Question 1

An increase in total assets:

Accepted Answer

A) means that net working capital is also increasing. 
B) requires an investment in non-current assets. 
C) means that shareholders' equity must also increase. 
D) must be offset by an equal increase in liabilities and shareholders' equity. 
E) can only occur when a ﬁrm has positive net income. 
A) means that net working capital is also increasing. 
B) requires an investment in non-current assets. 
C) means that shareholders' equity must also increase. 
D) must be offset by an equal increase in liabilities and shareholders' equity. 
E) can only occur when a ﬁrm has positive net income. D

Question 2

Book value:

Accepted Answer

A) is equivalent to market value for ﬁrms with non-current assets. 
B) is based on historical cost. 
C) generally tends to exceed market value when non-current assets are included. 
D) is more of a ﬁnancial than an accounting valuation. 
E) is adjusted to market value whenever the market value exceeds the stated book value. 
A) is equivalent to market value for ﬁrms with non-current assets. 
B) is based on historical cost. 
C) generally tends to exceed market value when non-current assets are included. 
D) is more of a ﬁnancial than an accounting valuation. 
E) is adjusted to market value whenever the market value exceeds the stated book value. B

Question 3

Note that in all of our cash ﬂow computations to determine cash ﬂow of the ﬁrm, we never include the addition to retained earnings.Why not? Is this an oversight?

Accepted Answer

The addition to retained earnings is not a cash ﬂow.It is simply an accounting entry that reconciles the statement of ﬁnancial position.Any additions to retained earnings will show up as cash ﬂow changes in other statement of ﬁnancial position accounts.

Question 4

According to International Accounting Standards,

Accepted Answer

A) income is recorded based on the matching principle. 
B) income is recorded based on the realization principle. 
C) costs are recorded based on the liquidity principle. 
D) net income is recorded based on the realization principle. 
E) depreciation is recorded as it affects the cash ﬂows of a ﬁrm. 
A) income is recorded based on the matching principle. 
B) income is recorded based on the realization principle. 
C) costs are recorded based on the liquidity principle. 
D) net income is recorded based on the realization principle. 
E) depreciation is recorded as it affects the cash ﬂows of a ﬁrm.

Question 5

What is net capital spending for 2014?

Accepted Answer

A) -€250 
B) -€57 
C) €0 
D) €57 
E) €477 
A) -€250 
B) -€57 
C) €0 
D) €57 
E) €477

Question 6

Which one of the following statements concerning liquidity is correct?

Accepted Answer

A) If you sold an asset today, it is a liquid asset. 
B) If you can sell an asset next year at a price less than its actual value, the asset is highly liquid. 
C) Trademarks and patents are highly liquid. 
D) The less liquidity a ﬁrm has, the lower the probability the ﬁrm will encounter ﬁnancial diﬃculties. 
E) Statement of ﬁnancial position accounts are listed in order of decreasing liquidity. 
A) If you sold an asset today, it is a liquid asset. 
B) If you can sell an asset next year at a price less than its actual value, the asset is highly liquid. 
C) Trademarks and patents are highly liquid. 
D) The less liquidity a ﬁrm has, the lower the probability the ﬁrm will encounter ﬁnancial diﬃculties. 
E) Statement of ﬁnancial position accounts are listed in order of decreasing liquidity.

Question 7

_____ refers to the difference between a ﬁrm's current assets and its current liabilities.

Accepted Answer

A) Operating cash ﬂow 
B) Capital spending 
C) Net working capital 
D) Cash ﬂow from assets 
E) Cash ﬂow to creditors 
A) Operating cash ﬂow 
B) Capital spending 
C) Net working capital 
D) Cash ﬂow from assets 
E) Cash ﬂow to creditors

Question 8

Assets are listed on the statement of ﬁnancial position in order of:

Accepted Answer

A) decreasing liquidity. 
B) decreasing size. 
C) increasing size. 
D) relative life. 
E) None of the above. 
A) decreasing liquidity. 
B) decreasing size. 
C) increasing size. 
D) relative life. 
E) None of the above.

Question 9

What is the amount of net new borrowing for 2014?

Accepted Answer

A) -£225 million. 
B) -£25 million. 
C) £0 
D) £25 million. 
E) £225 million. 
A) -£225 million. 
B) -£25 million. 
C) £0 
D) £25 million. 
E) £225 million.

Question 10

Which one of the following accounts is generally the most liquid?

Accepted Answer

A) Inventory. 
B) Building. 
C) Accounts receivable. 
D) Equipment. 
E) Patent. 
A) Inventory. 
B) Building. 
C) Accounts receivable. 
D) Equipment. 
E) Patent.

Question 11

Dividends per share:

Accepted Answer

A) increase as the net income increases as long as the number of shares outstanding remains constant. 
B) decrease as the number of shares outstanding decrease, all else constant. 
C) are inversely related to the earnings per share. 
D) are based upon the dividend requirements established by International Accounting Standards. 
E) are equal to the amount of net income distributed to shareholders divided by the number of shares
Outstanding. 
A) increase as the net income increases as long as the number of shares outstanding remains constant. 
B) decrease as the number of shares outstanding decrease, all else constant. 
C) are inversely related to the earnings per share. 
D) are based upon the dividend requirements established by International Accounting Standards. 
E) are equal to the amount of net income distributed to shareholders divided by the number of shares
Outstanding.

Question 12

An increase in which one of the following will cause the operating cash ﬂow to increase?

Accepted Answer

A) Depreciation. 
B) Change in net working capital. 
C) Net working capital. 
D) Taxes. 
E) Costs. 
A) Depreciation. 
B) Change in net working capital. 
C) Net working capital. 
D) Taxes. 
E) Costs.

Question 13

Thompson's Jet Skis has at the end of the year Total assets of £650,000, Total Equity of £300,000, EBIT of £200,000 and Interest of £15,000? Calculate the Total debt ratio and Cash coverage ratio?

Accepted Answer

A) 3.25 and 13.3333. 
B) 1.5 and 0.6667. 
C) 1.1667 and 0.6667 
D) 1.1667 and 13.3333. 
E) 3.175 and 13.3333. 
A) 3.25 and 13.3333. 
B) 1.5 and 0.6667. 
C) 1.1667 and 0.6667 
D) 1.1667 and 13.3333. 
E) 3.175 and 13.3333.

Question 14

The cash ﬂow of the ﬁrm must be equal to:

Accepted Answer

A) cash ﬂow to equity minus cash ﬂow to debtholders. 
B) cash ﬂow to debtholders minus cash ﬂow to equity. 
C) cash ﬂow to governments plus cash ﬂow to equity. 
D) cash ﬂow to equity plus cash ﬂow to debtholders. 
E) None of the above. 
A) cash ﬂow to equity minus cash ﬂow to debtholders. 
B) cash ﬂow to debtholders minus cash ﬂow to equity. 
C) cash ﬂow to governments plus cash ﬂow to equity. 
D) cash ﬂow to equity plus cash ﬂow to debtholders. 
E) None of the above.

Question 15

Pete's Boats has at the end of the year has a Net Income of £100,000, Total Assets of £50,000 and Sales of £75,000. What is the ﬁrms Proﬁt margin and Return on Assets (ROA)?

Accepted Answer

A) 1.3333 and 0.5. 
B) 0.75 and 2. 
C) 1.3333 and 2. 
D) 0.6666 and 2. 
E) 0.6666 and 0.5. 
A) 1.3333 and 0.5. 
B) 0.75 and 2. 
C) 1.3333 and 2. 
D) 0.6666 and 2. 
E) 0.6666 and 0.5.

Question 16

What is the cash ﬂow to creditors for 2014?

Accepted Answer

A) -£405 million. 
B) -£225 million. 
C) £225 million. 
D) £405 million. 
E) £630 million. 
A) -£405 million. 
B) -£225 million. 
C) £225 million. 
D) £405 million. 
E) £630 million.

Question 17

A current asset is:

Accepted Answer

A) an item currently owned by the ﬁrm. 
B) an item that the ﬁrm expects to own within the next year. 
C) an item currently owned by the ﬁrm that will convert to cash within the next 12 months. 
D) the amount of cash on hand the ﬁrm currently shows on its statement of ﬁnancial position. 
E) the market value of all items currently owned by the ﬁrm. 
A) an item currently owned by the ﬁrm. 
B) an item that the ﬁrm expects to own within the next year. 
C) an item currently owned by the ﬁrm that will convert to cash within the next 12 months. 
D) the amount of cash on hand the ﬁrm currently shows on its statement of ﬁnancial position. 
E) the market value of all items currently owned by the ﬁrm.

Question 18

What is the taxable income for 2014?

Accepted Answer

A) £360 
B) £520 
C) £640 
D) £780 
E) £800 
A) £360 
B) £520 
C) £640 
D) £780 
E) £800

Question 19

As seen on an income statement:

Accepted Answer

A) interest is deducted from income and increases the total taxes incurred. 
B) the tax rate is applied to the earnings before interest and taxes when the ﬁrm has both depreciation and
Interest expenses. 
C) depreciation is shown as an expense but does not affect the taxes payable. 
D) depreciation reduces both the pretax income and the net income. 
E) interest expense is added to earnings before interest and taxes to get pretax income. 
A) interest is deducted from income and increases the total taxes incurred. 
B) the tax rate is applied to the earnings before interest and taxes when the ﬁrm has both depreciation and
Interest expenses. 
C) depreciation is shown as an expense but does not affect the taxes payable. 
D) depreciation reduces both the pretax income and the net income. 
E) interest expense is added to earnings before interest and taxes to get pretax income.

Question 20

The ﬁnancial statement showing a ﬁrm's accounting value on a particular date is the:

Accepted Answer

A) income statement. 
B) statement of ﬁnancial position. 
C) statement of cash ﬂows. 
D) tax reconciliation statement. 
E) shareholders' equity sheet. 
A) income statement. 
B) statement of ﬁnancial position. 
C) statement of cash ﬂows. 
D) tax reconciliation statement. 
E) shareholders' equity sheet.

Exam 3: Financial Statement Analysis

An increase in total assets:

Book value:

Note that in all of our cash ﬂow computations to determine cash ﬂow of the ﬁrm, we never include the addition to retained earnings.Why not? Is this an oversight?

According to International Accounting Standards,

What is net capital spending for 2014?

Which one of the following statements concerning liquidity is correct?

_____ refers to the difference between a ﬁrm's current assets and its current liabilities.

Assets are listed on the statement of ﬁnancial position in order of:

What is the amount of net new borrowing for 2014?

Which one of the following accounts is generally the most liquid?

Dividends per share:

An increase in which one of the following will cause the operating cash ﬂow to increase?

Thompson's Jet Skis has at the end of the year Total assets of £650,000, Total Equity of £300,000, EBIT of £200,000 and Interest of £15,000? Calculate the Total debt ratio and Cash coverage ratio?

The cash ﬂow of the ﬁrm must be equal to:

Pete's Boats has at the end of the year has a Net Income of £100,000, Total Assets of £50,000 and Sales of £75,000. What is the ﬁrms Proﬁt margin and Return on Assets (ROA)?

What is the cash ﬂow to creditors for 2014?

A current asset is:

What is the taxable income for 2014?

As seen on an income statement:

The ﬁnancial statement showing a ﬁrm's accounting value on a particular date is the:

Introduction to Corporate Finance

Corporate Governance

Discounted Cash Flow Valuation

Bond, Equity and Firm Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options and Capital Budgeting

Risk and Return: Lessons From Market History

Risk and Return: the Capital Asset Pricing Model

Factor Models and the Arbitrage Pricing Theory

Risk, Cost of Capital and Capital Budgeting

Efficient Capital Markets and Behavioural Finance

Long-Term Financing: an Introduction

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Valuation and Capital Budgeting for the Levered Firm

Dividends and Other Payouts

Equity Financing

Debt Financing

Leasing

Options and Corporate Finance

Options and Corporate Finance: Extensions and Applications

Warrants and Convertibles

Financial Risk Management With Derivatives

Short-Term Finance and Planning

Short-Term Capital Management

Mergers and Acquisitions

Financial Distress

International Corporate Finance

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