of debt because the fixed payment obligations guarantee consistent cash flowE) Optimal capital structure is the same across all industries29.Given the following information, calculate WoolridgeCo’s Operating Cycle.Revenue: $10,000,000COGS: $5,000,000EBIT: $3,000,000Net Income: $1,000,000Avg. Inventory: $800,000Avg. Receivables: $700,000Avg. Payables: $700,000A) 26 daysB) -51 daysC) 84 daysD) 33 daysE) 58 days30.Which of the following is true?A) A negative cash conversion cycle means that companies receive payment from customers before paying their suppliersB) Using more debt in a company’s capital structure will always result in lower WACCC) Decreasing WACC decreases company valueD) Decreasing operating cycle means that the company is not collecting payment from its customers as quicklyE) Carrying costs from holding current assets are very difficult to measure