Entrepreneurial Finance 6th Edition By Philip J. Adelman -Test Bank

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ExamName___________________________________TRUE/FALSE. Write ‘T’ if the statement is true and ‘F’ if the statement is false.1)Your company is effective if you establish a specific goal and accomplish that goal.1)Answer:TrueFalse2)Your company is efficient if you set a specific goal and accomplish that goal with the use ofmaximum resources.2)Answer:TrueFalse3)Profitability is an absolute number that appears on the bottom line of an income statement.3)Answer:TrueFalse4)Profit is an absolute number that appears on the bottom line of an income statement.4)Answer:TrueFalse5)Another term for entrepreneurial profit is accounting profit.5)Answer:TrueFalse6)When you go into business, your goal should be to earn both an accounting and an entrepreneurialprofit.6)Answer:TrueFalse7)For a business using leverage, the owner of the business can always count on having to pay thesame interest payments on debt.7)Answer:TrueFalse8)You are using financial leverage when you use your own money to finance your debt.8)Answer:TrueFalse9)Chapter 11 bankruptcy occurs when a business has to liquidate all of its assets in order to pay off itscreditors.9)Answer:TrueFalse10)Chapter 11 bankruptcy occurs when a business seeks court protection to hold off its creditors whilea plan is developed to pay off its creditors.10)Answer:TrueFalse11)Chapter 7 bankruptcy occurs when a company is forced to liquidate all of its assets in order to payoff its creditors.11)Answer:TrueFalse12)When a corporation enters Chapter 7 bankruptcy, the stockholders don’t have to worry becauseafter the business is sold, they will receive their investment back.12)Answer:TrueFalse1
13)Once a company sells more units of a product than are required to break even, the company willmake a profit.13)Answer:TrueFalse14)When a company sells fewer units of a product than are required to break even, the company islosing money.14)Answer:TrueFalse15)Retail firms that sell hundreds of items will normally calculate break even for every product theysell.15)Answer:TrueFalse16)The degree of combined leverage is the product of the degree of operating leverage and the degreeof financial leverage.16)Answer:TrueFalse17)In a leveraged approach, the break-even point is higher than in a conservative approach.17)Answer:TrueFalse18)The degree of operating leverage can be explained by using the following 2 variables : sales andearnings per share.18)Answer:TrueFalse19)The degree of financial leverage can be explained by using the following 2 variables: operatingincome and earnings per share.19)Answer:TrueFalse20)The degree of combined leverage can be explained by using the following 2 variables: sales andearnings per share.20)Answer:TrueFalse21)Leverage uses those fixed costs of finance only to magnify a company’s return.21)Answer:TrueFalse22)The lower the DOL, the greater the change in operating income will be as a result of a slight changein sales.22)Answer:TrueFalse23)If a company has no operating leverage, its degree of financial leverage is equal to its degree ofcombined leverage.23)Answer:TrueFalse24)Florida is a state that has the Homestead exemption.24)Answer:TrueFalse25)President Bush signed the Bankruptcy Abuse Prevention and Consumer Protection Act on April 20,2005.25)Answer:TrueFalse2
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.26)Joan purchases a government bond for $10,000 that pays 7% annual interest. Jim purchases $20,000worth of corporate bonds that pay 10% annual interest. If Joan’s goal is to earn $700 per year on herinvestment, and Jim’s goal is to earn $2,000 per year on his investment, then26)A)both Jim and Joan are effective.B)Jim is more efficient than Joan.C)Joan is more efficient than Jim.D)both A and B above are correct.E)both A and C above are correct.Answer:D27)Obtaining the highest possible return with the minimum use of resources committed is the basicdefinition of27)A)effectiveness and efficiency.B)efficiency.C)effectiveness.D)none of the above.Answer:B28)Accomplishing a specific task or reaching a goal is the basic definition of28)A)efficiency.B)effectiveness and efficiency.C)effectiveness.D)none of the above.Answer:C29)Sam quit his job as an accountant with We Keep Books Accurately to open his own accounting firm.He earned $40,000 with the accounting firm We Keep Books Accurately. During the current year,Sam had revenues of $150,000 and total expenses of $110,000. Sam earned an29)A)accounting profit of $40,000.B)entrepreneurial profit of $40,000, but had an accounting loss.C)accounting profit of $40,000 and an entrepreneurial profit of $40,000.D)entrepreneurial profit of $40,000.E)Both A and D above are correct.Answer:A30)Sam quit his job as an accountant with We Keep Books Accurately to open his own accounting firm.He earned $40,000 with the accounting firm We Keep Books Accurately. During the current year,Sam had revenues of $150,000 and total expenses of $110,000. Sam earned an30)A)accounting profit of $40,000.B)entrepreneurial profit of $40,000, but had an accounting loss.C)accounting profit of $40,000 and an entrepreneurial profit of $40,000.D)entrepreneurial loss of $40,000.E)Both A and D above are correct.Answer:E3
31)Sam quit his job as an accountant with We Keep Books Accurately to open his own accounting firm.He earned $40,000 with the accounting firm We Keep Books Accurately. During the current year,Sam had revenues of $190,000 and total expenses of $110,000. Sam earned an31)A)accounting profit of $80,000 and an entrepreneurial profit of $40,000.B)accounting profit of $40,000.C)entrepreneurial profit of $80,000.D)entrepreneurial profit of $80,000, and an accounting profit of $40,000.E)Cannot tell with the information provided.Answer:A32)Sam quit his job as an accountant with We Keep Books Accurately to open his own accounting firm.He earned $40,000 with the accounting firm We Keep Books Accurately. During the current year,Sam had revenues of $150,000 and total expenses of $110,000. For Sam, the opportunity cost ofgoing into business was32)A)$110,000.B)$40,000.C)$150,000.D)zero, because he had a profitable business.Answer:B33)Profitability is the same as33)A)effectiveness.B)profit.C)return on investment.D)expectations of the owners.E)meeting a goal.Answer:C34)You invested $5,000 in the Cog corporation and $5,000 in the Gear corporation. Both of thesecorporations have $100 million in total assets. The Cog corporation had a net profit of $5 millionand the Gear corporation had a net profit of $10 million. You read their annual reports and bothcompanies had established a goal of having a net profit equal to 15% of total assets.34)A)Cog is more effective than Gear.B)Cog is more efficient than Gear.C)Gear is more efficient than Cog.D)Gear is more effective than Cog.E)Cannot tell without more information.Answer:C35)You invested $5,000 in the Cog corporation and $5,000 in the Gear corporation. Both of thesecorporations have $100 million in total assets. The Cog corporation had a net profit of $5 millionand the Gear corporation had a net profit of $10 million. You read their annual reports and bothcompanies had established a goal of having a net profit equal to 10% of total assets.35)A)Cog is effective but less efficient than Gear.B)Cog is effective and more efficient than Gear.C)Gear is effective but less efficient than Cog.D)Gear is effective and more efficient Cog.E)Cannot tell without more information.Answer:B4
36)In order to determine the break-even point, we must identify several variables. At a minimum wemust know36)A)variable costs.B)fixed costs.C)sales.D)all of the above.Answer:D37)Normally to compute break even, the manufacturing firm will use ________ and the retail firm willuse ________.37)A)discrete units; discrete unitsB)sales dollars; discrete unitsC)discrete units; sales dollarsD)sales dollars; sales dollarsAnswer:C38)Break-even analysis is the process of determining ________ before we begin earning a profit.38)A)what price will be charged for a product, or how much net profit will be madeB)how many units must be produced, or how much revenue must be obtainedC)how much net profit will be made, or how many units will be producedD)how much revenue must be obtained, or how much net profit will be madeE)what price we will charged for a product, or how many units must be producedAnswer:B39)The contribution margin in break-even analysis is derived by subtracting39)A)variable cost per unit from fixed costs.B)variable cost per unit from price.C)fixed costs from variable costs.D)price from variable costs.E)fixed costs from price.Answer:B40)All of the costs that a firm must pay, even if there are no sales are40)A)sales costs.B)variable costs.C)prices charged.D)fixed costs.E)contribution costs.Answer:D41)The basic formula for calculating break even is41)A)FC/(P-VC).B)VC/(FC-P).C)FC/(VC-P).D)P/(FC-VC).E)VC/(P-FC).Answer:A5
Table 5-1. Steel Shelf CompanyCategory CostPayment PeriodCostRentMonthly$3,000UtilitiesMonthly1,100InsuranceQuarterly1,200Property TaxesAnnually6,000SteelPer Shelf9.00FormingPer Shelf0.25LaborPer Shelf0.75PricePer Shelf20.0042)Refer to Table 5-1. The Steel Shelf Company will break even with monthly production of ________units, and sales of ________ dollars42)A)5,000; 250B)500; 10,000C)250; 5,000D)10,000; 500Answer:B43)Refer to Table 5-1. The Steel Shelf Company has variable costs per unit of43)A)$10.00.B)$25.00C)$20,00.D)$18.33.Answer:A44)Refer to Table 5-1. The Steel Shelf Company charges a price of ________ per unit.44)A)$25.00B)$20.00C)$10.00D)$18.33Answer:B45)Refer to Table 5-1. At 600 units of production, the Steel Shelf Company will make a profit of45)A)$1,000.B)$12,000.C)$5,000.D)$6,000.Answer:A46)Refer to Table 5-1. At 600 units of production, the Steel Shelf Company has monthly fixed costs of46)A)$12,000.B)$5,000.C)$6,000.D)$1,000.Answer:B47)Refer to Table 5-1. At 600 units of production, the Steel Shelf Company has total revenue of47)A)$5,000.B)$12,000.C)$6,000.D)$1,000.Answer:B48)Refer to Table 5-1. At 600 units of production, the Steel Shelf Company has total variable costs of48)A)$1,000.B)$6,000.C)$12,000.D)$5,000.Answer:B49)Refer to Table 5-1. At 300 units of production, the Steel Shelf Company49)A)loses $2,000.B)earns $2,000.C)loses $1,000.D)earns $1,000.Answer:A6
50)Refer to Table 5-1. The Steel Shelf Company has monthly fixed costs of ________ and acontribution margin of ________.50)A)$5,800; $10B)$11,300; $20C)$5,000; $10D)$5,000; $20E)$11,300; $10Answer:C51)Refer to Table 5-1. The Steel Shelf Company has a monthly break-even quantity of ________shelves.51)A)580B)500C)250D)1,1300E)Cannot calculate with information provided.Answer:B52)Refer to Table 5-1. If the Steel Shelf Company wants to earn a profit of $3,000 per month they willhave to produce ________ shelves.52)A)500B)800C)1,500D)1,000Answer:B53)Refer to Table 5-1. The Steel Shelf Company has variable costs of ________ per shelf.53)A)$9.00B)$10.00C)$20.00D)$30.00E)$9.25Answer:B54)Refer to Table 5-1. The Steel Shelf Company has annual fixed costs of ________.54)A)$69,600B)$60,000C)$56,400D)$135,600E)$5,300Answer:B55)Refer to Table 5-1. The Steel Shelf Company has to produce ________ shelves on an annual basis tobreak even.55)A)6,960B)13,560C)500D)6,000E)Cannot calculate with information that is provided.Answer:D56)Refer to Table 5-1. The Steel Shelf Company has to have total annual revenue of ________ in orderto break even.56)A)$135,600B)$10,000C)$69,600D)$120,000E)Cannot calculate with information that is provided.Answer:D7
Table 5-2. Jane’s Dress EmporiumCategory CostPayment PeriodCostRentMonthly$1,500UtilitiesMonthly400InsuranceQuarterly300SalariesMonthly5,000SalesMonthly25,000Cost of GoodsMonthly12,00057)Refer to Table 5-2. What will Jane’s Dress Emporium have to sell each month in order to breakeven?57)A)$25,000.00B)$13,461.54C)$13,846.15D)$14,583.33E)$15,000.00Answer:B58)Refer to Table 5-2. Jane’s fixed costs are ________ per month.58)A)$2,200B)$6,900C)$7,000D)$7,200E)$6,800Answer:C59)Refer to Table 5-2. Jane’s contribution margin is59)A)0.52%.B)0.48%.C)48%.D)52%.Answer:D60)Refer to Table 5-2. If Jane sells $10,000 worth of dresses next month, she will60)A)earn a profit of approximately $1,660.B)lose approximately $1,800.C)lose approximately $1,660.D)earn a profit of approximately $1,800.E)Cannot tell with information provided.Answer:B61)Refer to Table 5-2. If Jane sold $25,000 worth of dresses last month, she would have a61)A)loss of approximately $6,000.B)profit of approximately $5,540.C)loss of approximately $5,540.D)profit of approximately $6,000.E)Cannot tell with information provided.Answer:D62)The earning power of a company can be defined as the product of two factors:62)A)net profit margin and total asset turnover.B)net profit margin and fixed asset turnover.C)fixed asset turnover and cash flow per share.D)total asset turnover and earnings per share.Answer:A63)In a conservative approach, a company will have63)A)high fixed costs.B)low variable costs.C)a narrow contribution margin.D)none of the above.Answer:C8
64)In a leveraged approach, a company will have64)A)high variable costs.B)a wide contribution margin.C)low fixed costs.D)none of the above.Answer:B65)The higher the DFL65)A)the greater a company’s earnings per share exceeds its operating income.B)the greater a company’s operating income exceeds its earnings per share.C)the less the cost of financing to the company.D)none of the above.Answer:A66)If a corporation’s DOL is 3 then66)A)for every 5 % change in sales, operating income will change by 15%.B)every 10% change in sales operating income will change by 30%.C)for every 1% change in sales, operating income will change by 3%.D)all of the above.Answer:D67)Chapter 7 bankruptcy67)A)is known as fresh start bankruptcy.B)requires liquidation of all of the assets of a company.C)requires payment to the creditor.D)all of the aboveAnswer:D68)Bankruptcy petitions are filed initially in68)A)state bankruptcy court.B)U.S. federal bankruptcy court.C)municipal court.D)civil court.Answer:B69)Which of the following holds true for the means test?69)A)If the debtor’s income is greater than the state’s median income, he will have to take a meanstest.B)The means test has been around for years.C)Everyone will have to pass a means test.D)The debtor has to be able to pay $200 per month for 5 years.Answer:A70)A firm is experiencing an increase in variable costs. What can the firm do to maintain itsprofitability?70)A)Increase its fixed costs to balance out its increased variable costs.B)Decrease its fixed costs to break even sooner.C)Raise its price to increase its contribution margin.D)Lower its price to gain a greater market share.Answer:C9

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