Question 1

The equity multiplier, the profit margin and the total asset turnover are the three parts of the Du Pont identity.

Accepted Answer

A) True 
 B)False

Question 2

Little's Inc. provides a 10% return on equity. Sales are $100,000 on total assets of $140,000 and total equity of $85,000. What is the profit margin?

Accepted Answer

A)  6.07% 
B)  8.50% 
C)  10.00% 
D)  11.77% 
E)  14.00% 
A)  6.07% 
B)  8.50% 
C)  10.00% 
D)  11.77% 
E)  14.00%

Question 3

Which of the following statements is incorrect?

Accepted Answer

A)  The equity multiplier is equal to 1 plus the debt-equity ratio. 
B)  Return on equity is equal to the return on assets multiplied by the equity multiplier. 
C)  Return on equity is equal to total equity divided by net income. 
D)  Return on equity is equal to the equity multiplier multiplied by the total asset turnover multiplied by the profit margin. 
E)  The difference between the asset multiplier and liability multiplier equals the equity multiplier. 
A)  The equity multiplier is equal to 1 plus the debt-equity ratio. 
B)  Return on equity is equal to the return on assets multiplied by the equity multiplier. 
C)  Return on equity is equal to total equity divided by net income. 
D)  Return on equity is equal to the equity multiplier multiplied by the total asset turnover multiplied by the profit margin. 
E)  The difference between the asset multiplier and liability multiplier equals the equity multiplier.

Question 4

What is the cash coverage ratio?

Accepted Answer

A)  2.99 
B)  3.77 
C)  6.71 
D)  10.43 
E)  13.77 
A)  2.99 
B)  3.77 
C)  6.71 
D)  10.43 
E)  13.77

Question 5

The component values used in the Du Pont analysis for 2018 are:

Accepted Answer

A)  12.7%, 0.37, and 1.19. 
B)  12.7%, 1.77, and 1.19. 
C)  19.2%, 1.77, and 1.19. 
D)  19.2%, 0.37, and 2.11. 
E)  12.7%, 1.77, and 2.11. 
A)  12.7%, 0.37, and 1.19. 
B)  12.7%, 1.77, and 1.19. 
C)  19.2%, 1.77, and 1.19. 
D)  19.2%, 0.37, and 2.11. 
E)  12.7%, 1.77, and 2.11.

Question 6

Which one of the following statements is correct?

Accepted Answer

A)  Book values should always be given precedence over market values. 
B)  Financial statements are frequently the basis used for performance evaluations. 
C)  Historical information has no value when predicting the future. 
D)  Potential lenders place little value on financial statement information. 
E)  Reviewing financial information over time has very limited value. 
A)  Book values should always be given precedence over market values. 
B)  Financial statements are frequently the basis used for performance evaluations. 
C)  Historical information has no value when predicting the future. 
D)  Potential lenders place little value on financial statement information. 
E)  Reviewing financial information over time has very limited value.

Question 7

Which one of the following measures indicates how long a firm can continue operating without any additional cash inflows?

Accepted Answer

A)  Current ratio 
B)  Cash ratio 
C)  Quick ratio 
D)  Interval measure 
E)  Total debt ratio 
A)  Current ratio 
B)  Cash ratio 
C)  Quick ratio 
D)  Interval measure 
E)  Total debt ratio

Question 8

Which one of the following transactions is a use of cash?

Accepted Answer

A)  Payment to a supplier for a credit purchase. 
B)  Sale of inventory on credit. 
C)  Cash sale to a customer. 
D)  Collection of an account due from a customer. 
E)  Obtaining a bank loan. 
A)  Payment to a supplier for a credit purchase. 
B)  Sale of inventory on credit. 
C)  Cash sale to a customer. 
D)  Collection of an account due from a customer. 
E)  Obtaining a bank loan.

Question 9

What is the change in net working capital ($ in millions)?

Accepted Answer

A)  -$3,655 
B)  -$3,015 
C)  $3,655 
D)  $6,670 
E)  $10,755 
A)  -$3,655 
B)  -$3,015 
C)  $3,655 
D)  $6,670 
E)  $10,755

Question 10

Calculate the return on equity given the following information: common shares outstanding = 250,000; earning per share = $2.00; total assets = $2,000,000; total equity = $800,000.

Accepted Answer

A)  61.50% 
B)  62.50% 
C)  63.50% 
D)  64.50% 
E)  65.50% 
A)  61.50% 
B)  62.50% 
C)  63.50% 
D)  64.50% 
E)  65.50%

Question 11

Calculate price earnings growth ratio given the following information: net income = $1,250,000; shares outstanding = 400,000; stock price = $35; future earnings growth rate = 8%.

Accepted Answer

A)  1.30 
B)  1.35 
C)  1.40 
D)  1.45 
E)  1.50 
A)  1.30 
B)  1.35 
C)  1.40 
D)  1.45 
E)  1.50

Question 12

Vendors providing trade credit to a firm tend to be most interested in the firm's __________ ratios.

Accepted Answer

A)  liquidity 
B)  profitability 
C)  market value 
D)  asset management 
E)  financial leverage 
A)  liquidity 
B)  profitability 
C)  market value 
D)  asset management 
E)  financial leverage

Question 13

The value of the current assets divided by the value of the current liabilities is called:

Accepted Answer

A)  Net working capital. 
B)  Current ratio. 
C)  Quick ratio. 
D)  Liquid ratio. 
E)  Cash ratio. 
A)  Net working capital. 
B)  Current ratio. 
C)  Quick ratio. 
D)  Liquid ratio. 
E)  Cash ratio.

Question 14

Ratios that measure a firm's financial leverage are known as _____ ratios.

Accepted Answer

A)  Asset management. 
B)  Long-term solvency. 
C)  Short-term solvency. 
D)  Profitability. 
E)  Market value 
A)  Asset management. 
B)  Long-term solvency. 
C)  Short-term solvency. 
D)  Profitability. 
E)  Market value

Question 15

What are the benefits of developing common size financial statements?

Accepted Answer

Common-size financial statements are dev

Question 16

Explain the value provided by the Du Pont identity that is not provided by just knowing the return on equity percentage.

Accepted Answer

The Du Pont identity consists of the equ

Question 17

Without making reference to its formula, provide a definition of return on assets.

Accepted Answer

The ratio provides an indicati

Question 18

Tron, Inc. of Guelph has a times interest earned ratio of 4.1. Based on this ratio, a creditor knows that Tron's EBIT must decline by more than __________ before Tron will be unable to cover its interest expense.

Accepted Answer

A)  33% 
B)  40% 
C)  67% 
D)  75% 
E)  80% 
A)  33% 
B)  40% 
C)  67% 
D)  75% 
E)  80%

Question 19

Which of the following does NOT correctly complete this sentence: The financial statements of a company....

Accepted Answer

A)  Can be useful to the financial manager of the firm even though they employ accounting figures and not actual cash flows. 
B)  Are useful for analysts outside the firm. 
C)  Are generally considered a useful second best source of information for analysts of the firm if only because this information is often all that is readily available. 
D)  Are useful for looking at the trends in financial performance of a firm. 
E)  Are rarely comparable from year to year since accountants are constantly changing accounting methods resulting in very little consistency from year to year. 
A)  Can be useful to the financial manager of the firm even though they employ accounting figures and not actual cash flows. 
B)  Are useful for analysts outside the firm. 
C)  Are generally considered a useful second best source of information for analysts of the firm if only because this information is often all that is readily available. 
D)  Are useful for looking at the trends in financial performance of a firm. 
E)  Are rarely comparable from year to year since accountants are constantly changing accounting methods resulting in very little consistency from year to year.

Question 20

What is the total debt ratio for Young for 2018?

Accepted Answer

A)  0.27 
B)  0.48 
C)  0.53 
D)  0.70 
E)  0.82 
A)  0.27 
B)  0.48 
C)  0.53 
D)  0.70 
E)  0.82

Exam 3: Working With Financial Statements

The equity multiplier, the profit margin and the total asset turnover are the three parts of the Du Pont identity.

Little's Inc. provides a 10% return on equity. Sales are $100,000 on total assets of $140,000 and total equity of $85,000. What is the profit margin?

Which of the following statements is incorrect?

What is the cash coverage ratio?

The component values used in the Du Pont analysis for 2018 are:

Which one of the following statements is correct?

Which one of the following measures indicates how long a firm can continue operating without any additional cash inflows?

Which one of the following transactions is a use of cash?

What is the change in net working capital ($ in millions)?

Calculate the return on equity given the following information: common shares outstanding = 250,000; earning per share = $2.00; total assets = $2,000,000; total equity = $800,000.

Calculate price earnings growth ratio given the following information: net income = $1,250,000; shares outstanding = 400,000; stock price = $35; future earnings growth rate = 8%.

Vendors providing trade credit to a firm tend to be most interested in the firm's __________ ratios.

The value of the current assets divided by the value of the current liabilities is called:

Ratios that measure a firm's financial leverage are known as _____ ratios.

What are the benefits of developing common size financial statements?

Explain the value provided by the Du Pont identity that is not provided by just knowing the return on equity percentage.

Without making reference to its formula, provide a definition of return on assets.

Tron, Inc. of Guelph has a times interest earned ratio of 4.1. Based on this ratio, a creditor knows that Tron's EBIT must decline by more than __________ before Tron will be unable to cover its interest expense.

Which of the following does NOT correctly complete this sentence: The financial statements of a company....

What is the total debt ratio for Young for 2018?

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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