Fundamentals of Investments, 8e (Jordan)
Chapter 17 Projecting Cash Flow and Earnings
1) You are interested in reviewing the information corporations file with the SEC. Which one of
the following is the archive of these filings?
A) SAMSON
B) REG FD
C) EDGAR
D) Nonpublic information files
E) ROA filings
2) How frequently do corporations file 10K reports with the SEC?
A) monthly
B) quarterly
C) semi-annually
D) annually
E) only when the firm engages in a merger or an acquisition
3) Better Products just filed its quarterly report with the SEC. This report is referred to as which
one of the following?
A) 10F
B) 10K
C) 10Q
D) EDGAR 10
E) 10FD
4) Regulation FD requires companies to do which one of the following when disclosing material
non-public information?
A) advise the SEC 7 working days prior to such disclosure
B) disclose the information without preference to any party or parties
C) only disclose the information to professional analysts
D) only disclose the information after a 7-day advance notice of an announcement
E) disclose the information only after a 24-hour delay
5) Material nonpublic information is defined as any information that could reasonably be
expected to do which one of the following?
A) affect the price of the firm’s securities
B) cause great embarrassment to the firm
C) cause one or more of the senior executives of the firm to resign
D) cause the SEC to halt the trading of the firm’s securities should that information become
public
E) affect the manner in which the firm presents its financial information
6) Which one of the following provides information on a firm’s assets and liabilities as of a
particular date?
A) cash flow statement
B) pro-forma income statement
C) income statement
D) tax return
E) balance sheet
7) Which one of the following is an accounting statement that provides information on a firm’s
revenues and expenses?
A) balance sheet
B) cash budget
C) pro-forma balance sheet
D) income statement
E) cash flow statement
8) Which one of the following is an analysis of a firm’s sources and uses of cash over a period of
time?
A) income statement
B) pro-forma income statement
C) cash flow statement
D) tax return
E) balance sheet
9) Which one of the following is defined as anything a firm owns that has value?
A) equity
B) asset
C) liability
D) cash inflow
E) cash outflow
10) Which one of the following represents the amounts owed by a firm to other parties?
A) assets
B) cash inflows
C) equities
D) liabilities
E) expenses
11) Which one of the following is an ownership interest in a firm?
A) asset
B) expense
C) net income
D) liability
E) equity
12) Which one of the following is used to pay dividends or kept as retained earnings by a firm?
A) equity
B) net cash flow
C) revenue
D) net income
E) expense
13) Which one of the following is income realized in cash form?
A) net income
B) revenue
C) cash flow
D) retained earnings
E) dividends
14) Income and expense items NOT realized in cash form are called which one of the following?
A) deductible expenses
B) noncash items
C) intangible assets
D) operating income
E) financing activities
15) Which one of the following is the definition of operating cash flow?
A) revenue minus expenses
B) cash realized from the sale of assets
C) cash flow originating from the issuance of securities
D) cash generated by a firm’s normal business activities
E) pre-tax income
16) Which one of the following is the definition of investment cash flow?
A) revenue minus expenses
B) cash flow from the purchases and sales of fixed assets and investments
C) cash flow originating from the issuance of securities
D) cash generated by a firm’s normal business activities
E) pre-tax income
17) Which one of the following is the cash flow resulting from the payment of dividends and the
issuance or repurchase of equity securities?
A) balance sheet cash flow
B) operating cash flow
C) financing cash flow
D) business cash flow
E) investment cash flow
18) Which one of the following is equal to net income expressed as a percentage of total assets?
A) return on equity
B) return on the balance sheet
C) operating yield
D) net yield
E) return on assets
19) Return on equity is equal to which one of the following?
A) dividend yield divided by total equity
B) retained earnings divided by total equity
C) revenue divided by total equity
D) net income divided by total equity
E) operating cash flow divided by total equity
20) Pro forma financial statements are statements based on which one of the following?
A) projected future income, cash flows, and other non-cash items
B) historical revenue and expenses
C) historical asset and liability values
D) current period cash flows
E) current period revenues and expenses
21) Which one of the following is a financial planning method wherein some account values
vary in relation to expected sales?
A) common size approach
B) linear method
C) percentage of net income method
D) adjusted sales method
E) percentage of sales approach
22) Which one of the following ratios tells you the amount of assets a firm needs to generate $1
in sales?
A) capital intensity ratio
B) return on assets
C) asset turnover rate
D) profit margin
E) earnings ratio
23) Which of the following reports are always included in a 10K filing with the SEC?
I. statement of cash flows
II. balance sheet
III. pro-forma statement
IV. income statement
A) I only
B) IV only
C) II, III, and IV only
D) I, II, and IV only
E) I, II, III, and IV
24) Which one of the following means of communication do most firms use for announcements
in order to comply with Regulation FD?
A) TV spots
B) e-mail alerts
C) public newspapers
D) radio
E) analyst networks
25) Which of the following are current assets?
I. inventory
II. goodwill
III. fixed assets
IV. cash
A) III only
B) IV only
C) II and III only
D) I and IV only
E) I, II, and IV only
26) Which one of the following is an intangible fixed asset?
A) accounts receivable
B) patent
C) inventory
D) equipment
E) building
27) Which one of the following is a tangible fixed asset?
A) cash
B) equipment
C) accounts receivable
D) right
E) inventory
28) Sander’s Auto recently purchased Auto Express for $9.8 million. Auto Express had a market
value of $9.5 million at the time of acquisition. The additional $0.3 million that Sander’s Auto
paid for Auto Express will be treated on Sander’s Auto’s balance sheet as which type of account?
A) patent
B) depreciation
C) licenses
D) goodwill
E) acquisition expense
29) Wilson’s Clothing has a loan payable to a bank which is due 18 months from now. How is
this loan classified on the firm’s financial statements?
A) fixed asset
B) current liability
C) long-term debt
D) equity
E) expense
30) Sweet Tree Cookies has current net income of $268,000 of which $110,000 was paid out in
dividends. The remaining $158,000 will be shown in which account on the firm’s financial
statements for next year?
A) long-term debt
B) common stock
C) net income
D) retained earnings
E) paid in surplus
31) Which of the following are classified as equity accounts on a balance sheet?
I. goodwill
II. paid in capital
III. net income
IV. retained earnings
A) IV only
B) I and III only
C) II and IV only
D) I, II, and IV only
E) II, III, and IV only
32) Sales minus cost of goods sold are equal to which one of the following?
A) net sales
B) operating income
C) gross profit
D) pretax income
E) net income
33) The costs of materials used in the production of a product are recorded in which one of the
following accounts?
A) net sales
B) fixed costs
C) operating income
D) depreciation
E) cost of goods sold
34) Which one of the following is NOT included in operating income?
A) sales
B) depreciation
C) interest expense
D) cost of goods sold
E) other operating expenses
35) Net income is equal to which one of the following?
A) operating income plus interest expense minus taxes
B) gross profit minus depreciation and interest expense
C) pretax income plus income taxes
D) dividends plus the change in retained earnings
E) pretax income minus taxes and dividends
36) Which one of the following statements is correct?
A) Pretax income is equal to gross profit minus interest expense.
B) Gross profit is equal to sales minus costs of goods sold and depreciation.
C) Operating expenses are indirect costs.
D) Costs that vary directly with production are classified as operating expenses.
E) The change in retained earnings is equal to net income plus dividends paid.
37) Which one of the following is the primary difference between operating cash flow and net
income?
A) interest expense
B) indirect costs
C) taxes
D) fixed costs
E) depreciation
38) Which one of the following will increase the investment cash flow?
A) purchase of an investment
B) issuing new shares of stock
C) repaying a bond issue
D) sale of a building
E) payment of interest on a bond issue
39) Which one of the following is NOT a financing cash flow according to standard accounting
practice?
A) new issue of stock
B) repurchase of stock
C) new issue of debt
D) interest payments
E) dividend payments
40) The summation of the operating, investment, and financing cash flows for a stated period of
time must equal which one of the following for the same time period?
A) net income
B) total assets
C) ending cash balance
D) change in the cash balance
E) taxable income
41) A decrease in which one of the following will increase the gross margin?
A) taxes
B) sales
C) depreciation
D) variable costs
E) fixed costs
42) Which one of the following is generally used as the basis for computing the cash flow per
share?
A) operating cash flow
B) investment cash flow
C) financing cash flow
D) net cash increase
E) retained cash earnings