Question 1

Financial ratios that measure a firm's ability to pay its bills over the short run without undue stress are often referred to as:

Accepted Answer

A) asset management ratios. 
B) liquidity measures. 
C) leverage ratios. 
D) profitability ratios. 
E) utilization ratios. 
A) asset management ratios. 
B) liquidity measures. 
C) leverage ratios. 
D) profitability ratios. 
E) utilization ratios.

Question 2

Southern Markets has a profit margin of 4.8 percent,a return on assets of 11.2 percent,and a debt-equity ratio of.55.What is the return on equity?

Accepted Answer

A) 8.33% 
B) 8.49% 
C) 11.28% 
D) 17.36% 
E) 6.16% 
A) 8.33% 
B) 8.49% 
C) 11.28% 
D) 17.36% 
E) 6.16%

Question 3

For a dividend-paying firm,how is the projected addition to retained earnings calculated using the percentage of sales approach?

Accepted Answer

A) Net income × (1 - Retention ratio) 
B) Net income × (1 - Dividend payout ratio) 
C) (Cash dividends/Net income)× (New sales/Old sales) 
D) Retained earnings/Sales × (New Sales/Old Sales) 
E) Net income × (New Sales/Old Sales) 
A) Net income × (1 - Retention ratio) 
B) Net income × (1 - Dividend payout ratio) 
C) (Cash dividends/Net income)× (New sales/Old sales) 
D) Retained earnings/Sales × (New Sales/Old Sales) 
E) Net income × (New Sales/Old Sales)

Question 4

Which of the following represent problems encountered when comparing the financial statements of one firm with those of another firm?
I.The firms may have unrelated lines of business.
II.The operations of the two firms may vary geographically.
III.The firms may use differing accounting methods.
IV.The two firms may be regulated differently.

Accepted Answer

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

Question 5

Jessica's Boutique has cash of $460,accounts receivable of $630,accounts payable of $1,200,and inventory of $1,450.What is the value of the quick ratio?

Accepted Answer

A) .29 times 
B) .38 times 
C) .75 times 
D) .84 times 
E) .91 times 
A) .29 times 
B) .38 times 
C) .75 times 
D) .84 times 
E) .91 times

Question 6

A firm has total assets of $162,000,long-term debt of $46,000,stockholders' equity of $95,000,and current liabilities of $21,000.The dividend payout ratio is 60 percent and the profit margin is 8 percent.Assume all assets and current liabilities change spontaneously with sales and the firm is currently operating at full capacity.What is the external financing need if the current sales of $150,000 are projected to increase by 10 percent?

Accepted Answer

A) $4,220 
B) $54,820 
C) $16,200 
D) $38,700 
E) $8,820 
A) $4,220 
B) $54,820 
C) $16,200 
D) $38,700 
E) $8,820

Question 7

Firms with high enterprise value multiples are most apt to have:

Accepted Answer

A) high growth opportunities. 
B) low market-to-book ratios. 
C) low profit margins. 
D) low inventory turnover rates. 
E) a low price-earnings ratio. 
A) high growth opportunities. 
B) low market-to-book ratios. 
C) low profit margins. 
D) low inventory turnover rates. 
E) a low price-earnings ratio.

Question 8

Financial planning,when properly executed:

Accepted Answer

A) helps ensure that adequate financing is in place to support the desired level of growth. 
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) ignores the normal restraints encountered by a firm. 
E) eliminates the need to plan more than one year in advance. 
A) helps ensure that adequate financing is in place to support the desired level of growth. 
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) ignores the normal restraints encountered by a firm. 
E) eliminates the need to plan more than one year in advance.

Question 9

Assume a firm is operating at full capacity.Which one of these accounts is least apt to vary directly with sales?

Accepted Answer

A) Inventory 
B) Cash 
C) Long-term debt 
D) Accounts payable 
E) Fixed assets 
A) Inventory 
B) Cash 
C) Long-term debt 
D) Accounts payable 
E) Fixed assets

Question 10

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

Accepted Answer

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

Question 11

Last year,Bennett's had a price-earnings ratio of 10.2.This year,the price earnings ratio is 10.4.Based on this information,it can be stated with absolute certainty that:

Accepted Answer

A) the price per share increased. 
B) the earnings per share decreased. 
C) either the price per share,the earnings per share,or both,changed. 
D) investors are receiving a higher rate of return this year. 
E) investors are paying a higher price for each share of stock purchased. 
A) the price per share increased. 
B) the earnings per share decreased. 
C) either the price per share,the earnings per share,or both,changed. 
D) investors are receiving a higher rate of return this year. 
E) investors are paying a higher price for each share of stock purchased.

Question 12

Yesterday,Dai stock sold for $28 a share.Today,the overall market fell and Dai stock is now selling for $22 a share.Which of these ratios for Dai will be affected by this market reaction? Assume all else is held constant.

Accepted Answer

A) Enterprise value multiple and price-earnings ratio 
B) Earnings per share and price-earnings ratio 
C) Return on equity and return on assets 
D) Return on book equity and market-to-book ratio 
E) Price-earnings ratio and return on book equity 
A) Enterprise value multiple and price-earnings ratio 
B) Earnings per share and price-earnings ratio 
C) Return on equity and return on assets 
D) Return on book equity and market-to-book ratio 
E) Price-earnings ratio and return on book equity

Question 13

A common-size balance sheet will express accounts receivable as a percentage of:

Accepted Answer

A) sales. 
B) current assets. 
C) net working capital. 
D) total assets. 
E) total owners' equity. 
A) sales. 
B) current assets. 
C) net working capital. 
D) total assets. 
E) total owners' equity.

Question 14

Nails and More has net income of $11,200,total equity of $56,400,a dividend payout ratio of 60 percent,and an equity multiplier of 1.25.What is the internal rate of growth?

Accepted Answer

A) 11.91% 
B) 8.63% 
C) 8.01% 
D) 5.54% 
E) 6.79% 
A) 11.91% 
B) 8.63% 
C) 8.01% 
D) 5.54% 
E) 6.79%

Question 15

On a common-size income statement,depreciation will be:

Accepted Answer

A) omitted since it is a non-cash expense. 
B) added back to convert net income to cash flows. 
C) expressed as a percentage of total assets. 
D) expressed as a percentage of sales. 
E) expressed as a percentage of gross fixed assets. 
A) omitted since it is a non-cash expense. 
B) added back to convert net income to cash flows. 
C) expressed as a percentage of total assets. 
D) expressed as a percentage of sales. 
E) expressed as a percentage of gross fixed assets.

Question 16

If Textile Cloth shareholders want to know how much net profit Textile Cloth is making on a percentage basis on their investment in that firm,the shareholders should refer to the:

Accepted Answer

A) profit margin. 
B) return on assets. 
C) return on equity. 
D) equity multiplier. 
E) EV multiple. 
A) profit margin. 
B) return on assets. 
C) return on equity. 
D) equity multiplier. 
E) EV multiple.

Question 17

Ratio analysis works best when evaluating the financial statements of two firms:

Accepted Answer

A) in the same industry but located in different countries. 
B) of differing sizes in the same industry. 
C) with one being in a single-line of business while the other is a conglomerate. 
D) of the same size in differing industries. 
E) when both are conglomerates with varying lines of business. 
A) in the same industry but located in different countries. 
B) of differing sizes in the same industry. 
C) with one being in a single-line of business while the other is a conglomerate. 
D) of the same size in differing industries. 
E) when both are conglomerates with varying lines of business.

Question 18

The sustainable rate of growth can be increased by:

Accepted Answer

A) decreasing the equity multiplier. 
B) increasing the profit margin. 
C) decreasing the debt-equity ratio. 
D) increasing the dividend payout ratio. 
E) increasing the capital intensity ratio. 
A) decreasing the equity multiplier. 
B) increasing the profit margin. 
C) decreasing the debt-equity ratio. 
D) increasing the dividend payout ratio. 
E) increasing the capital intensity ratio.

Question 19

A firm has total assets of $262,000,long-term debt of $105,000,stockholders' equity of $111,000,and current liabilities of $46,000.The retention ratio is 60 percent and the profit margin is 6 percent.Assume all assets and current liabilities change spontaneously with sales and the firm is currently operating at full capacity.What is the external financing need if the current sales of $275,000 are projected to increase by 10 percent?

Accepted Answer

A) $210 
B) $14,340 
C) $6,200 
D) $10,890 
E) $10,710 
A) $210 
B) $14,340 
C) $6,200 
D) $10,890 
E) $10,710

Question 20

A firm has sales of $83,600,costs of $52,800,interest paid of $1,600,and depreciation of $11,400.The tax rate is 34 percent.What is the value of the cash coverage ratio?

Accepted Answer

A) 3.78 times 
B) 11.13 times 
C) 26.94 times 
D) 19.25 times 
E) 16.47 times 
A) 3.78 times 
B) 11.13 times 
C) 26.94 times 
D) 19.25 times 
E) 16.47 times

Financial ratios that measure a firm's ability to pay its bills over the short run without undue stress are often referred to as:

Southern Markets has a profit margin of 4.8 percent,a return on assets of 11.2 percent,and a debt-equity ratio of.55.What is the return on equity?

For a dividend-paying firm,how is the projected addition to retained earnings calculated using the percentage of sales approach?

Jessica's Boutique has cash of $460,accounts receivable of $630,accounts payable of $1,200,and inventory of $1,450.What is the value of the quick ratio?

Firms with high enterprise value multiples are most apt to have:

Financial planning,when properly executed:

Assume a firm is operating at full capacity.Which one of these accounts is least apt to vary directly with sales?

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

Last year,Bennett's had a price-earnings ratio of 10.2.This year,the price earnings ratio is 10.4.Based on this information,it can be stated with absolute certainty that:

Yesterday,Dai stock sold for $28 a share.Today,the overall market fell and Dai stock is now selling for $22 a share.Which of these ratios for Dai will be affected by this market reaction? Assume all else is held constant.

A common-size balance sheet will express accounts receivable as a percentage of:

Nails and More has net income of $11,200,total equity of $56,400,a dividend payout ratio of 60 percent,and an equity multiplier of 1.25.What is the internal rate of growth?

On a common-size income statement,depreciation will be:

If Textile Cloth shareholders want to know how much net profit Textile Cloth is making on a percentage basis on their investment in that firm,the shareholders should refer to the:

Ratio analysis works best when evaluating the financial statements of two firms:

The sustainable rate of growth can be increased by:

A firm has sales of $83,600,costs of $52,800,interest paid of $1,600,and depreciation of $11,400.The tax rate is 34 percent.What is the value of the cash coverage ratio?

Introduction to Corporate Finance

Financial Statements and Cash Flow

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Stock Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options, and Capital Budgeting

Risk and Return Lessons From Market History

Return and Risk: the Capital Asset Pricing Model Capm

Risk, Cost of Capital, and Valuation

Efficient Capital Markets and Behavioral Challenges

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Dividends and Other Payouts

Options and Corporate Finance

Short-Term Finance and Planning

Raising Capital

International Corporate Finance

Mergers and Acquisitions Web Only

Filters

Exam 3: Financial Statements Analysis and Financial Models

Financial ratios that measure a firm's ability to pay its bills over the short run without undue stress are often referred to as:

Southern Markets has a profit margin of 4.8 percent,a return on assets of 11.2 percent,and a debt-equity ratio of.55.What is the return on equity?

For a dividend-paying firm,how is the projected addition to retained earnings calculated using the percentage of sales approach?

Jessica's Boutique has cash of $460,accounts receivable of $630,accounts payable of $1,200,and inventory of $1,450.What is the value of the quick ratio?

Firms with high enterprise value multiples are most apt to have:

Financial planning,when properly executed:

Assume a firm is operating at full capacity.Which one of these accounts is least apt to vary directly with sales?

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

Last year,Bennett's had a price-earnings ratio of 10.2.This year,the price earnings ratio is 10.4.Based on this information,it can be stated with absolute certainty that:

Yesterday,Dai stock sold for $28 a share.Today,the overall market fell and Dai stock is now selling for $22 a share.Which of these ratios for Dai will be affected by this market reaction? Assume all else is held constant.

A common-size balance sheet will express accounts receivable as a percentage of:

Nails and More has net income of $11,200,total equity of $56,400,a dividend payout ratio of 60 percent,and an equity multiplier of 1.25.What is the internal rate of growth?

On a common-size income statement,depreciation will be:

If Textile Cloth shareholders want to know how much net profit Textile Cloth is making on a percentage basis on their investment in that firm,the shareholders should refer to the:

Ratio analysis works best when evaluating the financial statements of two firms:

The sustainable rate of growth can be increased by:

A firm has sales of $83,600,costs of $52,800,interest paid of $1,600,and depreciation of $11,400.The tax rate is 34 percent.What is the value of the cash coverage ratio?

Introduction to Corporate Finance

Financial Statements and Cash Flow

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Stock Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options, and Capital Budgeting

Risk and Return Lessons From Market History

Return and Risk: the Capital Asset Pricing Model Capm

Risk, Cost of Capital, and Valuation

Efficient Capital Markets and Behavioral Challenges

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Dividends and Other Payouts

Options and Corporate Finance

Short-Term Finance and Planning

Raising Capital

International Corporate Finance

Mergers and Acquisitions Web Only

Filters