Question 1

Without making reference to its formula, provide a deﬁnition of current ratio.

Accepted Answer

The current ratio is a ﬁnancial ratio th

Question 2

A Waterloo ﬁrm with net income of $500,000 pays 48% of net income out in dividends. If the ﬁrm has 150,000 shares of common stock outstanding, what is the dividend paid per share of stock?

Accepted Answer

A)  $0.30 
B)  $1.44 
C)  $1.60 
D)  $1.73 
E)  $3.33 
A)  $0.30 
B)  $1.44 
C)  $1.60 
D)  $1.73 
E)  $3.33

Question 3

An equity multiplier of 0.64 means that for every $1 the ﬁrm raises in new equity, the ﬁrm can:

Accepted Answer

A)  Acquire an additional $0.64 in new assets. 
B)  Acquire an additional $0.64 in new debt. 
C)  Earn $0.64 in additional proﬁts. 
D)  Earn $0.64 in additional proﬁts per share. 
E)  Pay $0.64 in additional dividends per share. 
A)  Acquire an additional $0.64 in new assets. 
B)  Acquire an additional $0.64 in new debt. 
C)  Earn $0.64 in additional proﬁts. 
D)  Earn $0.64 in additional proﬁts per share. 
E)  Pay $0.64 in additional dividends per share.

Question 4

When comparing the ﬁnancial statements of one ﬁrm with those of another ﬁrm, a problem that may
be encountered is that either one, or both, of the ﬁrms may be conglomerates and thus have unrelated lines of business.

Accepted Answer

A) True 
 B)False

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

Accepted Answer

A)  70% 
B)  71% 
C)  72% 
D)  73% 
E)  74% 
A)  70% 
B)  71% 
C)  72% 
D)  73% 
E)  74%

Question 7

An increase in the receivables turnover means that:

Accepted Answer

A)  The majority of customers are paying slower. 
B)  The prices of items purchased are rising. 
C)  The days' sales in receivables are rising. 
D)  Proﬁt margins are rising. 
E)  Customers are paying their bills faster. 
A)  The majority of customers are paying slower. 
B)  The prices of items purchased are rising. 
C)  The days' sales in receivables are rising. 
D)  Proﬁt margins are rising. 
E)  Customers are paying their bills faster.

Question 8

Calculate operating proﬁt margin given the following information: sales = $1,200; cost of goods sold = $450; general and administrative costs = $150.

Accepted Answer

A)  0.385 
B)  0.50 
C)  0.625 
D)  0.75 
E)  0.875 
A)  0.385 
B)  0.50 
C)  0.625 
D)  0.75 
E)  0.875

Question 9

What was the greatest use of funds for Bo Knows Proﬁt Corp.?

Accepted Answer

A)  Increase in accounts receivable. 
B)  Decrease in accounts payable. 
C)  Acquisition of more ﬁxed assets. 
D)  Dividends. 
E)  Sale of inventory. 
A)  Increase in accounts receivable. 
B)  Decrease in accounts payable. 
C)  Acquisition of more ﬁxed assets. 
D)  Dividends. 
E)  Sale of inventory.

Question 10

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 11

Gateway Lodging has annual sales of $1.22 million, total debt of $380,000, total equity of $750,000, and a proﬁt margin of 7.45 %. What is the return on assets?

Accepted Answer

A)  6.97 % 
B)  7.13 % 
C)  7.56 % 
D)  7.78 % 
E)  8.04 % 
A)  6.97 % 
B)  7.13 % 
C)  7.56 % 
D)  7.78 % 
E)  8.04 %

Question 12

Herman's Bar and Grill paid $1,618 in interest and $265 in dividends last year. The times interest earned ratio is 1.9 and the depreciation expense is $50. What is the value of the cash coverage
Ratio?

Accepted Answer

A)  1.62 
B)  1.87 
C)  1.93 
D)  1.99 
E)  2.11 
A)  1.62 
B)  1.87 
C)  1.93 
D)  1.99 
E)  2.11

Question 13

Calculate net income given the following information: ﬁxed asset turnover = 8 times; proﬁt margin = 18.75%; net ﬁxed assets = $30,000.

Accepted Answer

A)  $42,000 
B)  $43,000 
C)  $44,000 
D)  $45,000 
E)  $46,000 
A)  $42,000 
B)  $43,000 
C)  $44,000 
D)  $45,000 
E)  $46,000

Question 14

During the year, Douglass Industries decreased the accounts receivable by $230, decreased the inventory by $150, and increased the accounts payable by $110. These three changes represent a
_____ of cash.

Accepted Answer

A)  $270 use 
B)  $490 use 
C)  $190 source 
D)  $270 source 
E)  $490 source 
A)  $270 use 
B)  $490 use 
C)  $190 source 
D)  $270 source 
E)  $490 source

Question 15

The following statement of ﬁnancial position and statement of comprehensive income should be used.     What is Woodburn's return on assets for 2015?

Accepted Answer

A)  18.50 % 
B)  18.67 % 
C)  19.89 % 
D)  20.18 % 
E)  20.70 % 
A)  18.50 % 
B)  18.67 % 
C)  19.89 % 
D)  20.18 % 
E)  20.70 %

Question 16

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 17

Martin's Method Acting School has a current ratio of 2, a quick ratio of 1.8, net income of $180,000, a proﬁt margin of 10%, and an accounts receivable balance of $150,000. What is the ﬁrm's average
Collection period?

Accepted Answer

A)  50 days 
B)  43 days 
C)  30 days 
D)  24 days 
E)  16 days 
A)  50 days 
B)  43 days 
C)  30 days 
D)  24 days 
E)  16 days

Question 18

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 19

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 20

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.

Exam 3: Working With Financial Statements

Without making reference to its formula, provide a deﬁnition of current ratio.

A Waterloo ﬁrm with net income of $500,000 pays 48% of net income out in dividends. If the ﬁrm has 150,000 shares of common stock outstanding, what is the dividend paid per share of stock?

An equity multiplier of 0.64 means that for every $1 the ﬁrm raises in new equity, the ﬁrm can:

When comparing the ﬁnancial statements of one ﬁrm with those of another ﬁrm, a problem that may be encountered is that either one, or both, of the ﬁrms may be conglomerates and thus have unrelated lines of business.

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

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

An increase in the receivables turnover means that:

Calculate operating proﬁt margin given the following information: sales = $1,200; cost of goods sold = $450; general and administrative costs = $150.

What was the greatest use of funds for Bo Knows Proﬁt Corp.?

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.

Gateway Lodging has annual sales of $1.22 million, total debt of $380,000, total equity of $750,000, and a proﬁt margin of 7.45 %. What is the return on assets?

Herman's Bar and Grill paid $1,618 in interest and $265 in dividends last year. The times interest earned ratio is 1.9 and the depreciation expense is $50. What is the value of the cash coverage Ratio?

Calculate net income given the following information: ﬁxed asset turnover = 8 times; proﬁt margin = 18.75%; net ﬁxed assets = $30,000.

During the year, Douglass Industries decreased the accounts receivable by $230, decreased the inventory by $150, and increased the accounts payable by $110. These three changes represent a _____ of cash.

The following statement of ﬁnancial position and statement of comprehensive income should be used. What is Woodburn's return on assets for 2015?

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

Martin's Method Acting School has a current ratio of 2, a quick ratio of 1.8, net income of $180,000, a proﬁt margin of 10%, and an accounts receivable balance of $150,000. What is the ﬁrm's average Collection period?

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

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

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

Introduction to Corporate Finance

Financial Statements, Taxes, and Cash Flow

Long-Term Financial Planning and 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

Some 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 Payout Policy

Short-Term Finance and Planning

Cash and Liquidity Management

Credit and Inventory Management

International Corporate Finance

Behavioral Finance: Implications for Financial Management

Enterprise Risk Management

Options and Corporate Finance

Option Valuation

Mergers and Acquisitions

Filters