Question 1

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

Question 2

Jessica's Boutique has cash of $50,accounts receivable of $60,accounts payable of $400,and inventory of $100.What is the value of the quick ratio?

Accepted Answer

A) .125 
B) .15 
C) .275 
D) .525 
E) 1.525

Question 3

A firm has sales of $1,500,net income of $100,total assets of $1,000,and total equity of $700.Interest expense is $50.What is the common-size statement value of the interest expense?

Accepted Answer

A) 3.3% 
B) 5.0% 
C) 7.1% 
D) 16.7% 
E) 50.0%

Question 4

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.

Question 5

Jupiter Explorers has $6,400 in sales.The profit margin is 4%.There are 6,400 shares of stock outstanding.The market price per share is $1.20.What is the price-earnings ratio?

Accepted Answer

A) 13 
B) 14 
C) 21 
D) 30 
E) 48

Question 6

Marcie's Mercantile wants to maintain its current dividend policy,which is a payout ratio of 40%.The firm does not want to increase its equity financing but is willing to maintain its current debt-equity ratio.Given these requirements,the maximum rate at which Marcie's can grow is equal to:

Accepted Answer

A) 40% of the internal rate of growth. 
B) 60% of the internal rate of growth. 
C) the internal rate of growth. 
D) the sustainable rate of growth. 
E) 60% of the sustainable rate of growth.

Question 7

A firm has a market capitalization of $2 million,market value of interest bearing debt of $1 million,book value of interest bearing debt of $500,000 and cash of $100,000.What is the enterprise value?

Accepted Answer

A) $2.5 million 
B) $2.9 million 
C) $3.0 million 
D) $3.5 million 
E) $3.6 million

Question 8

What is the return on equity for 2011?

Accepted Answer

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

Question 9

Which two of the following are most apt to cause a firm to have a higher price-earnings ratio?
I.slow industry outlook
II.high prospect of firm growth
III.very low current earnings
IV.investors with a low opinion of the firm

Accepted Answer

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

Question 10

The equity multiplier ratio is measured as total:

Accepted Answer

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

Question 11

A firm has a total debt ratio of .47.This means that that firm has 47 cents in debt for every:

Accepted Answer

A) $1 in equity. 
B) $1 in total sales. 
C) $1 in current assets. 
D) $.53 in equity. 
E) $.53 in total assets.

Question 12

What is the cash coverage ratio for 2011?

Accepted Answer

A) 11.6 
B) 12.8 
C) 13.7 
D) 17.3 
E) 18.8

Question 13

Catherine's Consulting has a net income of $ 1,400 and a total equity of $ 12,000.The debt-equity ratio is 1.0 and the plowback is 30%.What is the internal growth rate for Catherine's consulting?

Accepted Answer

A) 1.6% 
B) 1.78% 
C) 1.98% 
D) 2.21% 
E) None of the above

Question 14

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.

Question 15

A firm has sales of $4,000,costs of $3,000,interest paid of $100,and depreciation of $400.The tax rate is 34%.What is the value of the cash coverage ratio?

Accepted Answer

A) 3 
B) 4 
C) 6 
D) 7 
E) 10

Question 16

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.

Question 17

The three parts of the Du Pont identity can be generally described as:
I.operating efficiency,asset use efficiency and firm profitability.
II.financial leverage,operating efficiency and asset use efficiency.
III.the equity multiplier,the profit margin and the total asset turnover.
IV.the debt-equity ratio,the capital intensity ratio and the profit margin.

Accepted Answer

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

Question 18

The financial ratio measured as net income divided by total assets is known as the firm's:

Accepted Answer

A) profit margin. 
B) return on assets. 
C) return on equity. 
D) asset turnover. 
E) earnings before interest and taxes.

Question 19

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

Question 20

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.

Exam 3: Financial Statements Analysis and Long-Term Planning