Question 1

The market-to-book ratio is measured as:

Accepted Answer

A) total equity divided by total assets. 
B) net income times market price per share of stock. 
C) net income divided by market price per share of stock. 
D) market price per share of stock divided by earnings per share. 
E) market value of equity per share divided by book value of equity per share. 
A) total equity divided by total assets. 
B) net income times market price per share of stock. 
C) net income divided by market price per share of stock. 
D) market price per share of stock divided by earnings per share. 
E) market value of equity per share divided by book value of equity per share.

Question 2

Financial planning, when properly executed:

Accepted Answer

A) ignores the normal restraints encountered by a firm. 
B) ensures that the primary goals of senior management are fully achieved. 
C) reduces the necessity of daily management oversight of the business operations. 
D) helps ensure that proper financing is in place to support the desired level of growth. 
E) eliminates the need to plan more than one year in advance. 
A) ignores the normal restraints encountered by a firm. 
B) ensures that the primary goals of senior management are fully achieved. 
C) reduces the necessity of daily management oversight of the business operations. 
D) helps ensure that proper financing is in place to support the desired level of growth. 
E) eliminates the need to plan more than one year in advance.

Question 3

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 A or B. 
E) None of the above. 
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 A or B. 
E) None of the above.

Question 4

A firm has total debt of $1,200 and a debt-equity ratio of .30.What is the value of the total assets?

Accepted Answer

A) $1,560 
B) $3,000 
C) $3,600 
D) $4,000 
E) $5,200 
A) $1,560 
B) $3,000 
C) $3,600 
D) $4,000 
E) $5,200

Question 5

The sustainable growth rate will be equivalent to the internal growth rate when:

Accepted Answer

A) a firm has no debt. 
B) the growth rate is positive. 
C) the plowback ratio is positive but less than 1. 
D) a firm has a debt-equity ratio exactly equal to 1. 
E) net income is greater than zero. 
A) a firm has no debt. 
B) the growth rate is positive. 
C) the plowback ratio is positive but less than 1. 
D) a firm has a debt-equity ratio exactly equal to 1. 
E) net income is greater than zero.

Question 6

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 7

It is often said that anyone with a pencil can calculate financial ratios, but it takes a brain to interpret them.What kinds of things should an analyst keep in mind when evaluating the financial statements of a given firm?

Accepted Answer

This question is totally open-ended and

Question 8

Which two of the following represent the most effective methods of directly evaluating the financial performance of a firm?
I.comparing the current financial ratios to those of the same firm from prior time periods
II.comparing a firm's financial ratios to those of other firms in the firm's peer group who have similar operations
III.comparing the financial statements of the firm to the financial statements of similar firms operating in other countries
IV.comparing the financial ratios of the firm to the average ratios of all firms located in the same geographic area

Accepted Answer

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

Question 9

Turner's Inc.has a price-earnings ratio of 16.Alfred's Co.has a price-earnings ratio of 19.Thus, you can state with certainty that one share of stock in Alfred's:

Accepted Answer

A) has a higher market price than one share of stock in Turner's. 
B) has a higher market price per dollar of earnings than does one share of Turner's. 
C) sells at a lower price per share than one share of Turner's. 
D) represents a larger percentage of firm ownership than does one share of Turner's stock. 
E) earns a greater profit per share than does one share of Turner's stock. 
A) has a higher market price than one share of stock in Turner's. 
B) has a higher market price per dollar of earnings than does one share of Turner's. 
C) sells at a lower price per share than one share of Turner's. 
D) represents a larger percentage of firm ownership than does one share of Turner's stock. 
E) earns a greater profit per share than does one share of Turner's stock.

Question 10

The percentage of sales method:

Accepted Answer

A) requires that all accounts grow at the same rate. 
B) separates accounts that vary with sales and those that do not vary with sales. 
C) allows the analyst to calculate how much financing the firm will need to support the predicted sales level. 
D) Both A and B. 
E) Both B and C. 
A) requires that all accounts grow at the same rate. 
B) separates accounts that vary with sales and those that do not vary with sales. 
C) allows the analyst to calculate how much financing the firm will need to support the predicted sales level. 
D) Both A and B. 
E) Both B and C.

Question 11

The receivables turnover ratio is measured as:

Accepted Answer

A) sales plus accounts receivable. 
B) sales divided by accounts receivable. 
C) sales minus accounts receivable, divided by sales. 
D) accounts receivable times sales. 
E) accounts receivable divided by sales. 
A) sales plus accounts receivable. 
B) sales divided by accounts receivable. 
C) sales minus accounts receivable, divided by sales. 
D) accounts receivable times sales. 
E) accounts receivable divided by sales.

Question 12

A firm has net working capital of $400, net fixed assets of $2,400, sales of $6,000, and current liabilities of $800.How many dollars worth of sales are generated from every $1 in total assets?

Accepted Answer

A) $1.33 
B) $1.67 
C) $1.88 
D) $2.33 
E) $2.50 
A) $1.33 
B) $1.67 
C) $1.88 
D) $2.33 
E) $2.50

Question 13

It is easier to evaluate a firm using its financial statements when the firm:

Accepted Answer

A) is a conglomerate. 
B) is global in nature. 
C) uses the same accounting procedures as other firms in its industry. 
D) has a different fiscal year than other firms in its industry. 
E) tends to have one-time events such as asset sales and property acquisitions. 
A) is a conglomerate. 
B) is global in nature. 
C) uses the same accounting procedures as other firms in its industry. 
D) has a different fiscal year than other firms in its industry. 
E) tends to have one-time events such as asset sales and property acquisitions.

Question 14

A firm's sustainable growth rate in sales directly depends on its:

Accepted Answer

A) debt to equity ratio. 
B) profit margin. 
C) dividend policy. 
D) asset efficiency. 
E) All of the above. 
A) debt to equity ratio. 
B) profit margin. 
C) dividend policy. 
D) asset efficiency. 
E) All of the above.

Question 15

Patti's has net income of $1,800, a price-earnings ratio of 12, and earnings per share of $1.20.How many shares of stock are outstanding?

Accepted Answer

A) 1,200 
B) 1,400 
C) 1,500 
D) 1,600 
E) 1,800 
A) 1,200 
B) 1,400 
C) 1,500 
D) 1,600 
E) 1,800

Question 16

$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $Windswept, Inc. 
 $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $2008 Income Statement
 $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ ($ in millions)
$\begin{array}{c}
\begin{array}{lll}
 \text {Net sales  }   \
 \text { Less: Cost of goods sold } &&\
 \text { Less: Depreciation } &\
 \text {Earnings before interest and taxes  } &\
 \text { Less: Interest paid } &\
 \text {Taxable Income  } &\
 \text {
Less: Taxes  } &\
 \text { 
Net income } &\
\end{array}
\begin{array}{r}
\$ 8,450 \
7,240 \
\underline{400} \
 810 \
\underline{ 70} \
 \$ 740 \
\underline{ 259} \
\underline{ \$ 481}
\end{array}
\end{array}$
 
-Refer to the above Table.What is the return on equity for 2008?

Accepted Answer

A) 16.2% 
B) 20.9% 
C) 21.7% 
D) 22.1% 
E) 23.3% 
A) 16.2% 
B) 20.9% 
C) 21.7% 
D) 22.1% 
E) 23.3%

Question 17

A supplier, who requires payment within ten days, is most concerned with which one of the following ratios when granting credit?

Accepted Answer

A) current 
B) cash 
C) debt-equity 
D) quick 
E) total debt 
A) current 
B) cash 
C) debt-equity 
D) quick 
E) total debt

Question 18

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 19

$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $Windswept, Inc. 
 $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $2008 Income Statement
 $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ ($ in millions)
$\begin{array}{c}
\begin{array}{lll}
 \text {Net sales  }   \
 \text { Less: Cost of goods sold } &&\
 \text { Less: Depreciation } &\
 \text {Earnings before interest and taxes  } &\
 \text { Less: Interest paid } &\
 \text {Taxable Income  } &\
 \text {
Less: Taxes  } &\
 \text { 
Net income } &\
\end{array}
\begin{array}{r}
\$ 8,450 \
7,240 \
\underline{400} \
 810 \
\underline{ 70} \
 \$ 740 \
\underline{ 259} \
\underline{ \$ 481}
\end{array}
\end{array}$
 
-Refer to the above TableWhat is the days' sales in receivables in 2008?

Accepted Answer

A) 31.8 days 
B) 33.7 days 
C) 38.4 days 
D) 41.9 days 
E) 47.4 days 
A) 31.8 days 
B) 33.7 days 
C) 38.4 days 
D) 41.9 days 
E) 47.4 days

Question 20

Which one of the following sets of ratios applies most directly to shareholders?

Accepted Answer

A) return on assets and profit margin 
B) quick ratio and times interest earned 
C) price-earnings ratio and debt-equity ratio 
D) market-to-book ratio and price-earnings ratio 
E) cash coverage ratio and times equity multiplier 
A) return on assets and profit margin 
B) quick ratio and times interest earned 
C) price-earnings ratio and debt-equity ratio 
D) market-to-book ratio and price-earnings ratio 
E) cash coverage ratio and times equity multiplier

Exam 3: Financial Statements Analysis and Long-Term Planning

The market-to-book ratio is measured as:

Financial planning, when properly executed:

Sustainable growth can be determined by the:

A firm has total debt of $1,200 and a debt-equity ratio of .30.What is the value of the total assets?

The sustainable growth rate will be equivalent to the internal growth rate when:

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?

It is often said that anyone with a pencil can calculate financial ratios, but it takes a brain to interpret them.What kinds of things should an analyst keep in mind when evaluating the financial statements of a given firm?

Turner's Inc.has a price-earnings ratio of 16.Alfred's Co.has a price-earnings ratio of 19.Thus, you can state with certainty that one share of stock in Alfred's:

The percentage of sales method:

The receivables turnover ratio is measured as:

A firm has net working capital of $400, net fixed assets of $2,400, sales of $6,000, and current liabilities of $800.How many dollars worth of sales are generated from every $1 in total assets?

It is easier to evaluate a firm using its financial statements when the firm:

A firm's sustainable growth rate in sales directly depends on its:

Patti's has net income of $1,800, a price-earnings ratio of 12, and earnings per share of $1.20.How many shares of stock are outstanding?

A supplier, who requires payment within ten days, is most concerned with which one of the following ratios when granting credit?

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

Which one of the following sets of ratios applies most directly to shareholders?

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

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

Risk, Cost of Capital, and Capital Budgeting

Efficient Capital Markets and Behavioral Challenges

Long-Term Financing: an Introduction

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Valuation and Capital Budgeting for the Levered Firm

Dividends and Other Payouts

Issuing Securities to the Public

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 and Acquisitions

Financial Distress

International Corporate Finance

Filters