Deck 8: Implementing Strategies: Finance and Accounting Issues

Question 1

What tends to become a more attractive financing technique when interest rates are high?

A) Stock issuance
B) Debt
C) Cost cutting
D) Borrowing
E) Staying privately owned

Answer 1

A

Question 2

Omega Corporation had a net income of $560,000. If it had 140,000 shares outstanding, its EPS was $

A) 3.
B) 4.
C) 5.
D) 8.
E) 6.

Answer 2

B

Question 3

The proportion of debt to equity on a balance sheet is often referred to as a firm's

A) vision.
B) mission.
C) capital structure.
D) cash flow.
E) business model.

Answer 3

C

Question 4

Determining an appropriate mix of debt and equity in a firm's capital structure is an important strategy-________ decision.

A) formulation
B) implementation
C) analysis
D) development
E) evaluation

Question 5

Strategies can be implemented successfully only when an organization manages its finances effectively.

Question 6

Operating income is sometimes also called

A) EPS.
B) SWOT.
C) ROA.
D) ROE.
E) EBIT.

Question 7

Which of the following is NOT given as an example of a decision that may require finance/accounting policies?

A) To extend the time of accounts receivable
B) To establish a certain percentage discount on accounts within a specified period of time
C) To lease or buy fixed assets
D) To use LIFO, FIFO, or a market-value accounting approach
E) To be a price leader or a price follower

Question 8

Performing a(n) ________ analysis is a common way to determine the appropriate capital structure needed.

A) five-forces
B) EPS/EBIT
C) value chain
D) business model
E) SWOT

Question 9

The Dynamo Company recently repurchased $4 million of its own stock. This is the Dynamo Company's ________ stock.

A) authorized
B) preferred
C) outstanding
D) treasury
E) common

Question 10

Which one of the following statements regarding stock issuances is true?

A) They are not always better than debt for raising capital.
B) Their effect on stock price is not a concern.
C) They do not require a company to share future earnings with new shareholders.
D) Dilution of ownership is not a special concern.
E) Issuing stock when interest rates are low is a sound strategy.

Question 11

After completing an EPS/EBIT analysis, what conclusions would you make if the debt line is above the stock line throughout the range of EBIT on the graph?

A) Debt appears to be the best financing alternative.
B) Stock would be the best financing alternative.
C) A combination of debt and stock is probably the best financial alternative.
D) Dividends must be considered before conclusions can be made.
E) The company should be privately owned.

Question 12

In low-earning periods, too much ________ in the capital structure of an organization can endanger stockholders' return and jeopardize company survival.

A) debt
B) liquidity
C) equity
D) cash
E) tax liability

Question 13

What is the most widely used technique for determining the best combination of debt and stock?

A) Debt-to-Stock Ratio
B) Earnings Per Share/Earnings Before Interest and Taxes Analysis
C) Gross Profit Analysis
D) Capital Asset Pricing Model
E) Present Value Analysis

Question 14

Net income divided by number of shares outstanding is

A) EBIT.
B) EPS.
C) PAT.
D) NI.
E) EBITDA.

Question 15

Which of the following reflects the common "maximizing shareholders' wealth" overarching corporate objective?

A) EPS
B) EBIT
C) Operating income
D) Gross margin
E) EBITDA

Question 16

________ is/are the number of shares a firm has approval to issue in total.

A) Treasury stock
B) Shares outstanding
C) Preferred shares
D) Shares permitted
E) Shares authorized

Question 17

The other name for operating income is

A) net income.
B) earnings-per-share.
C) earnings-before-interest-and-taxes.
D) gross margin.
E) return on assets.

Question 18

Stock that a firm has repurchased is called ________ stock.

A) corporate
B) outstanding
C) market
D) treasury
E) revenue

Question 19

The denominator of EPS is

A) treasury stock.
B) shares authorized.
C) average number of shares.
D) shares outstanding.
E) preferred shares.

Question 20

Two primary sources of capital are

A) debt and borrowings.
B) debt and equity.
C) equity and sale of assets.
D) debt and sale of assets.
E) debt and accounts receivable.

Question 21

EBIT is the same as net income.

Question 22

Shares authorized are normally less than the number of shares outstanding.

Question 23

Circumstances dictate which fixed debt obligations need to be met.

Question 24

To be a price leader or a price follower is a decision that may require finance/accounting policies.

Question 25

The Starbucks Corporation does not have any treasury stock.

Question 26

Shares outstanding is the same as treasury stock.

Question 27

Two primary sources of capital are debt and equity.

Question 28

Determining an appropriate mix of debt and equity in a firm's capital structure is an important strategy-formulation decision.

Question 29

Although acquiring needed capital can be an important task, it is not seen as central to strategy implementation.

Question 30

One of the issues that may require finance and accounting policies, decisions, analyses, and actions in implementing strategies is the selection of the CEO.

Question 31

Return on Assets is the most widely used technique for determining whether debt, stock, or a combination of debt and stock is the best alternative for raising capital to implement strategies.

Question 32

Theoretically, an enterprise should carry enough debt in its capital structure to boost its return on investment in projects earning more than the cost of the debt.

Question 33

Another term for earnings is gross margin.

Question 34

Another term for earnings is profits.

Question 35

If the net income is the same, an increase in treasury stock lowers the EPS.

Question 36

In low-earning periods, excessive debt in the capital structure of an organization can endanger stockholders' returns and jeopardize company survival.

Question 37

EPS/EBIT analysis is a widely used technique for determining a firm's competitive threats.

Question 38

When employees understand the thinking that went into strategy formulation, and understand their roles, they will be more inclined to accept the work required for strategy implementation.

Question 39

All firms have treasury stock.

Question 40

A way to raise capital for new projects is to acquire existing businesses.

Question 41

The primary sources of capital are known as debt and EPS.

Question 42

In preparing projected statements, to project cost of goods sold in the income statement, which of these methods is recommended?

A) Net Worth Method
B) Net Income Method
C) Percentage-of-Sales Method
D) Price-Earnings Ratio method
E) Outstanding Shares Method

Question 43

Additional capital is often required for successful strategy implementation.

Question 44

What is a central strategy-implementation technique that allows an organization to examine the expected results of various strategy implementation decisions?

A) EPS/EBIT
B) Financial budgeting
C) TOWS analysis
D) Projected financial statement analysis
E) External analysis

Question 45

Even if earnings remain the same, an increase in treasury stock impacts the EPS positively.

Question 46

The first step in performing projected financial analysis is to

A) prepare the projected balance sheet.
B) take an inventory of goods.
C) estimate increases in debt.
D) forecast sales as accurately as possible.
E) calculate the projected net income.

Question 47

Too much debt in the capital structure of an organization can endanger stockholders' returns and jeopardize company survival, particularly in periods of high earnings.

Question 48

Name three finance and accounting activities especially important in strategy implementation.

Question 49

The amount by which retained earnings changes is obtained by subtracting

A) any dividends to be paid for that year from net income.
B) net income from EBIT.
C) taxes from EBIT.
D) interest expense from EBIT.
E) EBIT from CGS.

Question 50

An EPS/EBIT chart can be constructed to determine the break-even point, where one financing alternative becomes more attractive than another.

Question 51

Projected financial analysis is an important strategy-implementation technique because

A) it is an exact measurement of financial costs in the future.
B) it is an exact measurement of future company profits.
C) it allows an organization to examine the expected results of strategies being implemented.
D) insurance needs can be computed.
E) none of the above

Question 52

Explain briefly how EPS is different from EBIT.

Question 53

Which element in the projected income statement CANNOT be forecasted using the percentage-of-sales method?

A) Cost of goods sold
B) Selling expense
C) Administrative expense
D) Interest expense
E) Operating expenses

Question 54

Stock issuances are always better than debt for raising capital.

Question 55

Name five examples of finance and accounting decisions that may require policies.

Question 56

A benefit of using projected balance sheets and income statements is that

A) the impact of various implementation decisions can be forecasted.
B) money can be put aside to pay future income taxes.
C) insurance needs can be computed.
D) it is useful in analyzing past performance.
E) all of the above

Question 57

Explain briefly what is meant by capital structure.

Question 58

In low earning periods, too much debt in the capital structure of an organization can endanger stockholders' returns and jeopardize company survival.

Question 59

When additional stock is issued to finance implementation of strategy, the existing stockholders' ownership and control of the enterprise are strengthened.

Question 60

A reason for concern about the dilution of ownership is the possibility of hostile takeover.

Question 61

All items on the income statement can be forecasted using the percentage-of-sales method.

Question 62

Which of the following is NOT an accepted approach for determining a business's worth?

A) The Net Worth Method
B) The Net Income Method
C) The Return on Investment Method
D) The Price-Earnings Ratio Method
E) The Outstanding Shares Method

Question 63

If a firm incurs a loss during a particular year, or if the firm paid out more in dividends than it had in net income, what happens to the retained earnings (RE) amount?

A) It increases.
B) It is unchanged.
C) It decreases.
D) It doubles.
E) It has to be returned to shareholders.

Question 64

Which method of determining a firm's net worth divides the market price of the firm's stock by the annual earnings per share, and multiplies this number by the firm's average net income for the past five years?

A) Debt/Equity Method
B) Current Ratio Method
C) Price-Earnings Ratio Method
D) Long-term Asset Method
E) Outstanding Shares Method

Question 65

A projected financial analysis can be used to forecast the impact of various implementation decisions.

Question 66

All the methods for determining a business' worth can be grouped into three basic approaches: what a firm earns, what a firm spends, and what a firm will bring in the market.

Question 67

Which item is included in net worth?

A) Retained earnings
B) Common stock
C) Additional paid-in-capital
D) Retained earnings, common stock, and additional paid-in capital
E) Retained earnings and common stock

Question 68

One of the ways by which top executives manipulate financial statements is by overstating liabilities.

Question 69

The percentage-of-sales method should be used for projecting interest and taxes, but not dividends, in the income statements.

Question 70

Evaluating the worth of a firm

A) is an exact science.
B) requires both qualitative and quantitative skills.
C) is based solely on financial facts.
D) is known only to the firm's accountants.
E) is static.

Question 71

With the merger and acquisition boom this decade, S&P 500 firms experienced a ________ percent increase in goodwill.

A) 45
B) 30
C) 70
D) 55
E) 63

Question 72

Dividends and taxes cannot be forecasted using the percentage-of-sales method.

Question 73

Which is NOT a step in performing a projected financial analysis?

A) Prepare the projected income statement before preparing the balance sheet
B) Forecast sales as accurately as possible
C) Use the percentage-of-sales method to project CGS
D) Subtract from the net income any dividends to be paid for that year and bring this retained earnings amount over to the balance sheet
E) Use the revenue account as the plug figure

Question 74

The percentage-of-sales method should be used for projecting the cost of goods sold in the income statements.

Question 75

A conservative rule of thumb is to establish a business' worth as ________ the firm's current annual profit.

A) twice
B) three times
C) five times
D) ten times
E) fifteen times

Question 76

In projected financial statements, what is used as a plug figure?

A) Retained earnings
B) Fixed assets
C) The Cash Account
D) Long-term liabilities
E) Stockholders' equity

Question 77

When performing projected financial analysis, the balance sheet should be prepared before the income statement.

Question 78

The cash account is used as the plug figure in projected balance sheets.

Question 79

In the context of a balance sheet, goodwill represents

A) a premium paid over the book value for an acquisition.
B) the value attached to a firm's reputation.
C) the excess of assets over liabilities.
D) the value associated with benefits from environmental programs.
E) the excess of current assets over liabilities.

Question 80

Recording revenue prematurely understates profits.