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BUS/401 BUS401 BUS 401 Week 1 – Quiz 1

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BUS 401 Week 1 – Quiz 1 1. The income statement for Brit, Inc. Indicates that tax expense was $20,000. The balance sheet indicates that taxes payable for the same year increased by $ 5,000. What amount did Brit, Inc. actually pay in taxes during this year? 1. $ 15,000 2. $ 20,000 3. $ 25,000 4. Cannot be determined without the cash balance 2. A financial manager is considering two projects, A and B. A is expected to add $ 2 million to profits this year while B is expected to add $ 1 million to profits this year. Which of the following statements is most correct? 1. The manager should select project A because it maximizes profit. 2. The manager should select the project that maximizes long-term profits, not just one year of 3. The manager should select project A or he is irrational. 4. which could be A or B. 3. Which of the following statements about depreciation is true? 1 .Depreciation is a noncash expense, but it is important because it affects a corporation’s tax 2. Depreciation must be calculated the same way for financial reporting and tax purposes 3. The choice of depreciation method had no impact on a firm’s value because the same amount of depreciation is taken over the life of an asset regardless of the method used 4. A shareholder wealth maximizing corporation prefers to defer depreciation expense in order to increase current reported profits. 4. The principle of risk-return tradeoff means that _____ 1. Higher risk investments must earn higher returns. 2. An investor who takes more risk will earn a higher return 3. A rational investor will only take on a higher risk if he expects a higher return. 4. An investor who bought stock in a small corporation five years ago has more money than an investor who bought U.S. Treasury bonds five years ago. 5. The quick ratio of a firm would be increased by which of the following? 1. $20,000 short term bank loan is used to pay current accounts payable? 2. Equipment is purchased, financed by long term debt issue 3. Inventories are sold for cash 4. Inventories are sold in exchange for a long term note. 6. Common sized income statements ___________ 1. Assist in the comparison of companies of different sizes 2. Show each income statement account as a percentage of total assets 3. Compare companies with the same level of total sales 4. Compare companies with the same level of net income 7. The December 31, 2007 balance sheet shows net fixed assets of $100,000 and the December 31, 2008 balance sheet shows net fixed assets of $140,000. Depreciation expense for 2007 is $15,000 and depreciation expense for 2008 is $20,000. Based on the information, the cost of fixed assets purchased during 2008 is ________ 1. $ 60,000 2. $ 20,000 3. $ 40,000 4. $ 75,000 8. Project A is expected to generate positive cash flow of $ 1 million in 10 years while Project B is expected to generate $ 500,000 in 5 years. Therefore, _______ 1. Project A is preferred because shareholder value is based on cash flow. 2. Project B is preferred because its cash flow is expected to be received sooner than the cash flow from Project A. 3. Both projects have equal value because they average $100,000 per year. 4. Project B may be preferred to Project A if the opportunity cost of money is high enough. 9. Global.Com has cash of $75,000; short term notes payable of $100,000; accounts receivable of $275,000; accounts payable of $135,000; inventories of $350,000; and accrued expenses of $75,000. What is Global’s net working capital? 1. $ 390,000 2. $ 175,000 3. $ 700,000 4. $ 210,000 10. Which of the following statements is an example of a futures market transaction? 1. An investor purchases 100 shares of IBM hoping to sell it in two years for a profit. 2. A company purchases an option to buy 1,000 barrels of oil anytime between now and the end of the year. 3. A company agrees to purchase 1,000 barrels

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