Question 1

An increase in long-term debt is source of cash?

Accepted Answer

A) True 
 B)False

Question 2

A Calgary firm has 11,000 shares of stock outstanding, sales of $1.62 million, net income of $20,020, a price-earnings ratio of 21.6, and a book value per share of $8.64. What is the market-to-book ratio?

Accepted Answer

A)  1.82 
B)  2.11 
C)  2.50 
D)  3.79 
E)  4.55 
A)  1.82 
B)  2.11 
C)  2.50 
D)  3.79 
E)  4.55

Question 3

Net income divided by total revenue is referred to as:

Accepted Answer

A)  The equity multiplier. 
B)  Earnings per share. 
C)  The retention ratio. 
D)  The operating cash flow. 
E)  The profit margin. 
A)  The equity multiplier. 
B)  Earnings per share. 
C)  The retention ratio. 
D)  The operating cash flow. 
E)  The profit margin.

Question 4

Which of the following is a use of cash?

Accepted Answer

A)  Increase in the number of shares of stock outstanding. 
B)  Reduction in long-term debt. 
C)  Decrease in inventory. 
D)  Decrease in net fixed assets. 
E)  Increase in short-term notes payable. 
A)  Increase in the number of shares of stock outstanding. 
B)  Reduction in long-term debt. 
C)  Decrease in inventory. 
D)  Decrease in net fixed assets. 
E)  Increase in short-term notes payable.

Question 5

Puffy's Pastries generates five cents of net income for every $1 in sales. Thus, Puffy's has a _____ of 5 %.

Accepted Answer

A)  return on assets 
B)  return on equity 
C)  profit margin 
D)  Du Pont measure 
E)  total asset turnover 
A)  return on assets 
B)  return on equity 
C)  profit margin 
D)  Du Pont measure 
E)  total asset turnover

Question 6

A Vancouver firm has sales of $1,640, net income of $135, net fixed assets of $1,200, and current assets of $530. The firm has $280 in inventory. What is the common-size statement value of inventory?

Accepted Answer

A)  15.01 % 
B)  15.68 % 
C)  16.18 % 
D)  30.42 % 
E)  52.83 % 
A)  15.01 % 
B)  15.68 % 
C)  16.18 % 
D)  30.42 % 
E)  52.83 %

Question 7

If a firm produces a 10 % return on assets and also a 10 % return on equity, then the firm:

Accepted Answer

A)  Has no debt of any kind. 
B)  Is using its assets as efficiently as possible. 
C)  Has no net working capital. 
D)  Also has a current ratio of 10. 
E)  Has an equity multiplier of 2. 
A)  Has no debt of any kind. 
B)  Is using its assets as efficiently as possible. 
C)  Has no net working capital. 
D)  Also has a current ratio of 10. 
E)  Has an equity multiplier of 2.

Question 8

The current ratio:

Accepted Answer

A)  Analyzes long-term financial viability. 
B)  Will normally have a lower value than the quick ratio. 
C)  Is a measure of short-term liquidity. 
D)  Considers all debt obligations of a firm. 
E)  Indicates the turnover rate of a firm's accounts receivable. 
A)  Analyzes long-term financial viability. 
B)  Will normally have a lower value than the quick ratio. 
C)  Is a measure of short-term liquidity. 
D)  Considers all debt obligations of a firm. 
E)  Indicates the turnover rate of a firm's accounts receivable.

Question 9

Which ratio does not focus on turnover?

Accepted Answer

A)  Inventory turnover. 
B)  Days' sales in inventory. 
C)  Receivable turnover. 
D)  Total asset turnover. 
E)  Interval measure. 
A)  Inventory turnover. 
B)  Days' sales in inventory. 
C)  Receivable turnover. 
D)  Total asset turnover. 
E)  Interval measure.

Question 10

What is a more meaningful measure of profitability for a firm, return on assets or return on equity? Why?

Accepted Answer

Most would argue ROE since it measures r

Question 11

Calculate the value of short-term debt given the following information: total debt = $320,000; debt/equity ratio = 0.80; long-term debt ratio = 0.3750.

Accepted Answer

A)  $65,000 
B)  $70,000 
C)  $75,000 
D)  $80,000 
E)  $85,000 
A)  $65,000 
B)  $70,000 
C)  $75,000 
D)  $80,000 
E)  $85,000

Question 12

A Toronto firm has a times interest earned ratio of 2.7 times. This means:

Accepted Answer

A)  The firm generated enough cash to cover its interest expense 2.7 times. 
B)  The firm has sufficient EBIT to cover its interest expense 2.7 times. 
C)  The interest expense of this firm exceeded earnings before taxes by 2.7 times. 
D)  The net income of this firm is sufficient to cover its interest expense 2.7 times. 
E)  The firm earned $1 in EBIT for every $2.70 it paid out in interest. 
A)  The firm generated enough cash to cover its interest expense 2.7 times. 
B)  The firm has sufficient EBIT to cover its interest expense 2.7 times. 
C)  The interest expense of this firm exceeded earnings before taxes by 2.7 times. 
D)  The net income of this firm is sufficient to cover its interest expense 2.7 times. 
E)  The firm earned $1 in EBIT for every $2.70 it paid out in interest.

Question 13

Calculate gross profit given the following information: accounts receivable = $3,500; inventory = $4,500; receivable turnover = 80 times; inventory turnover = 18 times.

Accepted Answer

A)  $199,000 
B)  $209,000 
C)  $219,000 
D)  $229,000 
E)  $239,000 
A)  $199,000 
B)  $209,000 
C)  $219,000 
D)  $229,000 
E)  $239,000

Question 14

If a firm has only current assets and no fixed assets of any kind, its times interest earned ratio must exceed its cash coverage ratio.

Accepted Answer

A) True 
 B)False

Question 15

If the firm is currently carrying a price/earnings ratio of 2, what is the firm's approximate market price per share?

Accepted Answer

A)  $8 
B)  $11 
C)  $56 
D)  $78 
E)  $129 
A)  $8 
B)  $11 
C)  $56 
D)  $78 
E)  $129

Question 16

The Furniture Barn has a profit margin of 8.7 %, a return on assets of 11.6 %, and an equity multiplier of 1.87. What is the return on equity?

Accepted Answer

A)  17.14 % 
B)  19.87 % 
C)  20.67 % 
D)  21.69 % 
E)  24.08 % 
A)  17.14 % 
B)  19.87 % 
C)  20.67 % 
D)  21.69 % 
E)  24.08 %

Question 17

Common sized statements:

Accepted Answer

A)  Depict the cash flows of a firm. 
B)  Are useful in making comparisons. 
C)  Reflect the ratio analysis of a firm. 
D)  Show the sources and uses of cash. 
E)  Reflect the market value of a firm. 
A)  Depict the cash flows of a firm. 
B)  Are useful in making comparisons. 
C)  Reflect the ratio analysis of a firm. 
D)  Show the sources and uses of cash. 
E)  Reflect the market value of a firm.

Question 18

Calculate the value of short-term debt given the following information: total debt = $100,000; debt/equity ratio = 0.40; long-term debt ratio = 0.2308.

Accepted Answer

A)  $20,000 
B)  $25,000 
C)  $30,000 
D)  $35,000 
E)  $40,000 
A)  $20,000 
B)  $25,000 
C)  $30,000 
D)  $35,000 
E)  $40,000

Question 19

Which of the following could be calculated with the use of only a statement of financial position?

Accepted Answer

A)  Interval measure. 
B)  Equity multiplier. 
C)  Receivables turnover. 
D)  Times interest earned. 
E)  Return on equity. 
A)  Interval measure. 
B)  Equity multiplier. 
C)  Receivables turnover. 
D)  Times interest earned. 
E)  Return on equity.

Question 20

Syed's Industries has accounts receivable of $700, inventory of $1,200, sales of $4,200, and cost of goods sold of $3,400. How long does it take Syed's to both sell its inventory and then collect the payment on the sale?

Accepted Answer

A)  128 days 
B)  146 days 
C)  163 days 
D)  190 days 
E)  211 days 
A)  128 days 
B)  146 days 
C)  163 days 
D)  190 days 
E)  211 days

Exam 3: Working With Financial Statements

An increase in long-term debt is source of cash?

A Calgary firm has 11,000 shares of stock outstanding, sales of $1.62 million, net income of $20,020, a price-earnings ratio of 21.6, and a book value per share of $8.64. What is the market-to-book ratio?

Net income divided by total revenue is referred to as:

Which of the following is a use of cash?

Puffy's Pastries generates five cents of net income for every $1 in sales. Thus, Puffy's has a _____ of 5 %.

A Vancouver firm has sales of $1,640, net income of $135, net fixed assets of $1,200, and current assets of $530. The firm has $280 in inventory. What is the common-size statement value of inventory?

If a firm produces a 10 % return on assets and also a 10 % return on equity, then the firm:

The current ratio:

Which ratio does not focus on turnover?

What is a more meaningful measure of profitability for a firm, return on assets or return on equity? Why?

Calculate the value of short-term debt given the following information: total debt = $320,000; debt/equity ratio = 0.80; long-term debt ratio = 0.3750.

A Toronto firm has a times interest earned ratio of 2.7 times. This means:

Calculate gross profit given the following information: accounts receivable = $3,500; inventory = $4,500; receivable turnover = 80 times; inventory turnover = 18 times.

If a firm has only current assets and no fixed assets of any kind, its times interest earned ratio must exceed its cash coverage ratio.

If the firm is currently carrying a price/earnings ratio of 2, what is the firm's approximate market price per share?

The Furniture Barn has a profit margin of 8.7 %, a return on assets of 11.6 %, and an equity multiplier of 1.87. What is the return on equity?

Common sized statements:

Calculate the value of short-term debt given the following information: total debt = $100,000; debt/equity ratio = 0.40; long-term debt ratio = 0.2308.

Which of the following could be calculated with the use of only a statement of financial position?

Syed's Industries has accounts receivable of $700, inventory of $1,200, sales of $4,200, and cost of goods sold of $3,400. How long does it take Syed's to both sell its inventory and then collect the payment on the sale?

Introduction to Corporate Finance

Financial Statements, Cash Flow, and Taxes

Long-Term Financial Planning and Corporate Growth

Introduction to Valuation: the Time Value of Money

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Stock Valuation

Net Present Value and Other Investment Criteria

Making Capital Investment Decisions

Project Analysis and Evaluation

Lessons From Capital Market History

Return, Risk, and the Security Market Line

Cost of Capital

Raising Capital

Financial Leverage and Capital Structure Policy

Dividends and Dividend Policy

Short-Term Finance and Planning

Cash and Liquidity Management

Credit and Inventory Management

International Corporate Finance

Leasing

Mergers and Acquisitions

Enterprise Risk Management

Options and Corporate Securities

Behavioural Finance: Implications for Financial Management

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