Question 1

The inventory turnover ratio is measured as:

Accepted Answer

A)  Total sales minus inventory. 
B)  Inventory times total sales. 
C)  Cost of goods sold divided by inventory. 
D)  Inventory times cost of goods sold. 
E)  Inventory plus cost of goods sold. 
A)  Total sales minus inventory. 
B)  Inventory times total sales. 
C)  Cost of goods sold divided by inventory. 
D)  Inventory times cost of goods sold. 
E)  Inventory plus cost of goods sold.

Question 2

Assume a ﬁrm's current ratio equals 3.1. Which of the following actions would increase it?

Accepted Answer

A)  Discarding and writing off spoiled inventory. 
B)  Receiving a full cash payment on an account receivable. 
C)  Paying off a short-term bank loan with the proceeds from new long-term debt. 
D)  Purchasing new ﬁxed assets using the proceeds from a new stock issue. 
E)  Buying inventory on credit, thereby increasing accounts payable. 
A)  Discarding and writing off spoiled inventory. 
B)  Receiving a full cash payment on an account receivable. 
C)  Paying off a short-term bank loan with the proceeds from new long-term debt. 
D)  Purchasing new ﬁxed assets using the proceeds from a new stock issue. 
E)  Buying inventory on credit, thereby increasing accounts payable.

Question 3

Theodore's Corner Market has a debt-equity ratio of 60 %, sales of $318,000, net income of $24,900, and total debt of $112,500. What is the return on equity?

Accepted Answer

A)  13.28 % 
B)  14.67 % 
C)  14.82 % 
D)  15.43 % 
E)  16.09 % 
A)  13.28 % 
B)  14.67 % 
C)  14.82 % 
D)  15.43 % 
E)  16.09 %

Question 4

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 5

Days' sales in inventory of car dealerships are generally lower when compared to grocery stores.

Accepted Answer

A) True 
 B)False

Question 6

Proﬁt margin is deﬁned as:

Accepted Answer

A)  EBIT divided by sales. 
B)  Cost of goods sold divided by sales. 
C)  Net income divided by sales. 
D)  Net income divided by total assets. 
E)  EBIT divided by total assets. 
A)  EBIT divided by sales. 
B)  Cost of goods sold divided by sales. 
C)  Net income divided by sales. 
D)  Net income divided by total assets. 
E)  EBIT divided by total assets.

Question 7

Calculate total equity value given the following information: ROE = 8%; Total assets = $1,000,000 and ROA = 5%

Accepted Answer

A)  $625,000 
B)  $650,000 
C)  $700,000 
D)  $750,000 
E)  $800,000 
A)  $625,000 
B)  $650,000 
C)  $700,000 
D)  $750,000 
E)  $800,000

Question 8

Cash is $500, inventory is $4,800, accounts receivable is $3,200 and accounts payable is $2,400. What is the quick ratio?

Accepted Answer

A)  0.77 
B)  1.54 
C)  1.67 
D)  3.33 
E)  3.54 
A)  0.77 
B)  1.54 
C)  1.67 
D)  3.33 
E)  3.54

Question 9

Sales divided by the value computed as current assets minus current liabilities is referred to as the:

Accepted Answer

A)  Net working capital turnover. 
B)  Cash coverage ratio. 
C)  Equity multiplier. 
D)  Total asset turnover. 
E)  Capital intensity ratio. 
A)  Net working capital turnover. 
B)  Cash coverage ratio. 
C)  Equity multiplier. 
D)  Total asset turnover. 
E)  Capital intensity ratio.

Question 10

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 11

A Calgary ﬁrm has 11,000 shares of stock outstanding, sales of $1.62 million, net income of $20,020, a price-earnings ratio of 21.6, and a book value per share of $8.64. What is the market-to-book
Ratio?

Accepted Answer

A)  1.82 
B)  2.11 
C)  2.50 
D)  3.79 
E)  4.55 
A)  1.82 
B)  2.11 
C)  2.50 
D)  3.79 
E)  4.55

Question 12

When comparing the ﬁnancial statements of one ﬁrm with those of another ﬁrm, a problem that may
be encountered is that the two ﬁrms may be seasonal in nature and have different ﬁscal year ends.

Accepted Answer

A) True 
 B)False

Question 13

Which one of the following statements is correct if a ﬁrm has a receivables turnover measure of 10?

Accepted Answer

A)  It takes a ﬁrm 10 days to collect payment from its customers. 
B)  It takes a ﬁrm 36.5 days to sell its inventory and collect the payment from the sale. 
C)  It takes a ﬁrm 36.5 days to pay its creditors. 
D)  The ﬁrm has an average collection period of 36.5 days. 
E)  The ﬁrm has ten times more in accounts receivable than it does in cash. 
A)  It takes a ﬁrm 10 days to collect payment from its customers. 
B)  It takes a ﬁrm 36.5 days to sell its inventory and collect the payment from the sale. 
C)  It takes a ﬁrm 36.5 days to pay its creditors. 
D)  The ﬁrm has an average collection period of 36.5 days. 
E)  The ﬁrm has ten times more in accounts receivable than it does in cash.

Question 14

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

Accepted Answer

A)  Sale of inventory. 
B)  Increase in long-term debt. 
C)  Acquisition of more ﬁxed assets. 
D)  Increase in notes payable. 
E)  Increase in common stock. 
A)  Sale of inventory. 
B)  Increase in long-term debt. 
C)  Acquisition of more ﬁxed assets. 
D)  Increase in notes payable. 
E)  Increase in common stock.

Question 15

In a common size statement, the statement of ﬁnancial position may be expressed as a percentage of ____________ while the statement of comprehensive income may be expressed as a
Percentage of ____________.

Accepted Answer

A)  liabilities plus equity; net income 
B)  assets; net income 
C)  sales; liabilities plus equity 
D)  liabilities plus equity; sales 
E)  liabilities; sales 
A)  liabilities plus equity; net income 
B)  assets; net income 
C)  sales; liabilities plus equity 
D)  liabilities plus equity; sales 
E)  liabilities; sales

Question 16

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 17

If Young stock sells for $40 and there are 100 million shares outstanding, what is the P/E ratio($ in millions)?

Accepted Answer

A)  5.68 
B)  10.26 
C)  11.02 
D)  25.64 
E)  32.49 
A)  5.68 
B)  10.26 
C)  11.02 
D)  25.64 
E)  32.49

Question 18

Calculate cash coverage ratio given the following information: depreciation expense = $30,000; EBIT = $480,000; times interest earned = 12 times.

Accepted Answer

A)  12.25 times 
B)  12.50 times 
C)  12.75 times 
D)  13.00 times 
E)  13.25 times 
A)  12.25 times 
B)  12.50 times 
C)  12.75 times 
D)  13.00 times 
E)  13.25 times

Question 19

A small local company has net income of $200, interest expenses of $50, and depreciation of $51. The corporate tax rate is 50%. What is the cash coverage ratio?

Accepted Answer

A)  1.2 times 
B)  1.8 times 
C)  3.0 times 
D)  9.0 times 
E)  10.0 times 
A)  1.2 times 
B)  1.8 times 
C)  3.0 times 
D)  9.0 times 
E)  10.0 times

Question 20

Stockholders are most interested in the:

Accepted Answer

A)  Times interest earned ratio. 
B)  Current ratio. 
C)  Return on equity ratio. 
D)  Total asset turnover rate. 
E)  Return on assets ratio. 
A)  Times interest earned ratio. 
B)  Current ratio. 
C)  Return on equity ratio. 
D)  Total asset turnover rate. 
E)  Return on assets ratio.

Exam 3: Working With Financial Statements

The inventory turnover ratio is measured as:

Assume a ﬁrm's current ratio equals 3.1. Which of the following actions would increase it?

Theodore's Corner Market has a debt-equity ratio of 60 %, sales of $318,000, net income of $24,900, and total debt of $112,500. What is the return on equity?

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

Days' sales in inventory of car dealerships are generally lower when compared to grocery stores.

Proﬁt margin is deﬁned as:

Calculate total equity value given the following information: ROE = 8%; Total assets = $1,000,000 and ROA = 5%

Cash is $500, inventory is $4,800, accounts receivable is $3,200 and accounts payable is $2,400. What is the quick ratio?

Sales divided by the value computed as current assets minus current liabilities is referred to as the:

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

A Calgary ﬁrm has 11,000 shares of stock outstanding, sales of $1.62 million, net income of $20,020, a price-earnings ratio of 21.6, and a book value per share of $8.64. What is the market-to-book Ratio?

When comparing the ﬁnancial statements of one ﬁrm with those of another ﬁrm, a problem that may be encountered is that the two ﬁrms may be seasonal in nature and have different ﬁscal year ends.

Which one of the following statements is correct if a ﬁrm has a receivables turnover measure of 10?

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

In a common size statement, the statement of ﬁnancial position may be expressed as a percentage of ____________ while the statement of comprehensive income may be expressed as a Percentage of ____________.

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

If Young stock sells for $40 and there are 100 million shares outstanding, what is the P/E ratio($ in millions)?

Calculate cash coverage ratio given the following information: depreciation expense = $30,000; EBIT = $480,000; times interest earned = 12 times.

A small local company has net income of $200, interest expenses of $50, and depreciation of $51. The corporate tax rate is 50%. What is the cash coverage ratio?

Stockholders are most interested in the:

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

In a common size statement, the statement of ﬁnancial position may be expressed as a percentage of while the statement of comprehensive income may be expressed as a Percentage of .