Question 1

The debt-equity ratio is measured as total:

Accepted Answer

A) equity minus total debt. 
B) equity divided by total debt. 
C) debt divided by total equity. 
D) debt plus total equity. 
E) debt minus total assets, divided by total equity. 
A) equity minus total debt. 
B) equity divided by total debt. 
C) debt divided by total equity. 
D) debt plus total equity. 
E) debt minus total assets, divided by total equity.

Question 2

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 3

$\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 TableIn 2008, how many days on average did it take Bayside to sell its inventory?

Accepted Answer

A) 126.1 days 
B) 127.9 days 
C) 153.8 days 
D) 176.5 days 
E) 178.9 days 
A) 126.1 days 
B) 127.9 days 
C) 153.8 days 
D) 176.5 days 
E) 178.9 days

Question 4

A firm has a debt-equity ratio of .40.What is the total debt ratio?

Accepted Answer

A) .29 
B) .33 
C) .67 
D) 1.40 
E) 1.50 
A) .29 
B) .33 
C) .67 
D) 1.40 
E) 1.50

Question 5

The inventory turnover ratio is measured as:

Accepted Answer

A) total sales minus inventory. 
B) inventory times total sales. 
C) cost of goods sold divided by inventory. 
D) inventory times cost of goods sold. 
E) inventory plus cost of goods sold. 
A) total sales minus inventory. 
B) inventory times total sales. 
C) cost of goods sold divided by inventory. 
D) inventory times cost of goods sold. 
E) inventory plus cost of goods sold.

Question 6

Ratios that measure how efficiently a firm uses its assets to generate sales are known as _____ ratios.

Accepted Answer

A) asset management 
B) long-term solvency 
C) short-term solvency 
D) profitability 
E) market value 
A) asset management 
B) long-term solvency 
C) short-term solvency 
D) profitability 
E) market value

Question 7

The quick ratio is measured as:

Accepted Answer

A) current assets divided by current liabilities. 
B) cash on hand plus current liabilities, divided by current assets. 
C) current liabilities divided by current assets, plus inventory. 
D) current assets minus inventory, divided by current liabilities. 
E) current assets minus inventory minus current liabilities. 
A) current assets divided by current liabilities. 
B) cash on hand plus current liabilities, divided by current assets. 
C) current liabilities divided by current assets, plus inventory. 
D) current assets minus inventory, divided by current liabilities. 
E) current assets minus inventory minus current liabilities.

Question 8

Jessica's Boutique has cash of $50, accounts receivable of $60, accounts payable of $200, and inventory of $150.What is the value of the quick ratio?

Accepted Answer

A) .30 
B) .55 
C) .77 
D) 1.30 
E) 1.82 
A) .30 
B) .55 
C) .77 
D) 1.30 
E) 1.82

Question 9

Which one of the following statements is correct if a firm has a receivables turnover measure of 10?

Accepted Answer

A) It takes a firm 10 days to collect payment from its customers. 
B) It takes a firm 36.5 days to sell its inventory and collect the payment from the sale. 
C) It takes a firm 36.5 days to pay its creditors. 
D) The firm has an average collection period of 36.5 days. 
E) The firm has ten times more in accounts receivable than it does in cash. 
A) It takes a firm 10 days to collect payment from its customers. 
B) It takes a firm 36.5 days to sell its inventory and collect the payment from the sale. 
C) It takes a firm 36.5 days to pay its creditors. 
D) The firm has an average collection period of 36.5 days. 
E) The firm has ten times more in accounts receivable than it does in cash.

Question 10

Relationships determined from a firm's financial information and used for comparison purposes are known as:

Accepted Answer

A) financial ratios. 
B) comparison statements. 
C) dimensional analysis. 
D) scenario analysis. 
E) solvency analysis. 
A) financial ratios. 
B) comparison statements. 
C) dimensional analysis. 
D) scenario analysis. 
E) solvency analysis.

Question 11

If a firm decreases its operating costs, all else constant, then:

Accepted Answer

A) the profit margin increases while the equity multiplier decreases. 
B) the return on assets increases while the return on equity decreases. 
C) the total asset turnover rate decreases while the profit margin increases. 
D) both the profit margin and the equity multiplier increase. 
E) both the return on assets and the return on equity increase. 
A) the profit margin increases while the equity multiplier decreases. 
B) the return on assets increases while the return on equity decreases. 
C) the total asset turnover rate decreases while the profit margin increases. 
D) both the profit margin and the equity multiplier increase. 
E) both the return on assets and the return on equity increase.

Question 12

One of the primary weaknesses of many financial planning models is that they:

Accepted Answer

A) rely too much on financial relationships and too little on accounting relationships. 
B) are iterative in nature. 
C) ignore the goals and objectives of senior management. 
D) are based solely on best case assumptions. 
E) ignore the size, risk, and timing of cash flows. 
A) rely too much on financial relationships and too little on accounting relationships. 
B) are iterative in nature. 
C) ignore the goals and objectives of senior management. 
D) are based solely on best case assumptions. 
E) ignore the size, risk, and timing of cash flows.

Question 13

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 14

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 the above. 
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 the above.

Question 15

A total asset turnover measure of 1.03 means that a firm has $1.03 in:

Accepted Answer

A) total assets for every $1 in cash. 
B) total assets for every $1 in total debt. 
C) total assets for every $1 in equity. 
D) sales for every $1 in total assets. 
E) long-term assets for every $1 in short-term assets. 
A) total assets for every $1 in cash. 
B) total assets for every $1 in total debt. 
C) total assets for every $1 in equity. 
D) sales for every $1 in total assets. 
E) long-term assets for every $1 in short-term assets.

Question 16

Robert Morris Associates publishes peer group financial information for a host of industries, yet the numbers typically only appear in common-size form.Why not report average dollar amounts instead?

Accepted Answer

The common-size numbers are inherently m

Question 17

A firm's market capitalization is equal to:

Accepted Answer

A) total book value of assets less book value of debt. 
B) par value of common equity. 
C) firm's stock price multiplied by number of shares outstanding. 
D) firm's stock price multiplied by the number of shares authorized. 
E) the maximum value an acquirer would pay for a firm in an acquisition. 
A) total book value of assets less book value of debt. 
B) par value of common equity. 
C) firm's stock price multiplied by number of shares outstanding. 
D) firm's stock price multiplied by the number of shares authorized. 
E) the maximum value an acquirer would pay for a firm in an acquisition.

Question 18

$\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 equity multiplier for 2008?

Accepted Answer

A) 1.21 
B) 1.36 
C) 1.44 
D) 1.82 
E) 1.91 
A) 1.21 
B) 1.36 
C) 1.44 
D) 1.82 
E) 1.91

Question 19

If a firm bases its growth projection on the rate of sustainable growth, and shows positive net income, then the:

Accepted Answer

A) fixed assets will have to increase at the same rate, regardless of the current capacity level. 
B) number of common shares outstanding will increase at the same rate of growth. 
C) debt-equity ratio will have to increase. 
D) debt-equity ratio will remain constant while retained earnings increase. 
E) fixed assets, debt-equity ratio, and number of common shares outstanding will all increase. 
A) fixed assets will have to increase at the same rate, regardless of the current capacity level. 
B) number of common shares outstanding will increase at the same rate of growth. 
C) debt-equity ratio will have to increase. 
D) debt-equity ratio will remain constant while retained earnings increase. 
E) fixed assets, debt-equity ratio, and number of common shares outstanding will all increase.

Question 20

The financial ratio measured as earnings before interest and taxes, plus depreciation, divided by interest expense, is the:

Accepted Answer

A) cash coverage ratio. 
B) debt-equity ratio. 
C) times interest earned ratio. 
D) gross margin. 
E) total debt ratio. 
A) cash coverage ratio. 
B) debt-equity ratio. 
C) times interest earned ratio. 
D) gross margin. 
E) total debt ratio.

Exam 3: Financial Statements Analysis and Long-Term Planning

The debt-equity ratio is measured as total:

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

A firm has a debt-equity ratio of .40.What is the total debt ratio?

The inventory turnover ratio is measured as:

Ratios that measure how efficiently a firm uses its assets to generate sales are known as _____ ratios.

The quick ratio is measured as:

Jessica's Boutique has cash of $50, accounts receivable of $60, accounts payable of $200, and inventory of $150.What is the value of the quick ratio?

Which one of the following statements is correct if a firm has a receivables turnover measure of 10?

Relationships determined from a firm's financial information and used for comparison purposes are known as:

If a firm decreases its operating costs, all else constant, then:

One of the primary weaknesses of many financial planning models is that they:

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:

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

A total asset turnover measure of 1.03 means that a firm has $1.03 in:

Robert Morris Associates publishes peer group financial information for a host of industries, yet the numbers typically only appear in common-size form.Why not report average dollar amounts instead?

A firm's market capitalization is equal to:

If a firm bases its growth projection on the rate of sustainable growth, and shows positive net income, then the:

The financial ratio measured as earnings before interest and taxes, plus depreciation, divided by interest expense, is 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

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

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