Question 1

Which of the following statistics would be the most useful in determining the efficiency of a car rental company?

Accepted Answer

A)  Inventory turnover 
B)  Number of employees per car rental 
C)  Average length of car rental 
D)  Number of days cars are rented as a percentage of number of days available for rent 
A)  Inventory turnover 
B)  Number of employees per car rental 
C)  Average length of car rental 
D)  Number of days cars are rented as a percentage of number of days available for rent D

Question 2

On January 1, 2005, Systil Corporation issues $50M 10 year bonds with a coupon rate of 10%. Interest is payable annually at the end of the year. If the required return on bonds of similar risk at January 1, 2006 is 8%, what will be the price of the bonds be at this date?

Accepted Answer

A)  $56.71M 
B)  $56.25M 
C)  $44.24M 
D)  $43.86M 
A)  $56.71M 
B)  $56.25M 
C)  $44.24M 
D)  $43.86M A

Question 3

The Management Discussion and Analysis Section of the annual report:

Accepted Answer

A)  is required by the SEC. 
B)  is optional but normally included in the annual report. 
C)  is required by the SEC only if the company has suffered from unfavorable trends or there are significant uncertainty concerning liquidity of the company. 
D)  is required by the SEC only if they have a qualified audit opinion.
You are analyzing a large stable company. For the year ending 12/31/05 the company reported earnings of $58,900K and book value at the end of 2005 was $371,700K. You expect earnings to grow at 5% a year in perpetuity, and the dividend payout ratio of 70% to continue. The company borrows at 8%, and has a cost of equity of 12%. The company has 25,000K shares outstanding. 
A)  is required by the SEC. 
B)  is optional but normally included in the annual report. 
C)  is required by the SEC only if the company has suffered from unfavorable trends or there are significant uncertainty concerning liquidity of the company. 
D)  is required by the SEC only if they have a qualified audit opinion.
You are analyzing a large stable company. For the year ending 12/31/05 the company reported earnings of $58,900K and book value at the end of 2005 was $371,700K. You expect earnings to grow at 5% a year in perpetuity, and the dividend payout ratio of 70% to continue. The company borrows at 8%, and has a cost of equity of 12%. The company has 25,000K shares outstanding. A

Question 4

When comparing two companies the company with the highest net income should normally have the highest stock price.

Accepted Answer

A) True 
 B)False

Question 5

All other things being equal, the lower a company's cost of equity the higher its stock price should be.

Accepted Answer

A) True 
 B)False

Question 6

You have prepared a trend series for Company XYZ for three years, 2004-2006 inclusive, using 2004 as the base year. Below are selected data.
 $$\begin{array} { | l | c | c | c | } 
\hline & 2004 & 2005 & 2006 \
\hline \text { Sales } & 100 & 120 & 135 \
\hline \text { Net Income } & 100 & 118 & 128 \
\hline \text { Total Assets } & 100 & 119 & 130 \
\hline
\end{array}$$
-Which of the following ratios is not generally considered to be helpful in assessing short-term liquidity?

Accepted Answer

A)  Acid test ratio 
B)  Current ratio 
C)  Days to collect receivables 
D)  Days goodwill held 
A)  Acid test ratio 
B)  Current ratio 
C)  Days to collect receivables 
D)  Days goodwill held

Question 7

The current ratio is used to evaluate the company's operating performance.

Accepted Answer

A) True 
 B)False

Question 8

Problem One: Information contained in Financial Statements
List ten different items you would expect to find in an average annual report to shareholders.

Accepted Answer

The answer of Problem One: Information contained in Financial Statements
List...

Question 9

Wilco Company reports the following: $$\begin{array} { | l | c | c | } 
\hline & 2005 & 2004 \
\hline \text { Retained Earnings } & \$ 2,000,000 & \$ 1,300,000 \
\hline \text { Common Stock } & \$ 500,000 & \$ 500,000 \
\hline \text { Paid-in Capital } & \$ 3,000,000 & \$ 3,000,000 \
\hline \text { Net Income for year } & \$ 900,000 & \$ 400,000 \
\hline
\end{array}$$ Dividend payout ratio for 2005 was:

Accepted Answer

A)  27% 
B)  12% 
C)  22.2% 
D)  Not determinable 
A)  27% 
B)  12% 
C)  22.2% 
D)  Not determinable

Question 10

When calculating the return on assets you should use average total assets.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following statements regarding the intrinsic value of a company is correct?

Accepted Answer

A)  It can be calculated as book value plus the present value of future expected dividends, discounted at the cost of equity capital. 
B)  It can be calculated as present value of future expected dividends, discounted at the cost of debt. 
C)  It can be calculated as present value of future expected residual income, discounted at the cost of equity capital. 
D)  It can be calculated as book value plus the present value of future expected residual income, discounted at the cost of equity capital 
A)  It can be calculated as book value plus the present value of future expected dividends, discounted at the cost of equity capital. 
B)  It can be calculated as present value of future expected dividends, discounted at the cost of debt. 
C)  It can be calculated as present value of future expected residual income, discounted at the cost of equity capital. 
D)  It can be calculated as book value plus the present value of future expected residual income, discounted at the cost of equity capital

Question 12

A capital-intensive company requires high cash turnover.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following ratios would be considered useful in assessing operating profitability?

Accepted Answer

A)  Debt/Equity ratio 
B)  Acid test ratio 
C)  Gross profit margin 
D)  Return on equity 
A)  Debt/Equity ratio 
B)  Acid test ratio 
C)  Gross profit margin 
D)  Return on equity

Question 14

Following is some financial information for Dell Inc.
 $$\begin{array} { | l | r | r | } 
\hline & { 2006 } & { 2005 } \
\hline \text { Revenues } & \$ 49,205 & \$ 41,444 \
\hline \text { Net income } & 3,043 & 2,645 \
\hline \text { Total assets } & 23,215 & 19,311 \
\hline \text { Shareholder's equity } & 6,485 & 6,280 \
\hline \text { Cash flow from operations } & 5,310 & 3,670 \
\hline \text { Basic earnings per share } & 1.21 & 1.03 \
\hline \text { Book value per share } & 2.61 & 2.46 \
\hline \text { Closing stock price } & 33.44 & 23.86 \
\hline
\end{array}$$
-What is Dell's profit margin for 2005?

Accepted Answer

A)  6.27% 
B)  6.18% 
C)  6.38% 
D)  6.86% 
A)  6.27% 
B)  6.18% 
C)  6.38% 
D)  6.86%

Question 15

Following is some financial information for Dell Inc.
 $$\begin{array} { | l | r | r | } 
\hline & { 2006 } & { 2005 } \
\hline \text { Revenues } & \$ 49,205 & \$ 41,444 \
\hline \text { Net income } & 3,043 & 2,645 \
\hline \text { Total assets } & 23,215 & 19,311 \
\hline \text { Shareholder's equity } & 6,485 & 6,280 \
\hline \text { Cash flow from operations } & 5,310 & 3,670 \
\hline \text { Basic earnings per share } & 1.21 & 1.03 \
\hline \text { Book value per share } & 2.61 & 2.46 \
\hline \text { Closing stock price } & 33.44 & 23.86 \
\hline
\end{array}$$
-What is Dell's asset turnover for 2006?

Accepted Answer

A)  2.12 
B)  3.58 
C)  3.65 
D)  2.31 
A)  2.12 
B)  3.58 
C)  3.65 
D)  2.31

Question 16

You have prepared a trend series for Company XYZ for three years, 2004-2006 inclusive, using 2004 as the base year. Below are selected data.
 $$\begin{array} { | l | c | c | c | } 
\hline & 2004 & 2005 & 2006 \
\hline \text { Sales } & 100 & 120 & 135 \
\hline \text { Net Income } & 100 & 118 & 128 \
\hline \text { Total Assets } & 100 & 119 & 130 \
\hline
\end{array}$$
-Which of the following statements is incorrect?

Accepted Answer

A)  Net Income in 2006 increased by 28% compared to 2004. 
B)  XYZ's net income to sales (return on sales) increased in 2006 compared to 2004. 
C)  XYZ's net income to sales (return on sales) decreased in 2006 compared to 2004. 
D)  Assets have increased over time. 
A)  Net Income in 2006 increased by 28% compared to 2004. 
B)  XYZ's net income to sales (return on sales) increased in 2006 compared to 2004. 
C)  XYZ's net income to sales (return on sales) decreased in 2006 compared to 2004. 
D)  Assets have increased over time.

Question 17

How much would you be prepared to pay for a $500 bond which comes due in 5 years and pays $80 interest annually assuming your required rate of return is 8% (pick closest answer)?

Accepted Answer

A)  $740 
B)  $660 
C)  $608 
D)  $500 
A)  $740 
B)  $660 
C)  $608 
D)  $500

Question 18

When conducting comparative analysis by reviewing consecutive balance sheets,

Accepted Answer

A)  all items on the balance sheet in Year t must be divided by their corresponding value in Year t-1 and subtract 1. 
B)  all items on the balance sheet in Year t-1 must be subtracted from their corresponding value in Year t. 
C)  all items on the balance sheet in Year t must be divided by net income in Year t-1. 
D)  Both A and B are correct. 
A)  all items on the balance sheet in Year t must be divided by their corresponding value in Year t-1 and subtract 1. 
B)  all items on the balance sheet in Year t-1 must be subtracted from their corresponding value in Year t. 
C)  all items on the balance sheet in Year t must be divided by net income in Year t-1. 
D)  Both A and B are correct.

Question 19

Inventory turnover is generally a more important ratio for a manufacturing firm than a service firm.

Accepted Answer

A) True 
 B)False

Question 20

Debt-to-equity ratio is a commonly used measure of liquidity.

Accepted Answer

A) True 
 B)False

Which of the following statistics would be the most useful in determining the efficiency of a car rental company?

On January 1, 2005, Systil Corporation issues $50M 10 year bonds with a coupon rate of 10%. Interest is payable annually at the end of the year. If the required return on bonds of similar risk at January 1, 2006 is 8%, what will be the price of the bonds be at this date?

The Management Discussion and Analysis Section of the annual report:

When comparing two companies the company with the highest net income should normally have the highest stock price.

All other things being equal, the lower a company's cost of equity the higher its stock price should be.

The current ratio is used to evaluate the company's operating performance.

Problem One: Information contained in Financial Statements List ten different items you would expect to find in an average annual report to shareholders.

Wilco Company reports the following: 2005 2004 Retained Earnings \ 2,000,000 \ 1,300,000 Common Stock \ 500,000 \ 500,000 Paid-in Capital \ 3,000,000 \ 3,000,000 Net Income for year \ 900,000 \ 400,000 Dividend payout ratio for 2005 was:

When calculating the return on assets you should use average total assets.

Which of the following statements regarding the intrinsic value of a company is correct?

A capital-intensive company requires high cash turnover.

Which of the following ratios would be considered useful in assessing operating profitability?

You have prepared a trend series for Company XYZ for three years, 2004-2006 inclusive, using 2004 as the base year. Below are selected data. 2004 2005 2006 Sales 100 120 135 Net Income 100 118 128 Total Assets 100 119 130 -Which of the following statements is incorrect?

How much would you be prepared to pay for a $500 bond which comes due in 5 years and pays $80 interest annually assuming your required rate of return is 8% (pick closest answer)?

When conducting comparative analysis by reviewing consecutive balance sheets,

Inventory turnover is generally a more important ratio for a manufacturing firm than a service firm.

Debt-to-equity ratio is a commonly used measure of liquidity.

Financial Reporting and Analysis

Analyzing Financing Activities

Analyzing Investing Activities

Analyzing Investing Activities: Intercorporate Investments

Analyzing Operating Activities

Cash Flow Analysis

Return on Invested Capital and Profitability Analysis

Prospective Analysis

Credit Analysis

Equity Analysis and Valuation

Filters

Exam 1: Overview of Financial Statement Analysis

Which of the following statistics would be the most useful in determining the efficiency of a car rental company?

On January 1, 2005, Systil Corporation issues $50M 10 year bonds with a coupon rate of 10%. Interest is payable annually at the end of the year. If the required return on bonds of similar risk at January 1, 2006 is 8%, what will be the price of the bonds be at this date?

The Management Discussion and Analysis Section of the annual report:

When comparing two companies the company with the highest net income should normally have the highest stock price.

All other things being equal, the lower a company's cost of equity the higher its stock price should be.

The current ratio is used to evaluate the company's operating performance.

Problem One: Information contained in Financial Statements List ten different items you would expect to find in an average annual report to shareholders.

Wilco Company reports the following: 2005 2004 Retained Earnings \ 2,000,000 \ 1,300,000 Common Stock \ 500,000 \ 500,000 Paid-in Capital \ 3,000,000 \ 3,000,000 Net Income for year \ 900,000 \ 400,000 Dividend payout ratio for 2005 was:

When calculating the return on assets you should use average total assets.

Which of the following statements regarding the intrinsic value of a company is correct?

A capital-intensive company requires high cash turnover.

Which of the following ratios would be considered useful in assessing operating profitability?

You have prepared a trend series for Company XYZ for three years, 2004-2006 inclusive, using 2004 as the base year. Below are selected data. 2004 2005 2006 Sales 100 120 135 Net Income 100 118 128 Total Assets 100 119 130 -Which of the following statements is incorrect?

How much would you be prepared to pay for a $500 bond which comes due in 5 years and pays $80 interest annually assuming your required rate of return is 8% (pick closest answer)?

When conducting comparative analysis by reviewing consecutive balance sheets,

Inventory turnover is generally a more important ratio for a manufacturing firm than a service firm.

Debt-to-equity ratio is a commonly used measure of liquidity.

Financial Reporting and Analysis

Analyzing Financing Activities

Analyzing Investing Activities

Analyzing Investing Activities: Intercorporate Investments

Analyzing Operating Activities

Cash Flow Analysis

Return on Invested Capital and Profitability Analysis

Prospective Analysis

Credit Analysis

Equity Analysis and Valuation

Filters