Question 1

What is the cash coverage ratio for 2011?

Accepted Answer

A)  11.6 
B)  12.8 
C)  13.7 
D)  17.3 
E)  18.8 
A)  11.6 
B)  12.8 
C)  13.7 
D)  17.3 
E)  18.8

Question 2

Which one of the following statements is correct?

Accepted Answer

A)  Book values should always be given precedence over market values. 
B)  Financial statements are frequently the basis used for performance evaluations. 
C)  Historical information has no value when predicting the future. 
D)  Potential lenders place little value on financial statement information. 
E)  Reviewing financial information over time has very limited valuE. 
A)  Book values should always be given precedence over market values. 
B)  Financial statements are frequently the basis used for performance evaluations. 
C)  Historical information has no value when predicting the future. 
D)  Potential lenders place little value on financial statement information. 
E)  Reviewing financial information over time has very limited valuE.

Question 3

A firm has a return on equity of 15%. The debt-equity ratio is 50%. The total asset turnover is 1.25 and the profit margin is 8%. The total equity is $3,200. What is the amount of the net income?

Accepted Answer

A)  $480 
B)  $500 
C)  $540 
D)  $600 
E)  $620 
A)  $480 
B)  $500 
C)  $540 
D)  $600 
E)  $620

Question 4

Which is a more meaningful measure of profitability for a firm,return on assets or return on equity?
 Why?

Accepted Answer

Most would argue ROE since it measures r

Question 5

The sustainable growth rate:

Accepted Answer

A)  assumes there is no external financing of any kind. 
B)  is normally higher than the internal growth rate. 
C)  assumes the debt-equity ratio is variable. 
D)  is based on receiving additional external debt and equity financing. 
E)  assumes that 100% of all income is retained by the firm. 
A)  assumes there is no external financing of any kind. 
B)  is normally higher than the internal growth rate. 
C)  assumes the debt-equity ratio is variable. 
D)  is based on receiving additional external debt and equity financing. 
E)  assumes that 100% of all income is retained by the firm.

Question 6

Projected future financial statements are called:

Accepted Answer

A)  plug statements. 
B)  pro forma statements. 
C)  reconciled statements. 
D)  aggregated statements. 
E)  None of these. 
A)  plug statements. 
B)  pro forma statements. 
C)  reconciled statements. 
D)  aggregated statements. 
E)  None of these.

Question 7

A firm has 5,000 shares of stock outstanding,sales of $6,000,net income of $800,a price-ratio of 10,and a book value per share of $.50. What is the market-to-book ratio?

Accepted Answer

A)  1.6 
B)  2.4 
C)  3.0 
D)  3.2 
E)  3.6 
A)  1.6 
B)  2.4 
C)  3.0 
D)  3.2 
E)  3.6

Question 8

A ________ standardizes items on the income statement and balance sheet as a percentage of total sales and total assets,respectively.

Accepted Answer

A)  tax reconciliation statement 
B)  statement of standardization 
C)  statement of cash flows 
D)  common-base year statement 
E)  common-size statement 
A)  tax reconciliation statement 
B)  statement of standardization 
C)  statement of cash flows 
D)  common-base year statement 
E)  common-size statement

Question 9

State the assumptions that underlie the sustainable growth rate and interpret what the sustainable growth rate means.

Accepted Answer

The usual assumptions are: Costs and ass

Question 10

A firm has total debt of $1,200 and a debt-equity ratio of .40. What is the value of the total assets?

Accepted Answer

A)  $1,680 
B)  $3,000 
C)  $3,520 
D)  $4,200 
E)  $5,300 
A)  $1,680 
B)  $3,000 
C)  $3,520 
D)  $4,200 
E)  $5,300

Question 11

The External Funds Needed (EFN) equation does not measure the:

Accepted Answer

A)  additional asset requirements given a change in sales. 
B)  additional total liabilities raised given the change in sales. 
C)  rate of return to shareholders given the change in sales. 
D)  net income expected to be earned given the change in sales. 
E)  None of these. 
A)  additional asset requirements given a change in sales. 
B)  additional total liabilities raised given the change in sales. 
C)  rate of return to shareholders given the change in sales. 
D)  net income expected to be earned given the change in sales. 
E)  None of these.

Question 12

Vinnie's Motors has a market-to-book ratio of 3. The book value per share is $4.00. Holding market-to-book constant,a $1 increase in the book value per share will:

Accepted Answer

A)  cause the accountants to increase the equity of the firm by an additional $2. 
B)  increase the market price per share by $1. 
C)  increase the market price per share by $12. 
D)  tend to cause the market price per share to rise. 
E)  only affect book values but not market values. 
A)  cause the accountants to increase the equity of the firm by an additional $2. 
B)  increase the market price per share by $1. 
C)  increase the market price per share by $12. 
D)  tend to cause the market price per share to rise. 
E)  only affect book values but not market values.

Question 13

If a firm produces a 10% return on assets and also a 10% return on equity,then the firm:

Accepted Answer

A)  has no debt of any kind. 
B)  is using its assets as efficiently as possible. 
C)  has no net working capital. 
D)  also has a current ratio of 10. 
E)  has an equity multiplier of 2. 
A)  has no debt of any kind. 
B)  is using its assets as efficiently as possible. 
C)  has no net working capital. 
D)  also has a current ratio of 10. 
E)  has an equity multiplier of 2.

Question 14

A firm has sales of $1,500,net income of $100,total assets of $1,000,and total equity of $700. Interest expense is $50. What is the common-size statement value of the interest expense?

Accepted Answer

A)  3.3% 
B)  5.0% 
C)  7.1% 
D)  16.7% 
E)  50.0% 
A)  3.3% 
B)  5.0% 
C)  7.1% 
D)  16.7% 
E)  50.0%

Question 15

Which of the following represent problems encountered when comparing the financial statements of one firm with those of another firm?
I. Either one,or both,of the firms may be conglomerates and thus have unrelated lines of business.
II. The operations of the two firms may vary geographically.
III. The firms may use differing accounting methods for inventory purposes.
IV. The two firms may be seasonal in nature and have different fiscal year ends.

Accepted Answer

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

Question 16

Enterprise value focused on:

Accepted Answer

A)  market values of debt and equity. 
B)  book values of debt and assets. 
C)  market value of equity and book value of debt. 
D)  book value if debt and market value of equity. 
E)  book values of debt and equity. 
A)  market values of debt and equity. 
B)  book values of debt and assets. 
C)  market value of equity and book value of debt. 
D)  book value if debt and market value of equity. 
E)  book values of debt and equity.

Question 17

The total asset turnover ratio is measured as:

Accepted Answer

A)  sales minus total assets. 
B)  sales divided by total assets. 
C)  sales times total assets. 
D)  total assets divided by sales. 
E)  total assets plus sales. 
A)  sales minus total assets. 
B)  sales divided by total assets. 
C)  sales times total assets. 
D)  total assets divided by sales. 
E)  total assets plus sales.

Question 18

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

Accepted Answer

A)  inventory turnover plus 365 days. 
B)  inventory times 365 days. 
C)  inventory plus cost of goods sold, divided by 365 days. 
D)  365 days divided by the inventory. 
E)  365 days divided by the inventory turnover. 
A)  inventory turnover plus 365 days. 
B)  inventory times 365 days. 
C)  inventory plus cost of goods sold, divided by 365 days. 
D)  365 days divided by the inventory. 
E)  365 days divided by the inventory turnover.

Question 19

In the financial planning model,external funds needed (EFN) is equal to changes in

Accepted Answer

A)  assets - (liabilities - equity). 
B)  assets - (liabilities + equity). 
C)  (assets + liabilities - equity). 
D)  (assets + equity - liabilities). 
E)  assets - equity. 
A)  assets - (liabilities - equity). 
B)  assets - (liabilities + equity). 
C)  (assets + liabilities - equity). 
D)  (assets + equity - liabilities). 
E)  assets - equity.

Question 20

Sustainable growth can be determined by the:

Accepted Answer

A)  profit margin, total asset turnover and the price to earnings ratio. 
B)  profit margin, the payout ratio, the debt-to-equity ratio, and the asset requirement or asset turnover ratio. 
C)  Total growth less capital gains growth. 
D)  Either profit margin, total asset turnover and the price to earnings ratio or profit margin, the payout ratio, the debt-to-equity ratio, and the asset requirement or asset turnover ratio. 
E)  None of these. 
A)  profit margin, total asset turnover and the price to earnings ratio. 
B)  profit margin, the payout ratio, the debt-to-equity ratio, and the asset requirement or asset turnover ratio. 
C)  Total growth less capital gains growth. 
D)  Either profit margin, total asset turnover and the price to earnings ratio or profit margin, the payout ratio, the debt-to-equity ratio, and the asset requirement or asset turnover ratio. 
E)  None of these.

Exam 3: Financial Statements Analysis and Financial Models

What is the cash coverage ratio for 2011?

Which one of the following statements is correct?

A firm has a return on equity of 15%. The debt-equity ratio is 50%. The total asset turnover is 1.25 and the profit margin is 8%. The total equity is $3,200. What is the amount of the net income?

Which is a more meaningful measure of profitability for a firm,return on assets or return on equity? Why?

The sustainable growth rate:

Projected future financial statements are called:

A firm has 5,000 shares of stock outstanding,sales of $6,000,net income of $800,a price-ratio of 10,and a book value per share of $.50. What is the market-to-book ratio?

A ________ standardizes items on the income statement and balance sheet as a percentage of total sales and total assets,respectively.

State the assumptions that underlie the sustainable growth rate and interpret what the sustainable growth rate means.

A firm has total debt of $1,200 and a debt-equity ratio of .40. What is the value of the total assets?

The External Funds Needed (EFN) equation does not measure the:

Vinnie's Motors has a market-to-book ratio of 3. The book value per share is $4.00. Holding market-to-book constant,a $1 increase in the book value per share will:

If a firm produces a 10% return on assets and also a 10% return on equity,then the firm:

A firm has sales of $1,500,net income of $100,total assets of $1,000,and total equity of $700. Interest expense is $50. What is the common-size statement value of the interest expense?

Enterprise value focused on:

The total asset turnover ratio is measured as:

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

In the financial planning model,external funds needed (EFN) is equal to changes in

Sustainable growth can be determined by the:

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