Question 1

Which of the following is NOT true?

Accepted Answer

A) The relationship between cash and sales can be determined by estimating the past relationship between sales levels and cash balances. 
B) Interest expenses can be predicted with a reasonable degree of accuracy, especially when the firm uses variable interest rates on debt. 
C) Selling expenses are commonly based on a percentage of sales. 
D) A pro forma income statement may also include projected dividend payments based on the firm's established dividend policies. 
A) The relationship between cash and sales can be determined by estimating the past relationship between sales levels and cash balances. 
B) Interest expenses can be predicted with a reasonable degree of accuracy, especially when the firm uses variable interest rates on debt. 
C) Selling expenses are commonly based on a percentage of sales. 
D) A pro forma income statement may also include projected dividend payments based on the firm's established dividend policies.

Question 2

Which of the following is true when a firm is operating at the sustainable growth rate (SGR)?

Accepted Answer

A) The firm sells all of its inventory. 
B) The firm's net income is zero. 
C) The firm neither needs nor generates financing. 
D) The firm pays a dividend equal to exactly half of its retained earnings. 
A) The firm sells all of its inventory. 
B) The firm's net income is zero. 
C) The firm neither needs nor generates financing. 
D) The firm pays a dividend equal to exactly half of its retained earnings.

Question 3

Which of the following best describes an efficiency ratio?

Accepted Answer

A) A measure of how well a company converts revenue into earnings 
B) A measure of how quickly a company processes accounts receivables 
C) A measure of a firm's return on assets (RO
A)  
D) A measure of the efficiency of a company's logistics 
A) A measure of how well a company converts revenue into earnings 
B) A measure of how quickly a company processes accounts receivables 
C) A measure of a firm's return on assets (RO
A)  
D) A measure of the efficiency of a company's logistics

Question 4

The following information has been obtained on Alberta Drilling Company for 2022:
 
The receivables turnover and average collection period for Alberta Drilling Company are:

Accepted Answer

A) Receivables turnover: 67.59; collection period: 5.40 days 
B) Receivables turnover: 40.56; collection period: 9.00 days 
C) Receivables turnover: 9.00; collection period: 40.56 days 
D) Receivables turnover: 5.40; collection period: 67.59 days 
A) Receivables turnover: 67.59; collection period: 5.40 days 
B) Receivables turnover: 40.56; collection period: 9.00 days 
C) Receivables turnover: 9.00; collection period: 40.56 days 
D) Receivables turnover: 5.40; collection period: 67.59 days

Question 5

Which of the following people would be likely to calculate financial ratios for a company?

Accepted Answer

A) Bondholders 
B) Equity holders 
C) Suppliers 
D) All of these would calculate ratios on a company. 
A) Bondholders 
B) Equity holders 
C) Suppliers 
D) All of these would calculate ratios on a company.

Question 6

What is a pure financial ratio?

Accepted Answer

A) A financial ratio that does not include non-cash items 
B) A financial ratio for the same year 
C) A financial ratio that involves items from the same financial statement 
D) A financial ratio using the same GAAP 
A) A financial ratio that does not include non-cash items 
B) A financial ratio for the same year 
C) A financial ratio that involves items from the same financial statement 
D) A financial ratio using the same GAAP

Question 7

Which of the following ratios would be most useful for evaluating a firm's degree of leverage?

Accepted Answer

A) Earnings-power ratio 
B) Debt-to-equity ratio 
C) Current ratio 
D) Asset turnover ratio 
A) Earnings-power ratio 
B) Debt-to-equity ratio 
C) Current ratio 
D) Asset turnover ratio

Question 8

Which of the following ratios are "stock ratios"?

Accepted Answer

A) Debt / equity ratio 
B) Leverage ratio 
C) Debt / asset ratio 
D) All of the above 
A) Debt / equity ratio 
B) Leverage ratio 
C) Debt / asset ratio 
D) All of the above

Question 9

Company A's current sales are $120 and the most current balance sheet is presented below.Suppose the sales growth rate is 10% and that short-term debt, long-term debt, and equity are not expected to change.What is the external financing needed for next year?

Accepted Answer

A) -$13.5 
B) $13.5 
C) $165 
D) $151.5 
A) -$13.5 
B) $13.5 
C) $165 
D) $151.5

Question 10

Which of the following is NOT a step in the financial planning process?

Accepted Answer

A) Deciding how additional required assets will be financed 
B) Estimating various cost categories as per the income statement 
C) Preparing projected funds-flow statement 
D) Ordering supplies in anticipation of future sales 
A) Deciding how additional required assets will be financed 
B) Estimating various cost categories as per the income statement 
C) Preparing projected funds-flow statement 
D) Ordering supplies in anticipation of future sales

Question 11

Which of the following class(es)of ratios examines the relationship of borrowed funds to funds contributed by the equity holders and the ability of the firm to service its existing borrowings?

Accepted Answer

A) Profitability and activity ratios 
B) Leverage and coverage ratios 
C) Liquidity ratios 
D) All of the above 
A) Profitability and activity ratios 
B) Leverage and coverage ratios 
C) Liquidity ratios 
D) All of the above

Question 12

Toronto Skaters Company earned a net profit margin of 6% in 2022.Their turnover ratio is 5 and their leverage ratio is 3.The return on equity (ROE)earned by Toronto Skaters in 2022 is:

Accepted Answer

A) 0.90% 
B) 9% 
C) 10% 
D) 90% 
A) 0.90% 
B) 9% 
C) 10% 
D) 90%

Question 13

GoHabs Firm has assets and liabilities with book values of $65 million and $35 million, respectively.The market value of the assets is $75 million and the market value of the debt is $40 million.If GoHabs's EBITDA is $20 million, what is the EBITDA multiple?

Accepted Answer

A) 0.67 
B) 1.50 
C) 1.75 
D) 3.75 
A) 0.67 
B) 1.50 
C) 1.75 
D) 3.75

Question 14

To produce chewing gum, DryFruit Gum Company pays $100,000 per year for rent on a long-term lease and $25 per kilogram for sorbitol and other ingredients.These are the only costs associated with making DryFruit Gum.During the year, the firm sold 30,000 kilograms of chewing gum at $45 per kilogram.Ignoring income taxes, the break-even point for DryFruit is:

Accepted Answer

A) 225,000 kilograms 
B) 40,000 kilograms 
C) 5,000 kilograms 
D) 60,000 kilograms 
A) 225,000 kilograms 
B) 40,000 kilograms 
C) 5,000 kilograms 
D) 60,000 kilograms

Question 15

Complete the following income statement based on the information provided below:
Sales $
Less:
Cost of goods sold
Administration costs
Interest
Net income before taxes
Income taxes
Net Income $
Selected values are given as follows:
Gross operating margin 24%
Net operating margin 20%
Total Asset turnover 0.8
Return on common equity 10%
Tax rate 40%
Total Assets $15,000
Net worth $12,000
Preferred shares 0

Accepted Answer

Sales = Asset turnover × Total Assets =

Question 16

Given the following information extracted from the income statement of Widget Company ( Widget Company has no depreciation expense or opening or closing inventory),
 
The degree of total leverage (DTL)of Widget Company is closest to:

Accepted Answer

A) 2.80 
B) 3.25 
C) 3.50 
D) 4.00 
A) 2.80 
B) 3.25 
C) 3.50 
D) 4.00

Question 17

.Which of the following ratios is also referred to as a "flow ratio"?

Accepted Answer

A) Debt / equity ratio 
B) Times interest earned 
C) Leverage ratio 
D) None of the above 
A) Debt / equity ratio 
B) Times interest earned 
C) Leverage ratio 
D) None of the above

Question 18

Which of the following is NOT true?

Accepted Answer

A) Financial analysis can be fully standardized. 
B) Effective analysis requires identification of the most appropriate ratios for the particular objective, as all ratios will not give the same information. 
C) The output from financial analysis can often provide only general clues. 
D) Some financial ratios will not be appropriate for firms of different sizes. 
A) Financial analysis can be fully standardized. 
B) Effective analysis requires identification of the most appropriate ratios for the particular objective, as all ratios will not give the same information. 
C) The output from financial analysis can often provide only general clues. 
D) Some financial ratios will not be appropriate for firms of different sizes.

Question 19

What does the retention ratio measure?

Accepted Answer

A) Contribution margin minus fixed costs 
B) The percentage of net earnings not paid out in dividends 
C) Earnings before tax minus taxes 
D) Cash from operations minus cash from investing 
A) Contribution margin minus fixed costs 
B) The percentage of net earnings not paid out in dividends 
C) Earnings before tax minus taxes 
D) Cash from operations minus cash from investing

Question 20

The current stock price of Bay James Tourism Company is $25.Current earnings per share are $15 and are expected to grow by 20% next year.Bay James Tourism's trailing and forward price-earnings ratios are:

Accepted Answer

A) Trailing = 1.67; Forward = 1.39 
B) Trailing = 1.67; Forward = 1.20 
C) Trailing = 1.39; Forward = 1.67 
D) Trailing = 1.20; Forward = 1.67 
A) Trailing = 1.67; Forward = 1.39 
B) Trailing = 1.67; Forward = 1.20 
C) Trailing = 1.39; Forward = 1.67 
D) Trailing = 1.20; Forward = 1.67

Exam 4: Financial Statement Analysis and Forecasting

Which of the following is NOT true?

Which of the following is true when a firm is operating at the sustainable growth rate (SGR)?

Which of the following best describes an efficiency ratio?

The following information has been obtained on Alberta Drilling Company for 2022: The receivables turnover and average collection period for Alberta Drilling Company are:

Which of the following people would be likely to calculate financial ratios for a company?

What is a pure financial ratio?

Which of the following ratios would be most useful for evaluating a firm's degree of leverage?

Which of the following ratios are "stock ratios"?

Company A's current sales are $120 and the most current balance sheet is presented below.Suppose the sales growth rate is 10% and that short-term debt, long-term debt, and equity are not expected to change.What is the external financing needed for next year?

Which of the following is NOT a step in the financial planning process?

Which of the following class(es)of ratios examines the relationship of borrowed funds to funds contributed by the equity holders and the ability of the firm to service its existing borrowings?

Toronto Skaters Company earned a net profit margin of 6% in 2022.Their turnover ratio is 5 and their leverage ratio is 3.The return on equity (ROE)earned by Toronto Skaters in 2022 is:

GoHabs Firm has assets and liabilities with book values of $65 million and $35 million, respectively.The market value of the assets is $75 million and the market value of the debt is $40 million.If GoHabs's EBITDA is $20 million, what is the EBITDA multiple?

Given the following information extracted from the income statement of Widget Company ( Widget Company has no depreciation expense or opening or closing inventory), The degree of total leverage (DTL)of Widget Company is closest to:

.Which of the following ratios is also referred to as a "flow ratio"?

Which of the following is NOT true?

What does the retention ratio measure?

The current stock price of Bay James Tourism Company is $25.Current earnings per share are $15 and are expected to grow by 20% next year.Bay James Tourism's trailing and forward price-earnings ratios are:

An Introduction to Finance

Business Corporate Finance

Financial Statements

Time Value of Money

Bond Valuation and Interest Rates

Equity Valuation

Risk, Return, and Portfolio Theory

The Capital Asset Pricing Model Capm

Market Efficiency

Forwards, Futures, and Swaps

Options

Capital Budgeting, Risk Considerations, and Other Special Issues

Cash Flow Estimation and Capital Budgeting Decisions

Mergers and Acquisitions

Leasing

Investment Banking and Securities Law

Debt Instruments

Equity and Hybrid Instruments

Cost of Capital

Capital Structure Decisions

Dividend Policy

Working Capital Management: General Issues

Working Capital Management: Current Assets and Current Liabilities

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