Question 1

What role do external auditors play in a firm's financial reporting process?

Accepted Answer

As the name implies, external

Question 2

Which of the following is NOT considered to be an operating expense on the income statement?

Accepted Answer

A) administrative expenses and overhead 
B) corporate taxes 
C) salaries 
D) depreciation and amortization 
A) administrative expenses and overhead 
B) corporate taxes 
C) salaries 
D) depreciation and amortization

Question 3

How does a firm select the dates for preparation of its income statement?

Accepted Answer

The income statement is prepared on the

Question 4

Use the table for the question(s)below.
Income Statement for Xenon Manufacturing:  
-Consider the above Income Statement for Xenon Manufacturing. All values are in millions of dollars. Calculate the gross margin for 2008 and 2009. What does the change in the gross margin between these two years imply about the company?

Accepted Answer

A) The efficiency of Xenon Manufacturing has significantly risen between 2008 and 2009. 
B) The ability of Xenon Manufacturing to sell its goods and services for more than the costs of producing them rose between 2008 and 2009. 
C) The ability of Xenon Manufacturing to sell its goods and services for more than the costs of producing them fell between 2008 and 2009. 
D) The leverage of Xenon Manufacturing fell slightly between 2008 and 2009. 
A) The efficiency of Xenon Manufacturing has significantly risen between 2008 and 2009. 
B) The ability of Xenon Manufacturing to sell its goods and services for more than the costs of producing them rose between 2008 and 2009. 
C) The ability of Xenon Manufacturing to sell its goods and services for more than the costs of producing them fell between 2008 and 2009. 
D) The leverage of Xenon Manufacturing fell slightly between 2008 and 2009.

Question 5

AOS Industries Statement of Cash Flows for 2008 Operating activities
Net Income 3.2
Depreciation and amortization 1.4
Cash effect of changes in
Accounts receivable -2.1
Accounts payable 1.1
Inventory -0.8
Cash from operating activities 2.8
Investment activities
Capital expenditures -2.2
Acquisitions and other investing activity -0.4
Cash from investing activities -2.6
Financing activities
Dividends paid -1.5
Sale or purchase of stock 2.1
Increase in short-term borrowing 1.4
Increase in long-term borrowing 3.2
Cash from financing activities 5.2
Change in Cash and Cash Equivalents 5.4
Consider the above statement of cash flows. In 2008, AOS Industries had contemplated buying a new warehouse for $3 million, the cost of which would be depreciated over 10 years. If AOS Industries has a tax rate of 25%, what would be the impact for the amount of cash held by AOS at the end of the 2008?

Accepted Answer

A) It would have $3,000,000 less cash at the end of 2008. 
B) It would have $2,925,000 less cash at the end of 2008. 
C) It would have $1,500,000 less cash at the end of 2008. 
D) It would have an additional $7,500,000 in cash at the end of 2008. 
A) It would have $3,000,000 less cash at the end of 2008. 
B) It would have $2,925,000 less cash at the end of 2008. 
C) It would have $1,500,000 less cash at the end of 2008. 
D) It would have an additional $7,500,000 in cash at the end of 2008.

Question 6

A manufacturer of plastic bottles for the medical trade purchases a new compression blow molder for its bottle production plant. How will the cost to the company of this piece of equipment be recorded?

Accepted Answer

A) It will be depreciated over time on the income statement and subtracted as a capital expenditure on the statement of cash flows. 
B) It will be depreciated over time on the income statement and subtracted as Inventory on the statement of cash flows. 
C) It will be depreciated over time on the income statement and therefore not be recorded separately on the statement of cash flows. 
D) It will be subtracted from Gross Profit on the income statement and therefore, not be recorded separately on the statement of cash flows. 
A) It will be depreciated over time on the income statement and subtracted as a capital expenditure on the statement of cash flows. 
B) It will be depreciated over time on the income statement and subtracted as Inventory on the statement of cash flows. 
C) It will be depreciated over time on the income statement and therefore not be recorded separately on the statement of cash flows. 
D) It will be subtracted from Gross Profit on the income statement and therefore, not be recorded separately on the statement of cash flows.

Question 7

Which of the following is NOT a reason that the income statement does not accurately indicate how much cash a firm has earned?

Accepted Answer

A) It includes entries for the depreciation of assets. 
B) It does not include entries for expenditures on inventory. 
C) It does not include entries for collection of money from account receivables. 
D) It includes cash inflows from services rendered. 
A) It includes entries for the depreciation of assets. 
B) It does not include entries for expenditures on inventory. 
C) It does not include entries for collection of money from account receivables. 
D) It includes cash inflows from services rendered.

Question 8

Luther Corporation Consolidated Balance Sheet
December 31, 2006 and 2005 (in $ millions)   Refer to the balance sheet above. Luther's current ratio for 2006 is closest to ________.

Accepted Answer

A) 1.67 
B) 2.22 
C) 0.56 
D) 1.11 
A) 1.67 
B) 2.22 
C) 0.56 
D) 1.11

Question 9

Use the table for the question(s)below.
Income Statement for Xenon Manufacturing:  
-Consider the above Income Statement for Xenon Manufacturing. All values are in millions of dollars. Calculate the operating margin for 2008 and 2009. What does the change in the operating margin between these two years imply about the company?

Accepted Answer

A) The efficiency of Xenon Manufacturing has significantly risen between 2008 and 2009. 
B) The ability of Xenon Manufacturing to sell its goods and services for more than the costs of producing them rose between 2008 and 2009. 
C) The efficiency of Xenon Manufacturing has significantly fallen between 2008 and 2009. 
D) The leverage of Xenon Manufacturing fell slightly between 2008 and 2009. 
A) The efficiency of Xenon Manufacturing has significantly risen between 2008 and 2009. 
B) The ability of Xenon Manufacturing to sell its goods and services for more than the costs of producing them rose between 2008 and 2009. 
C) The efficiency of Xenon Manufacturing has significantly fallen between 2008 and 2009. 
D) The leverage of Xenon Manufacturing fell slightly between 2008 and 2009.

Question 10

Luther Corporation Consolidated Income Statement
Year ended December 31 (in $millions)   
-Refer to the income statement above. Luther's return on assets (ROA)for the year ending December 31, 2005 is closest to ________.

Accepted Answer

A) 17.43% 
B) 34.86% 
C) 13.94% 
D) 1.99% 
A) 17.43% 
B) 34.86% 
C) 13.94% 
D) 1.99%

Question 11

Luther Corporation Consolidated Balance Sheet
December 31, 2006 and 2005 (in $ millions)   Refer to the balance sheet above. If in 2006 Luther has 10.2 million shares outstanding and these shares are trading at $16 per share, then what is Luther's enterprise value?

Accepted Answer

A) -$540.0 million 
B) $771.4 million 
C) $385.7 million 
D) $521.4 million 
A) -$540.0 million 
B) $771.4 million 
C) $385.7 million 
D) $521.4 million

Question 12

What is a firm's net income?

Accepted Answer

A) the difference between the sales and other income generated by a firm, and all costs, taxes, and expenses incurred by the firm in a given period 
B) the last or "bottom" line of the income statement 
C) a measure of the firm's profitability over a given period 
D) all of the above 
A) the difference between the sales and other income generated by a firm, and all costs, taxes, and expenses incurred by the firm in a given period 
B) the last or "bottom" line of the income statement 
C) a measure of the firm's profitability over a given period 
D) all of the above

Question 13

Income Statement for CharmCorp:   Consider the above Income Statement for CharmCorp. All values are in millions of dollars. If CharmCorp. has 4 million shares outstanding, and its managers and employees have stock options for 2 million shares, what is its diluted EPS in 2008?

Accepted Answer

A) $0.83 
B) $1.33 
C) $1.67 
D) $2.00 
A) $0.83 
B) $1.33 
C) $1.67 
D) $2.00

Question 14

The balance sheet shows the assets, liabilities, and stockholders' equity of a firm over a given length of time.

Accepted Answer

A) True 
 B)False

Question 15

What is the main problem in using a balance sheet to provide an accurate assessment of the value of a company's equity?

Accepted Answer

A) Valuable assets such as the company's reputation, the quality of its work force, and the strength of its management are not captured on the balance sheet. 
B) The balance sheet does not accurately represent the book value of assets held by the company. 
C) The equity shown on the balance sheet does not reflect the market capitalization of the company. 
D) Knowing at a single point in time what assets a firm possesses and the liabilities a firm owes does not give any indication of what those assets can produce in the future. 
A) Valuable assets such as the company's reputation, the quality of its work force, and the strength of its management are not captured on the balance sheet. 
B) The balance sheet does not accurately represent the book value of assets held by the company. 
C) The equity shown on the balance sheet does not reflect the market capitalization of the company. 
D) Knowing at a single point in time what assets a firm possesses and the liabilities a firm owes does not give any indication of what those assets can produce in the future.

Question 16

A company has a share price of $22.15 and 118 million shares outstanding. Its market-to-book ratio is 4.2, its book debt-equity ratio is 3.2, and it has cash of $800 million. How much would it cost to take over this business assuming you pay its enterprise value?

Accepted Answer

A) $1.9 billion 
B) $3.044 billion 
C) $4.566 billion 
D) $3.8 billion 
A) $1.9 billion 
B) $3.044 billion 
C) $4.566 billion 
D) $3.8 billion

Question 17

What is the main reason that it is necessary for public companies to follow the rules and format set out in the Generally Accepted Accounting Principles (GAAP)when creating financial statements?

Accepted Answer

A) It ensures that the market value of assets and debt are reported accurately. 
B) It ensures that information on the performance of public companies is reported on cash-basis accounting. 
C) It ensures that important budgetary information is not omitted. 
D) It makes it easier to compare the financial results of different firms. 
A) It ensures that the market value of assets and debt are reported accurately. 
B) It ensures that information on the performance of public companies is reported on cash-basis accounting. 
C) It ensures that important budgetary information is not omitted. 
D) It makes it easier to compare the financial results of different firms.

Question 18

Which of the following is NOT an operating expense?

Accepted Answer

A) interest expense 
B) depreciation and amortization 
C) selling, general, and administrative expenses 
D) research and development 
A) interest expense 
B) depreciation and amortization 
C) selling, general, and administrative expenses 
D) research and development

Question 19

Accounts payable is a ________.

Accepted Answer

A) long-term liability 
B) current asset 
C) long-term asset 
D) current liability 
A) long-term liability 
B) current asset 
C) long-term asset 
D) current liability

Question 20

In 2009, an agricultural company introduced a new cropping process which reduced the cost of growing some of its crops. If sales in 2008 and 2009 were steady at $30 million, but the gross margin increased from 2.8% to 3.9% between those years, by what amount was the cost of sales reduced?

Accepted Answer

A) $330,000 
B) $660,000 
C) $264,000 
D) $462,000 
A) $330,000 
B) $660,000 
C) $264,000 
D) $462,000

Exam 2: Introduction to Financial Statement Analysis

What role do external auditors play in a firm's financial reporting process?

Which of the following is NOT considered to be an operating expense on the income statement?

How does a firm select the dates for preparation of its income statement?

A manufacturer of plastic bottles for the medical trade purchases a new compression blow molder for its bottle production plant. How will the cost to the company of this piece of equipment be recorded?

Which of the following is NOT a reason that the income statement does not accurately indicate how much cash a firm has earned?

Luther Corporation Consolidated Balance Sheet December 31, 2006 and 2005 (in $ millions) Refer to the balance sheet above. Luther's current ratio for 2006 is closest to ________.

Luther Corporation Consolidated Income Statement Year ended December 31 (in $millions) -Refer to the income statement above. Luther's return on assets (ROA)for the year ending December 31, 2005 is closest to ________.

Luther Corporation Consolidated Balance Sheet December 31, 2006 and 2005 (in $ millions) Refer to the balance sheet above. If in 2006 Luther has 10.2 million shares outstanding and these shares are trading at $16 per share, then what is Luther's enterprise value?

What is a firm's net income?

Income Statement for CharmCorp: Consider the above Income Statement for CharmCorp. All values are in millions of dollars. If CharmCorp. has 4 million shares outstanding, and its managers and employees have stock options for 2 million shares, what is its diluted EPS in 2008?

The balance sheet shows the assets, liabilities, and stockholders' equity of a firm over a given length of time.

What is the main problem in using a balance sheet to provide an accurate assessment of the value of a company's equity?

A company has a share price of $22.15 and 118 million shares outstanding. Its market-to-book ratio is 4.2, its book debt-equity ratio is 3.2, and it has cash of $800 million. How much would it cost to take over this business assuming you pay its enterprise value?

What is the main reason that it is necessary for public companies to follow the rules and format set out in the Generally Accepted Accounting Principles (GAAP)when creating financial statements?

Which of the following is NOT an operating expense?

Accounts payable is a ________.

In 2009, an agricultural company introduced a new cropping process which reduced the cost of growing some of its crops. If sales in 2008 and 2009 were steady at $30 million, but the gross margin increased from 2.8% to 3.9% between those years, by what amount was the cost of sales reduced?

Corporate Finance and the Financial Manager

Time Value of Money: an Introduction

Time Value of Money: Valuing Cash Flow Streams

Interest Rates

Bonds

Stock Valuation

Investment Decision Rules

Fundamentals of Capital Budgeting

Stock Valuation: a Second Look

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

The Cost of Capital

Raising Equity Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modeling and Pro Forma Analysis

Working Capital Management

Short-Term Financial Planning

Option Applications and Corporate Finance

Mergers and Acquisitions

International Corporate Finance

Leasing

Insurance and Risk Management

Corporate Governance

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