# FIN 571 Final Exams 10 Multiple choice Questions 100% Grantee Work Part 2 11-20 - 21389

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11. XYZ's receivables turnover is 10x. The accounts receivable at year-end are \$600,000. The average collection period is 90 days (3 months). What was the sales figure for the year?
A) \$60,000
B) \$6,000,000
C) \$24,000,000
D) none of the above

12. A firm has total assets of \$2,000,000. It has \$900,000 in long-term debt. The stockholders equity is \$900,000. What is the total debt to asset ratio?
A) 45%
B) 40%
C) 55%
D) none of the above

13. Required production during a planning period will depend on the
A) beginning inventory of products.
B) sales during the period.
C) desired level of ending inventory.
D) all of the above

14. XYZ Co. has forecasted June sales of 600 units and July sales of 1000 units. The company maintains ending inventory equal to 125% of next month's sales. June beginning inventory reflects this policy. What is June's required production?
A) 1100 units
B) -0- units
C) 500 units
D) 400 units

15. The difference between total receipts and total payments referred to as
A) cumulative cash flow.
B) beginning cash flow.
C) net cash flow.
D) cash balance.

16. In developing the pro forma income statement we follow four important steps:
1) compute other expenses,
2) determine a production schedule,
3) establish a sales projection,
4) determine profit by completing the actual pro forma statement.

What is the correct order for these four steps?
A) 1,2,3,4
B) 4,3,2,1
C) 2,1,3,4
D) 3,2,1,4

17. In break-even analysis the contribution margin is defined as
A) sales minus variable costs.
B) sales minus fixed costs.
C) variable costs minus fixed costs.
D) fixed costs minus variable costs.

18. Firm A employs a high degree of operating leverage; Firm B takes a more conservative approach. Which of the following comparative statements about firms A and B is true?
A) A has a lower break-even point than B, but A's profit grows faster after the break-even.
B) A has a higher break-even point than B, but A's profit grows slower after the break-even.
C) B has a lower break-even point than A, but A's profit grows faster after break-even.
D) B has a lower break-even point than A, and profit grows the same rate for both companies after the breakeven point.

19. Heavy use of long-term debt may be beneficial in an inflationary economy because
A) the debt may be repaid in more "expensive" dollars.
B) nominal interest rates exceed real interest rates.
C) inflation is associated with the peak of a business cycle.
D) the debt may be repaid in "cheaper" dollars.

20. Under which of the following conditions could the overuse of financial leverage be detrimental to the firm?
A) Stable industry
B) Cyclical demand for the firm's products.
D) Low interest cost compared to return on assets

Solution Description

11. XYZ's receivables turnover is 10x. The accounts receivable at year-end are \$600,000. The average collection period is 90 days (3 months). What was the sales figure for the year?
A) \$60,000
B) \$6,000,000
C) \$24,000,000
D) none of the above

Answer: B Difficulty: Hard Type: Application

12. A firm has total assets of \$2,000,000. It has \$900,000 in long-term debt. The stockholders equity is \$900,000. What is the total debt to asset ratio?
A) 45%
B) 40%
C) 55%
D) none of the above