Question 1

Ratios that measure a firm's liquidity are known as ________ ratios.

Accepted Answer

A)  asset management 
B)  long-term solvency 
C)  short-term solvency 
D)  profitability 
E)  book value 
A)  asset management 
B)  long-term solvency 
C)  short-term solvency 
D)  profitability 
E)  book value C

Question 2

The Tech Store has annual sales of $416,000, a price-earnings ratio of 18, and a profit margin of 3.7 percent. There are 12,000 shares of stock outstanding. What is the price-sales ratio?

Accepted Answer

A)  0.97 
B)  0.67 
C)  1.08 
D)  1.15 
E)  0.86 
A)  0.97 
B)  0.67 
C)  1.08 
D)  1.15 
E)  0.86 B

Question 3

RJ's has a fixed asset turnover rate of 1.26 and a total asset turnover rate of .97. Sam's has a fixed asset turnover rate of 1.31 and a total asset turnover rate of .94. Both companies have similar operations. Based on this information, RJ's must be doing which one of the following?

Accepted Answer

A)  Utilizing its fixed assets more efficiently than Sam's 
B)  Utilizing its total assets more efficiently than Sam's 
C)  Generating $1 in sales for every $1.26 in net fixed assets 
D)  Generating $1.26 in net income for every $1 in net fixed assets 
E)  Maintaining the same level of current assets as Sam's 
A)  Utilizing its fixed assets more efficiently than Sam's 
B)  Utilizing its total assets more efficiently than Sam's 
C)  Generating $1 in sales for every $1.26 in net fixed assets 
D)  Generating $1.26 in net income for every $1 in net fixed assets 
E)  Maintaining the same level of current assets as Sam's B

Question 4

A firm has total assets with a current book value of $71,600, a current market value of $82,300, and a current replacement cost of $90,400. What is the value of Tobin's Q?

Accepted Answer

A)  0.85 
B)  0.87 
C)  0.90 
D)  0.94 
E)  0.91 
A)  0.85 
B)  0.87 
C)  0.90 
D)  0.94 
E)  0.91

Question 5

An increase in which of the following must increase the return on equity, all else constant?

Accepted Answer

A)  Total assets and sales 
B)  Net income and total equity 
C)  Total asset turnover and debt-equity ratio 
D)  Equity multiplier and total equity 
E)  Debt-equity ratio and total debt 
A)  Total assets and sales 
B)  Net income and total equity 
C)  Total asset turnover and debt-equity ratio 
D)  Equity multiplier and total equity 
E)  Debt-equity ratio and total debt

Question 6

Which one of these identifies the relationship between the return on assets and the return on equity?

Accepted Answer

A)  Profit margin 
B)  Profitability determinant 
C)  Balance sheet multiplier 
D)  DuPont identity 
E)  Debt-equity ratio 
A)  Profit margin 
B)  Profitability determinant 
C)  Balance sheet multiplier 
D)  DuPont identity 
E)  Debt-equity ratio

Question 7

Mortgage lenders probably have the most interest in the ________ ratios.

Accepted Answer

A)  return on assets and profit margin 
B)  long-term debt and times interest earned 
C)  price-earnings and debt-equity 
D)  market-to-book and times interest earned 
E)  return on equity and price-earnings 
A)  return on assets and profit margin 
B)  long-term debt and times interest earned 
C)  price-earnings and debt-equity 
D)  market-to-book and times interest earned 
E)  return on equity and price-earnings

Question 8

Which one of these is the least important factor to consider when comparing the financial situations of utility companies that generate electric power and have the same SIC code?

Accepted Answer

A)  Type of ownership 
B)  Government regulations affecting the firm 
C)  Fiscal year end 
D)  Methods of power generation 
E)  Number of part-time employees 
A)  Type of ownership 
B)  Government regulations affecting the firm 
C)  Fiscal year end 
D)  Methods of power generation 
E)  Number of part-time employees

Question 9

Corner Supply has a current accounts receivable balance of $246,000. Credit sales for the year just ended were $2,430,000. How many days on average did it take for credit customers to pay off their accounts during this past year?

Accepted Answer

A)  44.29 days 
B)  55.01 days 
C)  55.50 days 
D)  36.95 days 
E)  41.00 days 
A)  44.29 days 
B)  55.01 days 
C)  55.50 days 
D)  36.95 days 
E)  41.00 days

Question 10

The DuPont identity can be used to help managers answer which of the following questions related to a company's operations?
I. How many sales dollars are being generated per each dollar of assets?
II. How many dollars of assets have been acquired per each dollar in shareholders' equity?
III. How much net profit is being generating per dollar of sales?
IV. Does the company have the ability to meet its debt obligations in a timely manner?

Accepted Answer

A)  I and III only 
B)  II and IV only 
C)  I, II, and III only 
D)  II, III and IV only 
E)  I, II, III, and IV 
A)  I and III only 
B)  II and IV only 
C)  I, II, and III only 
D)  II, III and IV only 
E)  I, II, III, and IV

Question 11

Taylor's Men's Wear has a debt-equity ratio of 48 percent, sales of $829,000, net income of $47,300, and total debt of $206,300. What is the return on equity?

Accepted Answer

A)  19.29 percent 
B)  11.01 percent 
C)  15.74 percent 
D)  18.57 percent 
E)  14.16 percent 
A)  19.29 percent 
B)  11.01 percent 
C)  15.74 percent 
D)  18.57 percent 
E)  14.16 percent

Question 12

Which one of the following is a correct formula for computing the return on equity?

Accepted Answer

A)  Profit margin × ROA 
B)  ROA × Equity multiplier 
C)  Profit margin × Total asset turnover × Debt-equity ratio 
D)  Net income/Total assets 
E)  Debt-equity ratio × ROA 
A)  Profit margin × ROA 
B)  ROA × Equity multiplier 
C)  Profit margin × Total asset turnover × Debt-equity ratio 
D)  Net income/Total assets 
E)  Debt-equity ratio × ROA

Question 13

Activities of a firm that require the spending of cash are known as:

Accepted Answer

A)  sources of cash. 
B)  uses of cash. 
C)  cash collections. 
D)  cash receipts. 
E)  cash on hand. 
A)  sources of cash. 
B)  uses of cash. 
C)  cash collections. 
D)  cash receipts. 
E)  cash on hand.

Question 14

Stone Walls has a long-term debt ratio of .6 and a current ratio of 1.2. Current liabilities are $800, sales are $7,800, the profit margin is 6.5 percent, and return on equity is 15.5 percent. What is the amount of the firm's net fixed assets?

Accepted Answer

A)  $8,880.15 
B)  $8,017.43 
C)  $7,666.67 
D)  $5,848.15 
E)  $8,977.43 
A)  $8,880.15 
B)  $8,017.43 
C)  $7,666.67 
D)  $5,848.15 
E)  $8,977.43

Question 15

Canine Supply has sales of $2,800, total assets of $1,900, and a debt-equity ratio of .5. Its return on equity is 15 percent. What is the net income?

Accepted Answer

A)  $210 
B)  $130 
C)  $240 
D)  $350 
E)  $190 
A)  $210 
B)  $130 
C)  $240 
D)  $350 
E)  $190

Question 16

Lani's generated net income of $911, depreciation expense was $47, and dividends paid were $25. Accounts payables increased by $15, accounts receivables increased by $28, inventory decreased by $14, and net fixed assets decreased by $8. There was no interest expense. What was the net cash flow from operating activity?

Accepted Answer

A)  $776 
B)  $865 
C)  $959 
D)  $922 
E)  $985 
A)  $776 
B)  $865 
C)  $959 
D)  $922 
E)  $985

Question 17

The Strong Box has sales of $859,700, cost of goods sold of $648,200, net income of $93,100, and accounts receivable of $102,300. How many days of sales are in receivables?

Accepted Answer

A)  57.60 days 
B)  40.32 days 
C)  54.53 days 
D)  29.41 days 
E)  43.43 days 
A)  57.60 days 
B)  40.32 days 
C)  54.53 days 
D)  29.41 days 
E)  43.43 days

Question 18

Al's has a price-earnings ratio of 18.5. Ben's also has a price-earnings ratio of 18.5. Which one of the following statements must be true if Al's has a higher PEG ratio than Ben's?

Accepted Answer

A)  Al's has more net income than Ben's. 
B)  Ben's is increasing its earnings at a faster rate than Al's. 
C)  Al's has a higher market value per share than does Ben's. 
D)  Ben's has a lower market-to-book ratio than Al's. 
E)  Al's has a higher earnings growth rate than Ben's. 
A)  Al's has more net income than Ben's. 
B)  Ben's is increasing its earnings at a faster rate than Al's. 
C)  Al's has a higher market value per share than does Ben's. 
D)  Ben's has a lower market-to-book ratio than Al's. 
E)  Al's has a higher earnings growth rate than Ben's.

Question 19

Lancaster Toys has a profit margin of 5.1 percent, a total asset turnover of 1.84, and a return on equity of 16.2 percent. What is the debt-equity ratio?

Accepted Answer

A)  0.73 
B)  0.42 
C)  0.81 
D)  0.64 
E)  0.83 
A)  0.73 
B)  0.42 
C)  0.81 
D)  0.64 
E)  0.83

Question 20

The accounts payable of a company changed from $136,100 to $104,300 over the course of a year. This change represents a:

Accepted Answer

A)  use of $31,800 of cash as investment activity. 
B)  source of $31,800 of cash as an operating activity. 
C)  source of $31,800 of cash as a financing activity. 
D)  source of $31,800 of cash as an investment activity. 
E)  use of $31,800 of cash as an operating activity. 
A)  use of $31,800 of cash as investment activity. 
B)  source of $31,800 of cash as an operating activity. 
C)  source of $31,800 of cash as a financing activity. 
D)  source of $31,800 of cash as an investment activity. 
E)  use of $31,800 of cash as an operating activity.

Exam 3: Working with Financial Statements

Ratios that measure a firm's liquidity are known as ________ ratios.

The Tech Store has annual sales of $416,000, a price-earnings ratio of 18, and a profit margin of 3.7 percent. There are 12,000 shares of stock outstanding. What is the price-sales ratio?

RJ's has a fixed asset turnover rate of 1.26 and a total asset turnover rate of .97. Sam's has a fixed asset turnover rate of 1.31 and a total asset turnover rate of .94. Both companies have similar operations. Based on this information, RJ's must be doing which one of the following?

A firm has total assets with a current book value of $71,600, a current market value of $82,300, and a current replacement cost of $90,400. What is the value of Tobin's Q?

An increase in which of the following must increase the return on equity, all else constant?

Which one of these identifies the relationship between the return on assets and the return on equity?

Mortgage lenders probably have the most interest in the ________ ratios.

Which one of these is the least important factor to consider when comparing the financial situations of utility companies that generate electric power and have the same SIC code?

Corner Supply has a current accounts receivable balance of $246,000. Credit sales for the year just ended were $2,430,000. How many days on average did it take for credit customers to pay off their accounts during this past year?

Taylor's Men's Wear has a debt-equity ratio of 48 percent, sales of $829,000, net income of $47,300, and total debt of $206,300. What is the return on equity?

Which one of the following is a correct formula for computing the return on equity?

Activities of a firm that require the spending of cash are known as:

Stone Walls has a long-term debt ratio of .6 and a current ratio of 1.2. Current liabilities are $800, sales are $7,800, the profit margin is 6.5 percent, and return on equity is 15.5 percent. What is the amount of the firm's net fixed assets?

Canine Supply has sales of $2,800, total assets of $1,900, and a debt-equity ratio of .5. Its return on equity is 15 percent. What is the net income?

The Strong Box has sales of $859,700, cost of goods sold of $648,200, net income of $93,100, and accounts receivable of $102,300. How many days of sales are in receivables?

Al's has a price-earnings ratio of 18.5. Ben's also has a price-earnings ratio of 18.5. Which one of the following statements must be true if Al's has a higher PEG ratio than Ben's?

Lancaster Toys has a profit margin of 5.1 percent, a total asset turnover of 1.84, and a return on equity of 16.2 percent. What is the debt-equity ratio?

The accounts payable of a company changed from $136,100 to $104,300 over the course of a year. This change represents a:

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

Leasing

Filters