Question :
71. Retained earnings A. a source of financing for assetsB. cashC. other non-cash assetsD. the : 1230537
71. Retained earnings are
A. a source of financing for assets
B. cash
C. other non-cash assets
D. the sum of a firm’s dividend declarations
E. the source of net assets generated by the earnings process
72. Retained earnings represent the source of net assets generated by the earnings process that exceed the firm’s dividend declarations. Common practice refers to the process of curtailing dividends to accumulate assets, represented by retained earnings, as _____.
A. operating activities
B. investing activities
C. external financing
D. internal financing
E. dividend depravation
73. Comparing firms using a common-size balance sheet rests on the assumption that
A. the size or scale of a business does not affect the relation between a given balance sheet item and total assets.
B. the size or scale of a business does affect the relation between a given balance sheet item and total assets.
C. the large purchaser can negotiate better terms, including lower per-unit prices
D. more negotiating power would appear on the large purchaser’s balance sheet as proportionately smaller amounts reported for inventory relative to the amounts reported by a smaller purchaser with less negotiating power
E. more negotiating power would appear on the large purchaser’s balance sheet as proportionately larger amounts reported for accounts payable relative to the amounts reported by a smaller purchaser with less negotiating power
74. Firms use short-term financing for
A. assets they expect to convert to cash in the short run
B. assets to be used over long periods
C. liabilities they expect to convert to cash in the short run
D. liabilities to be used over long periods
E. shareholders’ equity they expect to convert to cash in the short run
75. Firms use long-term financing for
A. assets they expect to convert to cash in the short run
B. assets to be used over long periods
C. liabilities they expect to convert to cash in the short run
D. liabilities to be used over long periods
E. shareholders’ equity they expect to convert to cash in the short run
76. Firms with tangible long-term assets and predictable cash flows, such as electric utilities, tend to have balance sheets with a
A. high proportion of long-term debt (80% or more).
B. low proportion of long-term debt (20% or less).
C. high proportion of shareholders’ equity (80% or more).
D. high proportion of cash (80% or more).
E. high proportion of retained earnings (80% or more).
77. Firms with tangible long-term assets and less predictable cash flows, such as auto manufacturers and steel companies, whose sales vary with changes in economic conditions, tend to use
A. a more nearly equal mix of long-term debt and shareholders’ equity financing.
B. a greater amount of long-term debt [80%] than shareholders’ equity financing [20%].
C. a smaller amount of long-term debt [20%] than shareholders’ equity financing [80%].
D. a greater amount of long-term debt [80%] than assets [20%].
E. a greater amount of shareholders’ equity [80%] than assets [20%].
78. Firms with high proportions of intangibles, whether recognized as assets on the balance sheet or not, tend to rely more on
A. equity financing than on long-term debt financing
B. long-term debt financing than on equity financing
C. short-term debt financing than on long-term debt financing
D. long-term debt financing than on short-term debt financing
E. none of the above
79. Operating risks
A. include variability in sales from changing economic conditions (cyclicality risk)
B. include variability in sales from short product life cycles (because of technological change or changes in consumer taste)
C. include variability of earnings that arises when the firm has a high proportion of fixed costs that do not change as sales change
D. all of the above
E. none of the above
80. Long-term debt imposes financing risk because it
A. decreases the need for shareholders’ equity
B. requires principal and interest payments
C. requires a default before filing for bankruptcy
D. can result in default, creditor or regulatory intervention in the management of the firm
E. none of the above
