Question 1

The income statement of a firm shows the value of its assets and liabilities over a specified period of time.

Accepted Answer

A) True 
 B)False  False

Question 2

Calculate the dividend per share that is paid when the earnings per share are $6.00 and plowback ratio is 0.85.

Accepted Answer

A) $1.14/share 
B) $1.05/share 
C) $0.90/share 
D) $0.85/share Payout ratio = 1 - 0.85 = 0.15
0)15 = Dividend per share/$6 
A) $1.14/share 
B) $1.05/share 
C) $0.90/share 
D) $0.85/share Payout ratio = 1 - 0.85 = 0.15
0)15 = Dividend per share/$6 C

Question 3

The financial ratios of a firm can best be compared to:

Accepted Answer

A) Ratios of firms in the same city 
B) Ratios of firms having the same capital structure 
C) Ratios of firms in the same industry 
D) Ratios of firms having the same return on equity 
A) Ratios of firms in the same city 
B) Ratios of firms having the same capital structure 
C) Ratios of firms in the same industry 
D) Ratios of firms having the same return on equity C

Question 4

Which of the following most effectively uses cost of capital as part its measure of company performance?

Accepted Answer

A) EVA 
B) Net income 
C) ROA 
D) ROE 
A) EVA 
B) Net income 
C) ROA 
D) ROE

Question 5

Calculate the average collection period for Dotte Inc.if its accounts receivables were $500 and $600 at the end of each of the last two years, and its revenue over the last year was $3,000.

Accepted Answer

A) 69 days 
B) 68 days 
C) 67 days 
D) 66 days 
A) 69 days 
B) 68 days 
C) 67 days 
D) 66 days

Question 6

Which of the following would be most detrimental to a firm's current ratio if that ratio is currently 2.0?

Accepted Answer

A) Buy raw materials on credit 
B) Sell marketable securities at cost 
C) Pay off accounts payable with cash 
D) Pay off a portion of long-term debt with cash 
A) Buy raw materials on credit 
B) Sell marketable securities at cost 
C) Pay off accounts payable with cash 
D) Pay off a portion of long-term debt with cash

Question 7

If a firm's cash coverage ratio is greater than its times interest earned ratio, then:

Accepted Answer

A) The firm's assets are not fully depreciated 
B) The firm has no lease obligations 
C) The firm has very little long-term debt 
D) The firm has a high degree of liquidity 
A) The firm's assets are not fully depreciated 
B) The firm has no lease obligations 
C) The firm has very little long-term debt 
D) The firm has a high degree of liquidity

Question 8

Which of the following actions will improve a firm's current ratio if it is now less than 1.0?

Accepted Answer

A) Convert marketable securities to cash 
B) Pay accounts payable with cash 
C) Buy inventory on credit 
D) Sell inventory at cost 
A) Convert marketable securities to cash 
B) Pay accounts payable with cash 
C) Buy inventory on credit 
D) Sell inventory at cost

Question 9

A firm reports an ROE of 14 percent, a leverage ratio of 1.5, an asset turnover of 1.667, and a profit margin of 9 percent.Calculate the firm's ROA and then comment on the ROA in relation to ROE.What is happening?

Accepted Answer

The firm's ROA is 15 percent, which is 1

Question 10

ROE is equal to ROA when the firm has no debt.

Accepted Answer

A) True 
 B)False

Question 11

What is the ROA of a firm with $150,000 in average receivables, which represents 60 days sales, average assets of $750,000, and a profit margin of 9%?

Accepted Answer

A) 5.60% 
B) 6.50% 
C) 8.85% 
D) 10.95% 
A) 5.60% 
B) 6.50% 
C) 8.85% 
D) 10.95%

Question 12

Cindex Corporation had total capitalization of $500 million.It had sales of $600; cost of goods sold of $375 million, and operating expenses of $75 million.Tax rate is 30%.Calculate the company's Return of Capital.

Accepted Answer

A) 21% 
B) 23% 
C) 25% 
D) 27% 
A) 21% 
B) 23% 
C) 25% 
D) 27%

Question 13

A cash coverage ratio of less than one indicates:

Accepted Answer

A) The firm does not have enough cash to make its interest payments 
B) The firm does have enough cash to make its interest payments, but not its lease obligations 
C) The firm has too little depreciation expense 
D) Earnings need only to fall by a small amount before interest obligations cannot be covered 
A) The firm does not have enough cash to make its interest payments 
B) The firm does have enough cash to make its interest payments, but not its lease obligations 
C) The firm has too little depreciation expense 
D) Earnings need only to fall by a small amount before interest obligations cannot be covered

Question 14

Calculate the average collection period for Dotte Inc.if its accounts receivables were $500 and $600 at the end of each of the last two years, and its revenue over the last year was $3,000:

Accepted Answer

A) 60 days 
B) 61 days 
C) 67 days 
D) 73 days 
A) 60 days 
B) 61 days 
C) 67 days 
D) 73 days

Question 15

A firm's quick ratio of .89 suggests that the firm:

Accepted Answer

A) Has a low level of current liabilities 
B) Has been overstating the value of its inventory 
C) Faces a potentially serious liquidity crisis 
D) Should reduce its holdings of cash and/or marketable securities 
A) Has a low level of current liabilities 
B) Has been overstating the value of its inventory 
C) Faces a potentially serious liquidity crisis 
D) Should reduce its holdings of cash and/or marketable securities

Question 16

What is the residual income for a firm with $1 million in total capital, $300,000 in net income, and a 20% cost of capital?

Accepted Answer

A) $400,000 
B) $300,000 
C) $200,000 
D) $100,000 Total capital x cost of capital
$1 million x .2 = $200,000
Residual income = Net Income - Cost of Capital 
A) $400,000 
B) $300,000 
C) $200,000 
D) $100,000 Total capital x cost of capital
$1 million x .2 = $200,000
Residual income = Net Income - Cost of Capital

Question 17

An example of liquid assets would be:

Accepted Answer

A) Buildings 
B) Company cars 
C) Finished goods 
D) Fixed assets 
A) Buildings 
B) Company cars 
C) Finished goods 
D) Fixed assets

Question 18

The higher the times interest earned ratio, the higher the interest expense.

Accepted Answer

A) True 
 B)False

Question 19

Why did Enron devise so many so-called special-purpose entities (SPEs)? What were the consequences of doing so? Why did Enron demonstrate the importance of transparency?

Accepted Answer

Dishonest managers with creamy compensat

Question 20

Which of the following statements is correct for a firm in which depreciation expense exceeds EBIT? The firm:

Accepted Answer

A) Will have a net loss 
B) Will have no income-tax liability 
C) Needs to lower its interest expense 
D) Can still have a positive net income 
A) Will have a net loss 
B) Will have no income-tax liability 
C) Needs to lower its interest expense 
D) Can still have a positive net income

Exam 4: Measuring Corporate Performance

The income statement of a firm shows the value of its assets and liabilities over a specified period of time.

Calculate the dividend per share that is paid when the earnings per share are $6.00 and plowback ratio is 0.85.

The financial ratios of a firm can best be compared to:

Which of the following most effectively uses cost of capital as part its measure of company performance?

Calculate the average collection period for Dotte Inc.if its accounts receivables were $500 and $600 at the end of each of the last two years, and its revenue over the last year was $3,000.

Which of the following would be most detrimental to a firm's current ratio if that ratio is currently 2.0?

If a firm's cash coverage ratio is greater than its times interest earned ratio, then:

Which of the following actions will improve a firm's current ratio if it is now less than 1.0?

A firm reports an ROE of 14 percent, a leverage ratio of 1.5, an asset turnover of 1.667, and a profit margin of 9 percent.Calculate the firm's ROA and then comment on the ROA in relation to ROE.What is happening?

ROE is equal to ROA when the firm has no debt.

What is the ROA of a firm with $150,000 in average receivables, which represents 60 days sales, average assets of $750,000, and a profit margin of 9%?

Cindex Corporation had total capitalization of $500 million.It had sales of $600; cost of goods sold of $375 million, and operating expenses of $75 million.Tax rate is 30%.Calculate the company's Return of Capital.

A cash coverage ratio of less than one indicates:

Calculate the average collection period for Dotte Inc.if its accounts receivables were $500 and $600 at the end of each of the last two years, and its revenue over the last year was $3,000:

A firm's quick ratio of .89 suggests that the firm:

What is the residual income for a firm with $1 million in total capital, $300,000 in net income, and a 20% cost of capital?

An example of liquid assets would be:

The higher the times interest earned ratio, the higher the interest expense.

Why did Enron devise so many so-called special-purpose entities (SPEs)? What were the consequences of doing so? Why did Enron demonstrate the importance of transparency?

Which of the following statements is correct for a firm in which depreciation expense exceeds EBIT? The firm:

Goals and Governance of the Firm

Financial Markets and Institutions

Accounting and Finance

The Time Value of Money

Valuing Bonds

Valuing Stocks

Net Present Value and Other Investment Criteria

Using Discounted Cash-Flow Analysis to Make Investment Decisions

Project Analysis

Introduction to Risk, Return, and the Opportunity Cost of Capital

Risk, Return, and Capital Budgeting

The Weighted-Average Cost of Capital and Company Valuation

Introduction to Corporate Financing and Governance

Venture Capital, Ipos, and Seasoned Offerings

Debt Policy

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Working Capital Management

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

Conclusion

What We Do and Do Not Know About Finance

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