Question 1

Corporate taxes are considered to be an operating expense on the income statement.

Accepted Answer

A) True 
 B)False  False

Question 2

The income statement reports the firm's revenues and expenses, and it computes the firm's bottom line of net income, or earnings.

Accepted Answer

A) True 
 B)False  True

Question 3

State the names of some of the firms discussed in the chapter that had inaccurate reporting in their financial statements.

Accepted Answer

Examples of some firms that had practiced inaccurate reporting are Enron and HIH.

Question 4

The notes to the financial statements would be LEAST likely to be used for which of the following purposes?

Accepted Answer

A) to show how the value of assets listed in the financial statements were arrived at 
B) to provide information regarding the context in which these financial numbers were generated 
C) to disclose the financial implications of any off-balance sheet transactions 
D) to explain the method of accounting that was used in the preparation of the financial statements 
A) to show how the value of assets listed in the financial statements were arrived at 
B) to provide information regarding the context in which these financial numbers were generated 
C) to disclose the financial implications of any off-balance sheet transactions 
D) to explain the method of accounting that was used in the preparation of the financial statements

Question 5

International Financial Reporting Standards are taking root throughout the world. However, it is unlikely that Australia will report according to IFRS before the second half of the 21st century.

Accepted Answer

A) True 
 B)False

Question 6

A firm's gross profit is equal to the difference between sales revenues and the costs associated with those sales.

Accepted Answer

A) True 
 B)False

Question 7

Use the table for the question(s)below.  
-The above diagram shows a balance sheet for a certain company. If the company pays back all of its accounts payable today using cash, what will its net working capital be?

Accepted Answer

A) $48 million 
B) $60 million 
C) $11 million 
D) $50 million 
A) $48 million 
B) $60 million 
C) $11 million 
D) $50 million

Question 8

What are the four financial statements that all public companies must produce?

Accepted Answer

1. balance sheet
2.

Question 9

Use the table for the question(s)below.  
-Consider the above Income Statement for CharmCorp. All values are in millions of dollars. If CharmCorp has 6 million shares outstanding, and its managers and employees have stock options for 1 million shares, what is its diluted EPS in 2018?

Accepted Answer

A) $2.33 
B) $2.00 
C) $1.67 
D) $1.42 
A) $2.33 
B) $2.00 
C) $1.67 
D) $1.42

Question 10

Luther Corporation Consolidated Balance Sheet 30 June 2017 and 2018 (in $ millions)
  
-Refer to the balance sheet above. If in 2017, Luther has 5.2 million shares outstanding and these shares are trading at $16 per share, then using the market value of equity, the debt-equity ratio for Luther in 2017 is closest to:

Accepted Answer

A) 2.71 
B) 2.61 
C) 2.59 
D) 2.55 
A) 2.71 
B) 2.61 
C) 2.59 
D) 2.55

Question 11

Which ratio would you use to measure the financial health of a firm by assessing that firm's leverage?

Accepted Answer

A) market debt-equity ratio 
B) current or quick ratio 
C) debt-equity or equity multiplier ratio 
D) market-to-book ratio 
A) market debt-equity ratio 
B) current or quick ratio 
C) debt-equity or equity multiplier ratio 
D) market-to-book ratio

Question 12

Use the table for the question(s)below.
Luther Corporation Consolidated Income Statement Year ended 30 June (in $ millions)
  
-How does a firm select the dates for preparation of its income statement?

Accepted Answer

The income statement is prepared on the

Question 13

A 30-year mortgage loan 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 14

Use the table for the question(s)below.  
-Consider the above statement of cash flows. In 2018, AOS Industries had contemplated buying a new warehouse for $2 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 2018?

Accepted Answer

A) It would have $150 000 less cash at the end of 2018. 
B) It would have $2 000 000 less cash at the end of 2018. 
C) It would have $1 950 000 less cash at the end of 2018. 
D) It would have an additional $50 000 in cash at the end of 2018. 
A) It would have $150 000 less cash at the end of 2018. 
B) It would have $2 000 000 less cash at the end of 2018. 
C) It would have $1 950 000 less cash at the end of 2018. 
D) It would have an additional $50 000 in cash at the end of 2018.

Question 15

Convex Industries has inventories of $150 million, current assets of $1.05 billion, and current liabilities of $400 million. What is its quick ratio?

Accepted Answer

A) 2.25 
B) 2.12 
C) 0.44 
D) 0.38 
A) 2.25 
B) 2.12 
C) 0.44 
D) 0.38

Question 16

Which of the following is likely to have contributed to the failure of HIH Insurance?

Accepted Answer

A) unsupervised delegated authority 
B) rapid expansion 
C) fraudulent reporting 
D) All of the above contributed to the failure of HIH. 
A) unsupervised delegated authority 
B) rapid expansion 
C) fraudulent reporting 
D) All of the above contributed to the failure of HIH.

Question 17

Use the table for the question(s)below.  
-Consider the above statement of cash flows. If all amounts shown above are in millions of dollars, what was AOS Industries' retained earnings figure for 2018?

Accepted Answer

A) $2.1 million 
B) $1.7 million 
C) $1.3 million 
D) $5.4 million 
A) $2.1 million 
B) $1.7 million 
C) $1.3 million 
D) $5.4 million

Question 18

Use the table for the question(s)below.  
-The above diagram shows a balance sheet for a certain company. If the company buys new property, plant and equipment today using its entire cash balance, what will its net working capital be?

Accepted Answer

A) -$5 million 
B) -$15 million 
C) $15 million 
D) $60 million 
A) -$5 million 
B) -$15 million 
C) $15 million 
D) $60 million

Question 19

Use the table for the question(s)below.
Luther Corporation Consolidated Balance Sheet 30 June 2017 and 2018 (in $ millions)
  
-Refer to the balance sheet above. What is Luther's net working capital in 2018?

Accepted Answer

A) $27 million 
B) $63.6 million 
C) $12 million 
D) $39 million 
A) $27 million 
B) $63.6 million 
C) $12 million 
D) $39 million

Question 20

A public company has a book value of $128 million. They have 20 million shares outstanding, with a market price of $4 per share. Which of the following statements is true regarding this company?

Accepted Answer

A) Investors may consider this firm to be a growth company. 
B) The value of the firm's assets is greater than their liquidation value. 
C) The firm's market value is more than its book value. 
D) Investors believe the company's assets are not likely to be profitable as its market value is worth less than its book value. 
A) Investors may consider this firm to be a growth company. 
B) The value of the firm's assets is greater than their liquidation value. 
C) The firm's market value is more than its book value. 
D) Investors believe the company's assets are not likely to be profitable as its market value is worth less than its book value.

Exam 2: Introduction to Financial Statement Analysis

Corporate taxes are considered to be an operating expense on the income statement.

The income statement reports the firm's revenues and expenses, and it computes the firm's bottom line of net income, or earnings.

State the names of some of the firms discussed in the chapter that had inaccurate reporting in their financial statements.

The notes to the financial statements would be LEAST likely to be used for which of the following purposes?

International Financial Reporting Standards are taking root throughout the world. However, it is unlikely that Australia will report according to IFRS before the second half of the 21st century.

A firm's gross profit is equal to the difference between sales revenues and the costs associated with those sales.

Use the table for the question(s)below. -The above diagram shows a balance sheet for a certain company. If the company pays back all of its accounts payable today using cash, what will its net working capital be?

What are the four financial statements that all public companies must produce?

Use the table for the question(s)below. -Consider the above Income Statement for CharmCorp. All values are in millions of dollars. If CharmCorp has 6 million shares outstanding, and its managers and employees have stock options for 1 million shares, what is its diluted EPS in 2018?

Which ratio would you use to measure the financial health of a firm by assessing that firm's leverage?

Use the table for the question(s)below. Luther Corporation Consolidated Income Statement Year ended 30 June (in $ millions) -How does a firm select the dates for preparation of its income statement?

A 30-year mortgage loan is a

Convex Industries has inventories of $150 million, current assets of $1.05 billion, and current liabilities of $400 million. What is its quick ratio?

Which of the following is likely to have contributed to the failure of HIH Insurance?

Use the table for the question(s)below. -Consider the above statement of cash flows. If all amounts shown above are in millions of dollars, what was AOS Industries' retained earnings figure for 2018?

Use the table for the question(s)below. -The above diagram shows a balance sheet for a certain company. If the company buys new property, plant and equipment today using its entire cash balance, what will its net working capital be?

Use the table for the question(s)below. Luther Corporation Consolidated Balance Sheet 30 June 2017 and 2018 (in $ millions) -Refer to the balance sheet above. What is Luther's net working capital in 2018?

A public company has a book value of $128 million. They have 20 million shares outstanding, with a market price of $4 per share. Which of the following statements is true regarding this company?

Corporate Finance and the Financial Manager

Time Value of Money: an Introduction

Time Value of Money: Valuing Cash Flow Streams

Interest Rates

Bond Valuation

Share Valuation: the Dividend-Discount Model

Investment Decision Rules

Fundamentals of Capital Budgeting

Share Valuation: a Second Look

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

The Cost of Capital

Raising Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modelling and Pro-Forma Analysis

Working Capital Management

Option Applications and Corporate Finance

Mergers and Acquisitions

International Corporate Finance

Insurance and Risk Management

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