Question 1

Efficiency is the ability to earn a profit.

Accepted Answer

A) True 
 B)False  False

Question 2

A firm's working capital is its ________.

Accepted Answer

A)   inventory and accounts receivable minus its current liabilities
B)   current assets minus its current liabilities
C)   total assets minus its total liabilities
D)   cash and cash equivalents minus its current liabilities
E)   accounts receivable minus its total accounts payable B

Question 3

Which of the following statements about pro forma financial statements is incorrect?

Accepted Answer

A)   Pro forma financial statements are projections for future periods based on forecasts.
B)   Pro forma financial statements are typically completed for two to three years into the future.
C)   Pro forma financial statements are required by the SEC.
D)   Most companies consider their pro forma financial statements to be confidential and reveal them to outsiders only on a "need to know basis."
E)   Pro forma financial statements are strictly planning tools. C

Question 4

The What Went Wrong? feature for Chapter 8 focuses on Wise Acre Frozen Treats, a company that made organic popsicles from unrefined sweeteners. According to the feature, Wise Acre Frozen Treats failed largely because it ________.

Accepted Answer

A)   grew too quickly, which overwhelmed its cash flow
B)   was not careful enough in preparing its pro forma financial statements
C)   was not efficient in the way it utilized its assets
D)   spent too much money on marketing
E)   did not compare its financial ratios to industry peers

Question 5

Financial management deals with raising money and managing a company's finances in a way that achieves the highest rate of return.

Accepted Answer

A) True 
 B)False

Question 6

If a firm determines it can use the percentage-of-sales method and it follows the procedure described in the textbook, then the net result is that each expense item on its income statement (with the exception of those items that can be individually forecast) will grow at the same rate as sales. This approach is called the ________.

Accepted Answer

A)   continuous percentage method of forecasting
B)   stable fraction method of forecasting
C)   regular proportion method of forecasting
D)   constant ratio method of forecasting
E)   steady percentage method of forecasting

Question 7

Real estate, buildings, equipment and furniture are classified as ________ assets on a company's balance sheet.

Accepted Answer

A)   intermediate term
B)   fixed
C)   other
D)   permanent
E)   current

Question 8

A(n) ________ is a snapshot of a company's assets, liabilities, and owners' equity at a specific point in time.

Accepted Answer

A)   income statement
B)   statement of cash flows
C)   effectiveness statement
D)   balance sheet
E)   efficiency statement

Question 9

A firm's profit margin, or return on sales, is computed by dividing ________.

Accepted Answer

A)   net income by net sales
B)   gross profit by net sales
C)   net income by gross profit
D)   net income by cost of sales
E)   operating income by gross profit

Question 10

What is ratio analysis? Why is it important?

Accepted Answer

The answer of What is ratio analysis? Why is it...

Question 11

According to the textbook, the three numbers that receive the most attention when evaluating an income statement are ________.

Accepted Answer

A)   depreciation, interest income, and income tax expense
B)   cost of sales, gross profit, and operating expenses
C)   net sales, cost of sales, and operating expenses
D)   gross profit, net sales, and income tax expense
E)   gross profit, other income, and net income

Question 12

Which of the following was NOT identified as one of the four main financial objectives of a firm?

Accepted Answer

A)   Stability
B)   Efficiency
C)   Timeliness
D)   Liquidity
E)   Profitability

Question 13

The income statement records all the revenues and expenses for a given period and shows whether the firm is making a profit or is experiencing a loss.

Accepted Answer

A) True 
 B)False

Question 14

Match the financial term with its proper definition.

Accepted Answer

A)   Forecasts - depict relationships between items on a firm's financial statements
B)   Forecasts - written reports that quantitatively describe a firm's financial health
C)   Budget - itemized forecasts of a company's income, expenses, and capital needs
D)   Financial ratios - written report that quantitatively describes a firm's financial health
E)   Financial statements - an estimate of a firm's future income and expenses

Question 15

If a firm's debt-to-equity ratio gets too high, it may have trouble meeting its obligations and securing the level of financing needed to fuel its growth.

Accepted Answer

A) True 
 B)False

Question 16

Peggy Owens owns a store that sells exercise equipment. Each January 1, she makes a very accurate account of all her merchandise and products waiting to be sold that are in her store. On January 1, Peggy is taking account of her store's ________.

Accepted Answer

A)   long-term assets
B)   owners' equity
C)   accounts payable
D)   accounts receivable
E)   inventory

Question 17

The Savvy Entrepreneurial Firm feature in Chapter 8 focuses on a scenario involving the selection of a new CEO for New Venture Fitness Drinks. The lesson learned from the feature was ________.

Accepted Answer

A)   compare a firm's financial ratios against its primary competitors and industry norms to fairly assess how well a firm is performing financially
B)   income statements are more effective in assessing how well a firm is performing financially than are balance sheets and statements of cash flow
C)   the most powerful instrument for understanding how well a firm is performing financially is the statement of cash flows
D)   ratio analysis is ineffective
E)   look at multiple years of an income statement rather than a single year to fairly assess how well a firm is performing financially

Question 18

Stability is a company's ability to meet its short-term financial obligations.

Accepted Answer

A) True 
 B)False

Question 19

Shawn Jones was reading the business plan of New Venture Fitness Drinks, and noticed that prior to its financial forecasts, New Venture Fitness Drinks placed an explanation of the sources of the numbers for the forecast and the assumptions used to generate them. This explanation is called a(n) ________.

Accepted Answer

A)   forecast sheet
B)   forecast hypothesis
C)   estimate statement
D)   assumption sheet
E)   hypothesis sheet

Question 20

The major categories of assets listed on a balance sheet include current, fixed, and other assets.

Accepted Answer

A) True 
 B)False

Exam 8: Assessing a New Ventures Financial Strength and Viability

Efficiency is the ability to earn a profit.

A firm's working capital is its ________.

Which of the following statements about pro forma financial statements is incorrect?

The What Went Wrong? feature for Chapter 8 focuses on Wise Acre Frozen Treats, a company that made organic popsicles from unrefined sweeteners. According to the feature, Wise Acre Frozen Treats failed largely because it ________.

Financial management deals with raising money and managing a company's finances in a way that achieves the highest rate of return.

Real estate, buildings, equipment and furniture are classified as ________ assets on a company's balance sheet.

A(n) ________ is a snapshot of a company's assets, liabilities, and owners' equity at a specific point in time.

A firm's profit margin, or return on sales, is computed by dividing ________.

What is ratio analysis? Why is it important?

According to the textbook, the three numbers that receive the most attention when evaluating an income statement are ________.

Which of the following was NOT identified as one of the four main financial objectives of a firm?

The income statement records all the revenues and expenses for a given period and shows whether the firm is making a profit or is experiencing a loss.

Match the financial term with its proper definition.

If a firm's debt-to-equity ratio gets too high, it may have trouble meeting its obligations and securing the level of financing needed to fuel its growth.

Peggy Owens owns a store that sells exercise equipment. Each January 1, she makes a very accurate account of all her merchandise and products waiting to be sold that are in her store. On January 1, Peggy is taking account of her store's ________.

The Savvy Entrepreneurial Firm feature in Chapter 8 focuses on a scenario involving the selection of a new CEO for New Venture Fitness Drinks. The lesson learned from the feature was ________.

Stability is a company's ability to meet its short-term financial obligations.

The major categories of assets listed on a balance sheet include current, fixed, and other assets.