Financial Quiz

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1. Western States Transport had net income of $337,000 in 2012. It had depreciation expense during 2012 of $464,000. What is a rough estimate of the company’s cash flow for 2012? (Points : 1)

negative $127,000 negative $27,000 $337,000 $801,000

Question 2. 2. Time is a factor when determining the value of a possible investment. As investors, all else being equal, we value investments: (Points : 1)

more the longer we have to wait for the payoff. less the longer we have to wait for the payoff. with predefined wait times for payoff. regardless of time because a dollar is always a dollar.

Question 3. 3. Why is depreciation expense added back to net income to get a rough estimate of cash flow? (Points : 1)

Depreciation is a negative cost. Depreciation is a noncash charge against income. Depreciation is imaginary, so it has no effect on cash flow or profits. Depreciation is simply an accounting issue, so it should be ignored.

Question 4. 4. To arrive at a more accurate estimate of cash flow we would add depreciation expense to net income. The next step would be to: (Points : 1)

reduce our estimate by the increases in liabilities. reduce our estimate by the decreases in assets increase our estimate by the increases in liabilities. do nothing more because we have an accurate estimate.

Question 5. 5. Opportunity costs can vary over time and: (Points : 1)

are almost always close to 10%. represent the highest possible return you can earn on an investment. are always based on the interest rate offered on bank savings accounts. set a return that other investments must equal or exceed to be attractive.

Question 6. 6. Revenue recognition rules state which of the following? (Points : 1)

A sale can only be recognized when cash changes hands. A sale can only be recognized when the title or ownership changes hands. It varies depending on the item and the nature of the sales contract. A sale can only be recognized when the product is received by the buyer.

Question 7. 7. In publicly traded corporations the goal of the financial manger would be: (Points : 1)

profit maximization. manager wealth maximization. stock price maximization. shareholder wealth maximization.

Question 8. 8. When company managers decide which assets to invest in, the value that matters is: (Points : 1)

the personal value the manager assigns to the asset. the economic value (i.e., the value of the economic benefits the asset will produce). the seller’s asking price. the value assigned by an appraiser.

Question 9. 9. The value of an asset is based on four characteristics—cash flows, time, risk, and opportunity costs—but in many situations we can estimate an asset’s value by: (Points : 1)

ignoring risk, which simplifies the calculation. assigning our personal value to the asset. adding a risk premium to the current return on US government bonds. looking at its market price.

Question 10. 10. The financial goal of a for-profit business is: (Points : 1)

profit maximization. owner wealth maximization. cash flow maximization. utility maximization.