Question 1

Calculate the value of long-term debt given the following information: total debt = $100,000; debt/equity ratio = 0.50; long-term debt ratio = 0.32.

Accepted Answer

A)  $72,000 
B)  $74,000 
C)  $76,000 
D)  $78,000 
E)  $94,118 
A)  $72,000 
B)  $74,000 
C)  $76,000 
D)  $78,000 
E)  $94,118

Question 2

The debt-equity ratio is measured as total:

Accepted Answer

A)  Equity minus total debt. 
B)  Equity divided by total debt. 
C)  Debt divided by total equity. 
D)  Debt plus total equity. 
E)  Debt minus total assets, divided by total equity. 
A)  Equity minus total debt. 
B)  Equity divided by total debt. 
C)  Debt divided by total equity. 
D)  Debt plus total equity. 
E)  Debt minus total assets, divided by total equity.

Question 3

All else the same, which of the following occurs when a firm buys inventory with cash?

Accepted Answer

A)  The quick ratio goes up if it was greater than one before the change. 
B)  The current ratio goes down if it was greater than one before the change. 
C)  The current ratio goes down if it was lower than one before the change. 
D)  The quick ratio goes up if it was lower than one before the change. 
E)  The quick ratio declines but the current ratio remains unchanged. 
A)  The quick ratio goes up if it was greater than one before the change. 
B)  The current ratio goes down if it was greater than one before the change. 
C)  The current ratio goes down if it was lower than one before the change. 
D)  The quick ratio goes up if it was lower than one before the change. 
E)  The quick ratio declines but the current ratio remains unchanged.

Question 4

Which ratio does not focus on short-term solvency?

Accepted Answer

A)  Quick ratio. 
B)  Cash ratio. 
C)  Net working capital to total assets. 
D)  Interval measure. 
E)  Cash coverage ratio. 
A)  Quick ratio. 
B)  Cash ratio. 
C)  Net working capital to total assets. 
D)  Interval measure. 
E)  Cash coverage ratio.

Question 5

Su Lee's has sales of $54,600, total assets of $56,100, and a profit margin of 4 %. The firm has a total debt ratio of 30 %. What is the return on equity?

Accepted Answer

A)  5.39 % 
B)  5.42 % 
C)  5.48 % 
D)  5.56 % 
E)  6.31 % 
A)  5.39 % 
B)  5.42 % 
C)  5.48 % 
D)  5.56 % 
E)  6.31 %

Question 6

The financial ratio measured as EBIT divided by interest expense is the __________.

Accepted Answer

A)  Cash coverage ratio. 
B)  Debt-equity ratio. 
C)  Times interest earned ratio. 
D)  Gross margin. 
E)  Total debt ratio. 
A)  Cash coverage ratio. 
B)  Debt-equity ratio. 
C)  Times interest earned ratio. 
D)  Gross margin. 
E)  Total debt ratio.

Question 7

Which of the following statements about the current ratio is accurate?

Accepted Answer

A)  Use of book values in calculation of this ratio is unacceptable because the market values of these assets and liabilities tend to deviate from book values. 
B)  This ratio is calculated by dividing current liabilities by current assets. 
C)  It will always be greater than the quick ratio in companies that carry inventory. 
D)  This ratio is intended to indicate the long run liquidity position of the firm. 
E)  The higher the current ratio, the higher the level of cash in a firm. 
A)  Use of book values in calculation of this ratio is unacceptable because the market values of these assets and liabilities tend to deviate from book values. 
B)  This ratio is calculated by dividing current liabilities by current assets. 
C)  It will always be greater than the quick ratio in companies that carry inventory. 
D)  This ratio is intended to indicate the long run liquidity position of the firm. 
E)  The higher the current ratio, the higher the level of cash in a firm.

Question 8

If shareholders could only have access to two financial ratios for a firm, which two ratios presented in this chapter do you think they would select to review and why?

Accepted Answer

Student answers will vary but

Question 9

Calculate the value of total equity given the following information: total debt ratio = 0.76; total assets = $1,250.

Accepted Answer

A)  $300 
B)  $325 
C)  $350 
D)  $375 
E)  $400 
A)  $300 
B)  $325 
C)  $350 
D)  $375 
E)  $400

Question 10

A firm has days' sales in inventory of 105 days, an average collection period of 35 days, and takes 42 days, on average, to pay its accounts payable. Taken together, what do these three figures imply about the firm's operations and its cash flows?

Accepted Answer

It takes, on average, 105 days to sell i

Question 11

When you compare the current quick ratio for a firm to the firm's quick ratio from prior periods, you are conducting _____ analysis.

Accepted Answer

A)  peer group 
B)  industrial classification 
C)  profitability 
D)  external-trend 
E)  time-trend 
A)  peer group 
B)  industrial classification 
C)  profitability 
D)  external-trend 
E)  time-trend

Question 12

Use the following statement of financial position and statement of comprehensive income     What is the days' sales in inventory for Bluebird? (Use average inventory.)

Accepted Answer

A)  68.93 days 
B)  74.41 days 
C)  81.22 days 
D)  101.01 days 
E)  105.65 days 
A)  68.93 days 
B)  74.41 days 
C)  81.22 days 
D)  101.01 days 
E)  105.65 days

Question 13

A Victoria firm has total assets of $126,740 and net fixed assets of $82,408. The average daily operating costs are $1,211. What is the value of the interval measure?

Accepted Answer

A)  1.47 days 
B)  2.73 days 
C)  36.61 days 
D)  68.05 days 
E)  104.66 days 
A)  1.47 days 
B)  2.73 days 
C)  36.61 days 
D)  68.05 days 
E)  104.66 days

Question 14

Which one of the following is found in the operating activity section of a statement of cash flows?

Accepted Answer

A)  Decrease in long-term debt. 
B)  Fixed asset acquisition. 
C)  Dividends paid. 
D)  Increase in accounts payable. 
E)  Decrease in common stock. 
A)  Decrease in long-term debt. 
B)  Fixed asset acquisition. 
C)  Dividends paid. 
D)  Increase in accounts payable. 
E)  Decrease in common stock.

Question 15

Bob's Toys has a fixed asset turnover rate of 1.2 and a total asset turnover rate of.84. Gerold's Toys has a fixed asset turnover rate of 1.1 and a total asset turnover rate of.96. Both companies have similar operations. Bob's Toys:

Accepted Answer

A)  Is using its fixed assets more efficiently than Gerold's Toys. 
B)  Is using its total assets more efficiently than Gerold's Toys. 
C)  Is generating $1 in sales for every $1.20 in net fixed assets. 
D)  Is generating $1.20 in net income for every $1 in net fixed assets. 
E)  Has $.84 in total assets for every $.96 Gerold's has in total assets. 
A)  Is using its fixed assets more efficiently than Gerold's Toys. 
B)  Is using its total assets more efficiently than Gerold's Toys. 
C)  Is generating $1 in sales for every $1.20 in net fixed assets. 
D)  Is generating $1.20 in net income for every $1 in net fixed assets. 
E)  Has $.84 in total assets for every $.96 Gerold's has in total assets.

Question 16

Which one of the following is found in the financing activity section of a statement of cash flows?

Accepted Answer

A)  Fixed asset acquisition. 
B)  Depreciation. 
C)  Increase in accounts receivable. 
D)  Dividends paid. 
E)  Net income. 
A)  Fixed asset acquisition. 
B)  Depreciation. 
C)  Increase in accounts receivable. 
D)  Dividends paid. 
E)  Net income.

Question 17

Which one of the following is a use of cash?

Accepted Answer

A)  Payment received from a customer on their account. 
B)  Sale of inventory. 
C)  Decrease in fixed assets. 
D)  Sale of common stock. 
E)  Payment to a supplier. 
A)  Payment received from a customer on their account. 
B)  Sale of inventory. 
C)  Decrease in fixed assets. 
D)  Sale of common stock. 
E)  Payment to a supplier.

Question 18

Which one of the following formulas represents an asset utilization ratio?

Accepted Answer

A)  Net income/Total assets 
B)  Price per share/Earnings per share 
C)  (Current assets - Inventory)/Current liabilities 
D)  Sales/Net working capital 
E)  Earnings before interest and taxes/Interest 
A)  Net income/Total assets 
B)  Price per share/Earnings per share 
C)  (Current assets - Inventory)/Current liabilities 
D)  Sales/Net working capital 
E)  Earnings before interest and taxes/Interest

Question 19

A __________ standardizes items on the statement of comprehensive income and statement of financial position relative to a point in time.

Accepted Answer

A)  Statement of standardization. 
B)  Statement of changes in financial position. 
C)  Common-base year statement. 
D)  Common-size statement. 
E)  Tax reconciliation statement. 
A)  Statement of standardization. 
B)  Statement of changes in financial position. 
C)  Common-base year statement. 
D)  Common-size statement. 
E)  Tax reconciliation statement.

Question 20

The long-term debt ratio is probably of most interest to a firm's:

Accepted Answer

A)  Credit customers. 
B)  Employees. 
C)  Suppliers. 
D)  Debt holders. 
E)  Shareholders. 
A)  Credit customers. 
B)  Employees. 
C)  Suppliers. 
D)  Debt holders. 
E)  Shareholders.

Exam 3: Working With Financial Statements

Calculate the value of long-term debt given the following information: total debt = $100,000; debt/equity ratio = 0.50; long-term debt ratio = 0.32.

The debt-equity ratio is measured as total:

All else the same, which of the following occurs when a firm buys inventory with cash?

Which ratio does not focus on short-term solvency?

Su Lee's has sales of $54,600, total assets of $56,100, and a profit margin of 4 %. The firm has a total debt ratio of 30 %. What is the return on equity?

The financial ratio measured as EBIT divided by interest expense is the __________.

Which of the following statements about the current ratio is accurate?

If shareholders could only have access to two financial ratios for a firm, which two ratios presented in this chapter do you think they would select to review and why?

Calculate the value of total equity given the following information: total debt ratio = 0.76; total assets = $1,250.

A firm has days' sales in inventory of 105 days, an average collection period of 35 days, and takes 42 days, on average, to pay its accounts payable. Taken together, what do these three figures imply about the firm's operations and its cash flows?

When you compare the current quick ratio for a firm to the firm's quick ratio from prior periods, you are conducting _____ analysis.

Use the following statement of financial position and statement of comprehensive income What is the days' sales in inventory for Bluebird? (Use average inventory.)

A Victoria firm has total assets of $126,740 and net fixed assets of $82,408. The average daily operating costs are $1,211. What is the value of the interval measure?

Which one of the following is found in the operating activity section of a statement of cash flows?

Bob's Toys has a fixed asset turnover rate of 1.2 and a total asset turnover rate of.84. Gerold's Toys has a fixed asset turnover rate of 1.1 and a total asset turnover rate of.96. Both companies have similar operations. Bob's Toys:

Which one of the following is found in the financing activity section of a statement of cash flows?

Which one of the following is a use of cash?

Which one of the following formulas represents an asset utilization ratio?

A __________ standardizes items on the statement of comprehensive income and statement of financial position relative to a point in time.

The long-term debt ratio is probably of most interest to a firm's:

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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