Question 1

Which of the following best describes why firms produce financial statements?

Accepted Answer

A) to provide interested parties, both inside and outside the company, with an overview of the short- and long-term financial condition of a business 
B) to show what activities the company has undertaken in the previous financial year, and what activities are planned for the near future 
C) to provide a means of enticing new investors to a firm 
D) to use as a tool when planning future investments within the firm 
A) to provide interested parties, both inside and outside the company, with an overview of the short- and long-term financial condition of a business 
B) to show what activities the company has undertaken in the previous financial year, and what activities are planned for the near future 
C) to provide a means of enticing new investors to a firm 
D) to use as a tool when planning future investments within the firm

Question 2

A company that produces pharmaceutical drugs is preparing a balance sheet. Which of the following would be most likely to be considered a long-term asset on this balance sheet?

Accepted Answer

A) the inventory of chemicals used to produce the drugs made by the company 
B) commercial paper held by the company 
C) a patent for a drug held by the company 
D) the cash reserves of the company 
A) the inventory of chemicals used to produce the drugs made by the company 
B) commercial paper held by the company 
C) a patent for a drug held by the company 
D) the cash reserves of the company

Question 3

Which of the following firms would be expected to have a high ROE based on that firm's high profitability?

Accepted Answer

A) a grocery store chain that has very high turnover, selling many multiples of their assets per year 
B) a brokerage firm that has high levels of leverage 
C) a low-end retailer that has a low mark-up on all items it sells 
D) a medical supply company that provides very precise instruments at a high price to large medical establishments such as hospitals 
A) a grocery store chain that has very high turnover, selling many multiples of their assets per year 
B) a brokerage firm that has high levels of leverage 
C) a low-end retailer that has a low mark-up on all items it sells 
D) a medical supply company that provides very precise instruments at a high price to large medical establishments such as hospitals

Question 4

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 $25 million, but the gross margin increased from 2.3% to 3.4% between those years, by what amount was the cost of sales reduced?

Accepted Answer

A) $575 000 
B) $325 000 
C) $275 000 
D) $425 000 
A) $575 000 
B) $325 000 
C) $275 000 
D) $425 000

Question 5

Together, CLERP 9 and the ASX Good Governance Principles have clarified

Accepted Answer

A) board composition, director remuneration, and auditor remuneration. 
B) the role of auditor, auditor rotation, and auditor remuneration. 
C) risk disclosure, insider trading, and board composition. 
D) directors' share trading, auditor rotation, and board composition. 
A) board composition, director remuneration, and auditor remuneration. 
B) the role of auditor, auditor rotation, and auditor remuneration. 
C) risk disclosure, insider trading, and board composition. 
D) directors' share trading, auditor rotation, and board composition.

Question 6

What will be the effect on the statement of cash flows if a firm buys a new processing plant through a new loan?

Accepted Answer

The new loan entry should show

Question 7

Which of the following is NOT an operating expense?

Accepted Answer

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

Question 8

Which of the following amounts would be included on the right side of a balance sheet?

Accepted Answer

A) the amount of money owed to the company by customers who have not yet paid for goods and services they have received 
B) the amount of deferred tax liability held by the company 
C) the value of government bonds held by the company 
D) the cash held by the company 
A) the amount of money owed to the company by customers who have not yet paid for goods and services they have received 
B) the amount of deferred tax liability held by the company 
C) the value of government bonds held by the company 
D) the cash held by the company

Question 9

Use the table for the question(s)below.  
-Consider the above Income Statement for Xenon Manufacturing. All values are in millions of dollars. Calculate the operating margin for 2017 and 2018. 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 fallen between 2017 and 2018. 
B) The ability of Xenon Manufacturing to sell its goods and services for more than the costs of producing them rose between 2017 and 2018. 
C) The efficiency of Xenon Manufacturing has significantly risen between 2017 and 2018. 
D) The leverage of Xenon Manufacturing fell slightly between 2017 and 2018. 
A) The efficiency of Xenon Manufacturing has significantly fallen between 2017 and 2018. 
B) The ability of Xenon Manufacturing to sell its goods and services for more than the costs of producing them rose between 2017 and 2018. 
C) The efficiency of Xenon Manufacturing has significantly risen between 2017 and 2018. 
D) The leverage of Xenon Manufacturing fell slightly between 2017 and 2018.

Question 10

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, how much money did AOS Industries raise by issuing debt in 2018?

Accepted Answer

A) $4.6 million 
B) $1.4 million 
C) $3.2 million 
D) $5.2 million 
A) $4.6 million 
B) $1.4 million 
C) $3.2 million 
D) $5.2 million

Question 11

Use the table for the question(s)below.
Luther Corporation Consolidated Income Statement Year ended 30 June (in $ millions)
  
-What will be the effect on the income statement if a firm buys a new processing plant through a new loan?

Accepted Answer

The effect on the income state

Question 12

Luther Corporation Consolidated Balance Sheet 30 June 2017 and 2018 (in $ millions)
  
-Refer to the balance sheet above. If on 30 June 2017, Luther has 8 million shares outstanding trading at $15 per share, then what is Luther's enterprise value?

Accepted Answer

Enterprise value = Market value of equit

Question 13

Which of the following balance sheet equations is INCORRECT?

Accepted Answer

A) Assets = Liabilities + Shareholders' Equity 
B) Assets - Current Liabilities = Long-term Liabilities + Shareholders' Equity 
C) Assets - Liabilities = Shareholders' Equity 
D) Assets - Current Liabilities = Long-term Liabilities 
A) Assets = Liabilities + Shareholders' Equity 
B) Assets - Current Liabilities = Long-term Liabilities + Shareholders' Equity 
C) Assets - Liabilities = Shareholders' Equity 
D) Assets - Current Liabilities = Long-term Liabilities

Question 14

Financial statements are accounting reports issued periodically by a firm which present information on the past performance of the firm, a summary of the firm's assets and the financing of those assets, and a prediction of the firm's future performance.

Accepted Answer

A) True 
 B)False

Question 15

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 Luther's market-to-book ratio would be closest to:

Accepted Answer

A) 1.29 
B) 1.31 
C) 1.76 
D) 1.39 
A) 1.29 
B) 1.31 
C) 1.76 
D) 1.39

Question 16

Which of the following statements regarding the income statement is INCORRECT?

Accepted Answer

A) The last or 'bottom' line of the income statement shows the firm's net income. 
B) The income statement shows the flow of earnings and expenses generated by the firm between two dates. 
C) The first line of an income statement lists the revenues from the sales of products or services. 
D) The income statement shows the earnings and expenses at a given point in time. 
A) The last or 'bottom' line of the income statement shows the firm's net income. 
B) The income statement shows the flow of earnings and expenses generated by the firm between two dates. 
C) The first line of an income statement lists the revenues from the sales of products or services. 
D) The income statement shows the earnings and expenses at a given point in time.

Question 17

Discuss the intention of the ASX Principles of Good Corporate Governance.

Accepted Answer

The Corporate Governance Principles and

Question 18

Why must care be taken when comparing a firm's share price to its operating income?

Accepted Answer

A) Share price is a quantity related to the entire firm, while operating income is an amount that is related solely to equity holders. 
B) Both share price and operating income are related solely to equity holders. 
C) Share price is a quantity related to equity holders, while operating income is an amount that is related to the whole firm. 
D) Both share price and operating income are related to the whole firm. 
A) Share price is a quantity related to the entire firm, while operating income is an amount that is related solely to equity holders. 
B) Both share price and operating income are related solely to equity holders. 
C) Share price is a quantity related to equity holders, while operating income is an amount that is related to the whole firm. 
D) Both share price and operating income are related to the whole firm.

Question 19

The managements of public companies are not legally required to disclose any off-balance sheet transactions.

Accepted Answer

A) True 
 B)False

Question 20

Use the table for the question(s)below.
Luther Corporation Consolidated Income Statement Year ended 30 June (in $ millions)
  
-Refer to the income statement above. Luther's net profit margin for the year ending 30 June 2017 is closest to:

Accepted Answer

A) 16.7% 
B) 1.8% 
C) 5.4% 
D) 2.7% 
A) 16.7% 
B) 1.8% 
C) 5.4% 
D) 2.7%

Exam 2: Introduction to Financial Statement Analysis

Which of the following best describes why firms produce financial statements?

A company that produces pharmaceutical drugs is preparing a balance sheet. Which of the following would be most likely to be considered a long-term asset on this balance sheet?

Which of the following firms would be expected to have a high ROE based on that firm's high profitability?

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 $25 million, but the gross margin increased from 2.3% to 3.4% between those years, by what amount was the cost of sales reduced?

Together, CLERP 9 and the ASX Good Governance Principles have clarified

What will be the effect on the statement of cash flows if a firm buys a new processing plant through a new loan?

Which of the following is NOT an operating expense?

Which of the following amounts would be included on the right side of a balance sheet?

Use the table for the question(s)below. -Consider the above Income Statement for Xenon Manufacturing. All values are in millions of dollars. Calculate the operating margin for 2017 and 2018. What does the change in the operating margin between these two years imply about the company?

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, how much money did AOS Industries raise by issuing debt in 2018?

Use the table for the question(s)below. Luther Corporation Consolidated Income Statement Year ended 30 June (in $ millions) -What will be the effect on the income statement if a firm buys a new processing plant through a new loan?

Luther Corporation Consolidated Balance Sheet 30 June 2017 and 2018 (in $ millions) -Refer to the balance sheet above. If on 30 June 2017, Luther has 8 million shares outstanding trading at $15 per share, then what is Luther's enterprise value?

Which of the following balance sheet equations is INCORRECT?

Financial statements are accounting reports issued periodically by a firm which present information on the past performance of the firm, a summary of the firm's assets and the financing of those assets, and a prediction of the firm's future performance.

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 Luther's market-to-book ratio would be closest to:

Which of the following statements regarding the income statement is INCORRECT?

Discuss the intention of the ASX Principles of Good Corporate Governance.

Why must care be taken when comparing a firm's share price to its operating income?

The managements of public companies are not legally required to disclose any off-balance sheet transactions.

Use the table for the question(s)below. Luther Corporation Consolidated Income Statement Year ended 30 June (in $ millions) -Refer to the income statement above. Luther's net profit margin for the year ending 30 June 2017 is closest to:

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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