Question 1

The long-term debt ratio is probably of most interest to a firm's:

Accepted Answer

A) credit customers. 
B) employees. 
C) suppliers. 
D) mortgage holder. 
E) stockholders.

Question 2

The financial ratio that measures the accounting profit per dollar of book equity is referred to as the:

Accepted Answer

A) profit margin. 
B) price-earnings ratio. 
C) return on equity. 
D) equity turnover. 
E) market profit-to-book ratio.

Question 3

A firm has 12,000 shares of stock outstanding,sales of $638,100,a profit margin of 8.2 percent,a tax rate of 21 percent,a price-earnings ratio of 11.3,and a book value per share of $7.98.What is the market-to-book ratio?

Accepted Answer

A) 6.08 
B) 5.42 
C) 5.16 
D) 6.17 
E) 6.90

Question 4

Upriver Tours has balance sheet values of: Inventory $70,500; accounts receivable $50,700; accounts payable $58,900; cash $32,300,notes payable $20,000,long-term debt $134,700,and net fixed assets $504,500.What is the current ratio?

Accepted Answer

A) 1.95 
B) .95 
C) 2.11 
D) 1.98 
E) .98

Question 5

The maximum rate at which a firm can grow while maintaining a constant debt-equity ratio is best defined by its:

Accepted Answer

A) rate of return on assets. 
B) internal rate of growth. 
C) average historical rate of growth. 
D) rate of return on equity. 
E) sustainable rate of growth.

Question 6

Brewster Mills has total revenues of $684,350,costs of goods sold of $472,500,net income of $11,520,and average inventory of $91,600.What is the days' sales in inventory?

Accepted Answer

A) 69.84 days 
B) 70.76 days 
C) 71.51 days 
D) 5.16 days 
E) 4.08 days

Question 7

Financial planning models are most apt to omit:

Accepted Answer

A) the changes in net working capital required for additional sales. 
B) the increases in costs required to increase sales. 
C) any change in retained earnings due to changes in the income statement. 
D) the timing,risk,and size of the cash flows. 
E) any additions that might be needed to fixed assets.

Question 8

The amount that investors are willing to pay for each dollar of annual earnings is reflected in the:

Accepted Answer

A) return on assets. 
B) return on equity. 
C) debt-equity ratio. 
D) price-earnings ratio. 
E) DuPont identity.

Question 9

Green Lumber has total sales of $387,200 on total assets of $429,600,current liabilities of $45,000,and $24,000 of dividends paid on net income of $57,700.Assume that all costs,assets,and current liabilities change spontaneously with sales.The tax rate and dividend payout ratios remain constant.If the firm's managers project a firm growth rate of 12 percent for next year,what will be the amount of external financing needed to support this level of growth? Assume the firm is currently operating at full capacity.

Accepted Answer

A) $11,706 
B) $14,350 
C) $9,911 
D) $5,667 
E) $8,408

Question 10

The debt-equity ratio is measured as:

Accepted Answer

A) total equity divided by long-term debt. 
B) total equity divided by total debt. 
C) total debt divided by total equity. 
D) long-term debt divided by total equity. 
E) total assets minus total debt,divided by total equity.

Question 11

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

Accepted Answer

The answer of State the assumptions that underlie the internal...

Question 12

The most effective method of directly evaluating the financial performance of a firm is to compare the financial ratios of the firm to:

Accepted Answer

A) the firm's ratios from prior time periods and to the ratios of firms with similar operations. 
B) the average ratios of all firms within the same country over a period of time. 
C) those of other firms located in the same geographic area that are similarly sized. 
D) the average ratios of the firm's international peer group. 
E) those of the largest conglomerate that has operations in the same industry as the firm.

Question 13

Last year,Alfred's Automotive had a price-earnings ratio of 15 and earnings per share of $1.20.This year,the price-earnings ratio is 18 and the earnings per share is $1.20.Based on this information,it can be stated with certainty that:

Accepted Answer

A) the price per share decreased. 
B) the earnings per share decreased. 
C) investors are paying a lower price per share this year as compared to last year. 
D) investors are receiving a higher rate of return this year. 
E) the investors' outlook for the firm has improved.

Question 14

New Metals has depreciation of $28,300,interest expense of $11,400,EBIT of $62,700,a price-earnings ratio of 8.6,a profit margin of 7.2 percent,a tax rate of 21 percent,and 37,500 shares of stock outstanding.What is the market price per share?

Accepted Answer

A) $13.48 
B) $7.09 
C) $9.29 
D) $12.48 
E) $10.92

Question 15

Days' sales in inventory is measured as:

Accepted Answer

A) inventory turnover plus 365 days. 
B) inventory turnover times 365 days. 
C) inventory divided by cost of goods sold,times 365 days. 
D) 365 days divided by the inventory. 
E) 365 days divided by the inventory turnover.

Question 16

Ratios that measure a firm's financial leverage are known as ________ ratios.

Accepted Answer

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

Question 17

Western Wear has total sales of $642,100,EBIT of $93,900,net income of $50,800,current assets of $153,500,total assets of $658,000,current liabilities of $78,900,and total liabilities of $213,600.What are the values of the three components of the DuPont identity?

Accepted Answer

A) 7.91 percent; 1.02; 1.48 
B) 8.57 percent; 1.02; .68 
C) 7.91 percent; .98; 1.48 
D) 11.43 percent; .98; .68 
E) 11.43 percent; 1.02; 1.48

Question 18

The least problems encountered when comparing the financial statements of one firm with those of another firm occur when the firms:

Accepted Answer

A) are in different lines of business. 
B) have geographically diverse operations. 
C) use different methods of depreciation. 
D) are both classified as conglomerates. 
E) have the same fiscal year-end.

Question 19

The return on equity can be calculated as:

Accepted Answer

A) ROA × Equity multiplier. 
B) Profit margin × ROA. 
C) Profit margin × ROA × Total asset turnover. 
D) ROA × Net income/Total assets. 
E) ROA × Debt-equity ratio.

Question 20

If stockholders want to know how much profit the firm is making on their entire investment in that firm,the stockholders should refer to the:

Accepted Answer

A) profit margin. 
B) return on assets. 
C) return on equity. 
D) equity multiplier. 
E) earnings per share.

Exam 3: Financial Statements and Cash Flow