Question 1

What is the equity multiplier for 2011?

Accepted Answer

A)  1.6 
B)  1.8 
C)  2.0 
D)  2.3 
E)  2.5 
A)  1.6 
B)  1.8 
C)  2.0 
D)  2.3 
E)  2.5

Question 2

A firm has 5,000 shares of stock outstanding,sales of $6,000,an enterprise value of $5 million and an EBITDA of 1 million. What is the enterprise value multiple?

Accepted Answer

A)  2.2 
B)  2.4 
C)  3.0 
D)  4.0 
E)  5.0 
A)  2.2 
B)  2.4 
C)  3.0 
D)  4.0 
E)  5.0

Question 3

A banker considering loaning a firm money for ten years would most likely prefer the firm have a debt ratio of _______ and a times interest earned ratio of _______.

Accepted Answer

A)  .75; .75 
B)  .50; 1.00 
C)  .45; 1.75 
D)  .40; 2.50 
E)  .35; 3.00 
A)  .75; .75 
B)  .50; 1.00 
C)  .45; 1.75 
D)  .40; 2.50 
E)  .35; 3.00

Question 4

Which two of the following are most apt to cause a firm to have a higher price-earnings ratio?
I. slow industry outlook
II. high prospect of firm growth
III. very low current earnings
IV. investors with a low opinion of the firm

Accepted Answer

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

Question 5

An increase in which one of the following accounts increases a firm's current ratio without affecting its quick ratio?

Accepted Answer

A)  accounts payable 
B)  cash 
C)  inventory 
D)  accounts receivable 
E)  fixed assets 
A)  accounts payable 
B)  cash 
C)  inventory 
D)  accounts receivable 
E)  fixed assets

Question 6

If a firm bases its growth projection on the rate of sustainable growth,and shows positive net income,then the:

Accepted Answer

A)  fixed assets will have to increase at the same rate, regardless of the current capacity level. 
B)  number of common shares outstanding will increase at the same rate of growth. 
C)  debt-equity ratio will have to increase. 
D)  debt-equity ratio will remain constant while retained earnings increase. 
E)  fixed assets, debt-equity ratio, and number of common shares outstanding will all increasE. 
A)  fixed assets will have to increase at the same rate, regardless of the current capacity level. 
B)  number of common shares outstanding will increase at the same rate of growth. 
C)  debt-equity ratio will have to increase. 
D)  debt-equity ratio will remain constant while retained earnings increase. 
E)  fixed assets, debt-equity ratio, and number of common shares outstanding will all increasE.

Question 7

The financial ratio measured as earnings before interest and taxes,plus depreciation,divided by interest expense,is the:

Accepted Answer

A)  cash coverage ratio. 
B)  debt-equity ratio. 
C)  times interest earned ratio. 
D)  gross margin. 
E)  total debt ratio. 
A)  cash coverage ratio. 
B)  debt-equity ratio. 
C)  times interest earned ratio. 
D)  gross margin. 
E)  total debt ratio.

Question 8

Growth can be reconciled with the goal of maximizing firm value:

Accepted Answer

A)  because greater growth always adds to value. 
B)  because growth must be an outcome of decisions that maximize NPV. 
C)  because growth and wealth maximization are the same. 
D)  because growth of any type cannot decrease value. 
E)  None of these. 
A)  because greater growth always adds to value. 
B)  because growth must be an outcome of decisions that maximize NPV. 
C)  because growth and wealth maximization are the same. 
D)  because growth of any type cannot decrease value. 
E)  None of these.

Question 9

What is the return on equity for 2011?

Accepted Answer

A)  5.7% 
B)  6.8% 
C)  13.0% 
D)  15.3% 
E)  16.0% 
A)  5.7% 
B)  6.8% 
C)  13.0% 
D)  15.3% 
E)  16.0%

Question 10

The financial ratio measured as total assets minus total equity,divided by total assets,is the:

Accepted Answer

A)  total debt ratio. 
B)  equity multiplier. 
C)  debt-equity ratio. 
D)  current ratio. 
E)  times interest earned ratio. 
A)  total debt ratio. 
B)  equity multiplier. 
C)  debt-equity ratio. 
D)  current ratio. 
E)  times interest earned ratio.

Question 11

Jessica's Boutique has cash of $50,accounts receivable of $60,accounts payable of $400,and inventory of $100. What is the value of the quick ratio?

Accepted Answer

A)  .125 
B)  .15 
C)  .275 
D)  .525 
E)  1.525 
A)  .125 
B)  .15 
C)  .275 
D)  .525 
E)  1.525

Question 12

Moulton Incorporated has a 10% return on assets and a 20% dividend payout ratio. What is the internal growth rate?

Accepted Answer

A)  8.2% 
B)  8.7% 
C)  9.4% 
D)  10% 
E)  None of these. 
A)  8.2% 
B)  8.7% 
C)  9.4% 
D)  10% 
E)  None of these.

Question 13

If shareholders want to know how much profit a firm is making on their entire investment in the firm,the shareholders should look at the:

Accepted Answer

A)  profit margin. 
B)  return on assets. 
C)  return on equity. 
D)  equity multiplier. 
E)  earnings per sharE. 
A)  profit margin. 
B)  return on assets. 
C)  return on equity. 
D)  equity multiplier. 
E)  earnings per sharE.

Question 14

The financial ratio days' sales in receivables is measured as:

Accepted Answer

A)  receivables turnover plus 365 days. 
B)  accounts receivable times 365 days. 
C)  accounts receivable plus sales, divided by 365 days. 
D)  365 days divided by the receivables turnover. 
E)  365 days divided by the accounts receivablE. 
A)  receivables turnover plus 365 days. 
B)  accounts receivable times 365 days. 
C)  accounts receivable plus sales, divided by 365 days. 
D)  365 days divided by the receivables turnover. 
E)  365 days divided by the accounts receivablE.

Question 15

The Green Giant has a 5% profit margin and a 40% dividend payout ratio. The total asset turnover is 1.40 and the equity multiplier is 1.50. What is the sustainable rate of growth?

Accepted Answer

A)  6.30% 
B)  6.53% 
C)  6.72% 
D)  6.80% 
E)  6.83% 
A)  6.30% 
B)  6.53% 
C)  6.72% 
D)  6.80% 
E)  6.83%

Question 16

The higher the inventory turnover measure,the:

Accepted Answer

A)  faster a firm sells its inventory. 
B)  faster a firm collects payment on its sales. 
C)  longer it takes a firm to sell its inventory. 
D)  greater the amount of inventory held by a firm. 
E)  lesser the amount of inventory held by a firm. 
A)  faster a firm sells its inventory. 
B)  faster a firm collects payment on its sales. 
C)  longer it takes a firm to sell its inventory. 
D)  greater the amount of inventory held by a firm. 
E)  lesser the amount of inventory held by a firm.

Question 17

What is the times interest earned ratio for 2011?

Accepted Answer

A)  30 
B)  36 
C)  40 
D)  50 
E)  54 
A)  30 
B)  36 
C)  40 
D)  50 
E)  54

Question 18

Fleur International had a 3% profit margin and a 35% dividend payout ratio. The total asset turnover is 1.25 and the equity multiplier is 1.30. What is the sustainable growth rate?

Accepted Answer

A)  3.27% 
B)  3.67% 
C)  4.27% 
D)  5.60% 
E)  None of these. 
A)  3.27% 
B)  3.67% 
C)  4.27% 
D)  5.60% 
E)  None of these.

Question 19

The equity multiplier ratio is measured as total:

Accepted Answer

A)  equity divided by total assets. 
B)  equity plus total debt. 
C)  assets minus total equity, divided by total assets. 
D)  assets plus total equity, divided by total debt. 
E)  assets divided by total equity. 
A)  equity divided by total assets. 
B)  equity plus total debt. 
C)  assets minus total equity, divided by total assets. 
D)  assets plus total equity, divided by total debt. 
E)  assets divided by total equity.

Question 20

One of the primary weaknesses of many financial planning models is that they:

Accepted Answer

A)  rely too much on financial relationships and too little on accounting relationships. 
B)  are iterative in nature. 
C)  ignore the goals and objectives of senior management. 
D)  are based solely on best case assumptions. 
E)  ignore the size, risk, and timing of cash flows. 
A)  rely too much on financial relationships and too little on accounting relationships. 
B)  are iterative in nature. 
C)  ignore the goals and objectives of senior management. 
D)  are based solely on best case assumptions. 
E)  ignore the size, risk, and timing of cash flows.

Exam 3: Financial Statements Analysis and Financial Models

What is the equity multiplier for 2011?

A firm has 5,000 shares of stock outstanding,sales of $6,000,an enterprise value of $5 million and an EBITDA of 1 million. What is the enterprise value multiple?

A banker considering loaning a firm money for ten years would most likely prefer the firm have a debt ratio of _______ and a times interest earned ratio of _______.

Which two of the following are most apt to cause a firm to have a higher price-earnings ratio? I. slow industry outlook II. high prospect of firm growth III. very low current earnings IV. investors with a low opinion of the firm

An increase in which one of the following accounts increases a firm's current ratio without affecting its quick ratio?

If a firm bases its growth projection on the rate of sustainable growth,and shows positive net income,then the:

The financial ratio measured as earnings before interest and taxes,plus depreciation,divided by interest expense,is the:

Growth can be reconciled with the goal of maximizing firm value:

What is the return on equity for 2011?

The financial ratio measured as total assets minus total equity,divided by total assets,is the:

Jessica's Boutique has cash of $50,accounts receivable of $60,accounts payable of $400,and inventory of $100. What is the value of the quick ratio?

Moulton Incorporated has a 10% return on assets and a 20% dividend payout ratio. What is the internal growth rate?

If shareholders want to know how much profit a firm is making on their entire investment in the firm,the shareholders should look at the:

The financial ratio days' sales in receivables is measured as:

The Green Giant has a 5% profit margin and a 40% dividend payout ratio. The total asset turnover is 1.40 and the equity multiplier is 1.50. What is the sustainable rate of growth?

The higher the inventory turnover measure,the:

What is the times interest earned ratio for 2011?

Fleur International had a 3% profit margin and a 35% dividend payout ratio. The total asset turnover is 1.25 and the equity multiplier is 1.30. What is the sustainable growth rate?

The equity multiplier ratio is measured as total:

One of the primary weaknesses of many financial planning models is that they:

Introduction to Corporate Finance

Financial Statements and Cash Flow

Discounted Cash Flow Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options, and Capital Budgeting

Interest Rates and Bond Valuation

Stock Valuation

Risk and Return: Lessons From Market History

Return and Risk: the Capital Asset Pricing Model Capm

An Alternative View of Risk and Return: The Arbitrage Pricing Theory

Risk, Cost of Capital, and Valuation

Efficient Capital Markets and Behavioral Challenges

Long-Term Financing

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Valuation and Capital Budgeting for the Levered Firm

Dividends and Other Payouts

Raising Capital

Leasing

Options and Corporate Finance

Options and Corporate Finance: Extensions and Applications

Warrants and Convertibles

Derivatives and Hedging Risk

Short-Term Finance and Planning

Cash Management

Credit and Inventory Management

Mergers, Acquisitions, and Divestitures

Financial Distress

International Corporate Finance

Filters

A banker considering loaning a firm money for ten years would most likely prefer the firm have a debt ratio of _ and a times interest earned ratio of _.