Question 1

The financial ratio measured as current assets divided by average daily operating costs is the:

Accepted Answer

A)  Cash ratio. 
B)  NWC to total assets ratio. 
C)  Acid-test ratio. 
D)  Interval measure. 
E)  Operating measure. 
A)  Cash ratio. 
B)  NWC to total assets ratio. 
C)  Acid-test ratio. 
D)  Interval measure. 
E)  Operating measure.

Question 2

In words, what does an equity multiplier of 2 mean?

Accepted Answer

A)  Each dollar in assets the firm owns is supported by $2 in equity. 
B)  Each dollar in equity the firm has supports $2 in assets. 
C)  Each dollar in assets the firm owns is supported by $4 in equity. 
D)  Each dollar in equity the firm has supports fifty cents in assets. 
E)  Each dollar in assets the firm owns is supported by $2 in debt. 
A)  Each dollar in assets the firm owns is supported by $2 in equity. 
B)  Each dollar in equity the firm has supports $2 in assets. 
C)  Each dollar in assets the firm owns is supported by $4 in equity. 
D)  Each dollar in equity the firm has supports fifty cents in assets. 
E)  Each dollar in assets the firm owns is supported by $2 in debt.

Question 3

If a firm uses cash to purchase inventory, its quick ratio will increase.

Accepted Answer

A) True 
 B)False

Question 4

Calculate the value of total assets given the following information: total debt ratio = 0.55; total equity = $7,700.

Accepted Answer

A)  $11,000 
B)  $17,111 
C)  $33,000 
D)  $44,000 
E)  $55,000 
A)  $11,000 
B)  $17,111 
C)  $33,000 
D)  $44,000 
E)  $55,000

Question 5

The financial ratio measured as net income divided by total assets is known as the firm's:

Accepted Answer

A)  Profit margin. 
B)  Return on assets. 
C)  Return on equity. 
D)  Asset turnover. 
E)  Earnings before interest and taxes (EBIT). 
A)  Profit margin. 
B)  Return on assets. 
C)  Return on equity. 
D)  Asset turnover. 
E)  Earnings before interest and taxes (EBIT).

Question 6

Calculate the return on assets given the following information: common shares outstanding = 300,000; earning per share = $4.00; total assets = $5,000,000; total equity = $3,000,000.

Accepted Answer

A)  20% 
B)  21% 
C)  22% 
D)  23% 
E)  24% 
A)  20% 
B)  21% 
C)  22% 
D)  23% 
E)  24%

Question 7

The financial statement that summarizes the sources and uses of cash over a specified period of time is the:

Accepted Answer

A)  Statement of comprehensive income. 
B)  Statement of financial position. 
C)  Tax reconciliation statement. 
D)  Statement of cash flows. 
E)  Statement of operating position. 
A)  Statement of comprehensive income. 
B)  Statement of financial position. 
C)  Tax reconciliation statement. 
D)  Statement of cash flows. 
E)  Statement of operating position.

Question 8

Calculate the value of cost of goods sold for Molson's Brewing Company given the following information: Current liabilities = $340,000; Quick ratio = 1.8; Inventory turnover = 4.0; Current ratio = 3.3.

Accepted Answer

A)  $2,040,000 
B)  $3,060,000 
C)  $3,999,999 
D)  $4,180,222 
E)  $5,888,100 
A)  $2,040,000 
B)  $3,060,000 
C)  $3,999,999 
D)  $4,180,222 
E)  $5,888,100

Question 9

Calculate cash coverage ratio given the following information: depreciation expense = $6,000; EBIT = $12,000; times interest earned = 4 times.

Accepted Answer

A)  6.0 times 
B)  6.5 times 
C)  7.0 times 
D)  7.5 times 
E)  8.0 times 
A)  6.0 times 
B)  6.5 times 
C)  7.0 times 
D)  7.5 times 
E)  8.0 times

Question 10

Dun & Bradstreet Canada publishes peer group financial information for a host of industries, yet the numbers typically only appear in common-size form. Why not report average dollar amounts instead?

Accepted Answer

The common-size numbers are inherently m

Question 11

The Du Pont identity is defined as the:

Accepted Answer

A)  Profit margin times the total asset turnover times the equity multiplier. 
B)  Profit margin times the inventory turnover times the equity multiplier. 
C)  Return on equity times the profit margin times the total asset turnover. 
D)  Return on equity times the total asset turnover times the equity multiplier. 
E)  Return on assets times the total asset turnover times the profit margin. 
A)  Profit margin times the total asset turnover times the equity multiplier. 
B)  Profit margin times the inventory turnover times the equity multiplier. 
C)  Return on equity times the profit margin times the total asset turnover. 
D)  Return on equity times the total asset turnover times the equity multiplier. 
E)  Return on assets times the total asset turnover times the profit margin.

Question 12

Ajax Company has a debt-equity ratio of 0.75. Return on assets is 9.5 %. What is the return on equity?

Accepted Answer

A)  12.69% 
B)  13.37% 
C)  14.48% 
D)  15.75% 
E)  16.63% 
A)  12.69% 
B)  13.37% 
C)  14.48% 
D)  15.75% 
E)  16.63%

Question 13

Which of the following is NOT a component of the Du Pont identity?

Accepted Answer

A)  Operating efficiency 
B)  Asset use efficiency 
C)  Financial leverage 
D)  Profit per dollar of assets 
E)  Net working capital 
A)  Operating efficiency 
B)  Asset use efficiency 
C)  Financial leverage 
D)  Profit per dollar of assets 
E)  Net working capital

Question 14

Using the Du Pont Identity Method, calculate the equity multiplier given the following information. Profit margin 19%; total asset turnover 1.5; return on equity 37.05%.

Accepted Answer

A)  1.2 
B)  1.3 
C)  1.4 
D)  1.5 
E)  1.6 
A)  1.2 
B)  1.3 
C)  1.4 
D)  1.5 
E)  1.6

Question 15

Calculate gross profit ratio given the following information: accounts receivable = $40,000; inventory = $80,000; receivable turnover = 25 times; inventory turnover = 6 times.

Accepted Answer

A)  50% 
B)  51% 
C)  52% 
D)  53% 
E)  54% 
A)  50% 
B)  51% 
C)  52% 
D)  53% 
E)  54%

Question 16

Which ratio does not focus on financial leverage?

Accepted Answer

A)  Total debt ratio. 
B)  Debt/equity ratio. 
C)  Equity multiplier. 
D)  Times interest earned. 
E)  Cash ratio. 
A)  Total debt ratio. 
B)  Debt/equity ratio. 
C)  Equity multiplier. 
D)  Times interest earned. 
E)  Cash ratio.

Question 17

If a firm acquires more long-term debt while also issuing additional shares of stock, then the:

Accepted Answer

A)  Debt-equity ratio will increase. 
B)  Debt-equity ratio will decrease. 
C)  Debt equity ratio will remain constant. 
D)  Change in the debt-equity ratio cannot be determined from the information provided. 
E)  Net Income will increase. 
A)  Debt-equity ratio will increase. 
B)  Debt-equity ratio will decrease. 
C)  Debt equity ratio will remain constant. 
D)  Change in the debt-equity ratio cannot be determined from the information provided. 
E)  Net Income will increase.

Question 18

The following statement of financial position and statement of comprehensive income should be used.     How will Woodburn's accounts receivable appear on the statement of cash flows for 2018($ in thousands)?

Accepted Answer

A)  $40 operating activity cash outflow. 
B)  $40 investment activity cash outflow. 
C)  $40 operating activity cash inflow. 
D)  $40 investment activity cash inflow. 
E)  $40 financing activity cash inflow. 
A)  $40 operating activity cash outflow. 
B)  $40 investment activity cash outflow. 
C)  $40 operating activity cash inflow. 
D)  $40 investment activity cash inflow. 
E)  $40 financing activity cash inflow.

Question 19

The only difference between Joe's and Moe's is that Joe's has old, fully depreciated equipment. Moe's just purchased all new equipment which will be depreciated over eight years. Assuming all else equal:

Accepted Answer

A)  Joe's will have a lower profit margin. 
B)  Joe's will have a lower return on equity. 
C)  Moe's will have a higher net income. 
D)  Moe's will have a lower profit margin. 
E)  Moe's will have a higher return on assets. 
A)  Joe's will have a lower profit margin. 
B)  Joe's will have a lower return on equity. 
C)  Moe's will have a higher net income. 
D)  Moe's will have a lower profit margin. 
E)  Moe's will have a higher return on assets.

Question 20

What was the profit margin in 2018?

Accepted Answer

A)  7.9% 
B)  18.4% 
C)  22.7% 
D)  26.2% 
E)  60.0% 
A)  7.9% 
B)  18.4% 
C)  22.7% 
D)  26.2% 
E)  60.0%

Exam 3: Working With Financial Statements

The financial ratio measured as current assets divided by average daily operating costs is the:

In words, what does an equity multiplier of 2 mean?

If a firm uses cash to purchase inventory, its quick ratio will increase.

Calculate the value of total assets given the following information: total debt ratio = 0.55; total equity = $7,700.

The financial ratio measured as net income divided by total assets is known as the firm's:

Calculate the return on assets given the following information: common shares outstanding = 300,000; earning per share = $4.00; total assets = $5,000,000; total equity = $3,000,000.

The financial statement that summarizes the sources and uses of cash over a specified period of time is the:

Calculate the value of cost of goods sold for Molson's Brewing Company given the following information: Current liabilities = $340,000; Quick ratio = 1.8; Inventory turnover = 4.0; Current ratio = 3.3.

Calculate cash coverage ratio given the following information: depreciation expense = $6,000; EBIT = $12,000; times interest earned = 4 times.

Dun & Bradstreet Canada publishes peer group financial information for a host of industries, yet the numbers typically only appear in common-size form. Why not report average dollar amounts instead?

The Du Pont identity is defined as the:

Ajax Company has a debt-equity ratio of 0.75. Return on assets is 9.5 %. What is the return on equity?

Which of the following is NOT a component of the Du Pont identity?

Using the Du Pont Identity Method, calculate the equity multiplier given the following information. Profit margin 19%; total asset turnover 1.5; return on equity 37.05%.

Calculate gross profit ratio given the following information: accounts receivable = $40,000; inventory = $80,000; receivable turnover = 25 times; inventory turnover = 6 times.

Which ratio does not focus on financial leverage?

If a firm acquires more long-term debt while also issuing additional shares of stock, then the:

The following statement of financial position and statement of comprehensive income should be used. How will Woodburn's accounts receivable appear on the statement of cash flows for 2018($ in thousands)?

The only difference between Joe's and Moe's is that Joe's has old, fully depreciated equipment. Moe's just purchased all new equipment which will be depreciated over eight years. Assuming all else equal:

What was the profit margin in 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

Filters