Question 1

A firm has a return on equity of 15%.The debt-equity ratio is 50%.The total asset turnover is 1.25 and the profit margin is 8%.The total equity is $3,200.What is the amount of the net income?

Accepted Answer

A) $480 
B) $500 
C) $540 
D) $600 
E) $620

Question 2

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.

Question 3

Turner's Inc.has a price-earnings ratio of 16.Alfred's Co.has a price-earnings ratio of 19.Thus,you can state with certainty that one share of stock in Alfred's:

Accepted Answer

A) has a higher market price than one share of stock in Turner's. 
B) has a higher market price per dollar of earnings than does one share of Turner's. 
C) sells at a lower price per share than one share of Turner's. 
D) represents a larger percentage of firm ownership than does one share of Turner's stock. 
E) earns a greater profit per share than does one share of Turner's stock.

Question 4

Projected future financial statements are called:

Accepted Answer

A) plug statements. 
B) pro forma statements. 
C) reconciled statements. 
D) aggregated statements. 
E) none of the above.

Question 5

A firm has sales of $1,200,net income of $200,net fixed assets of $500,and current assets of $300.The firm has $200 in inventory.What is the common-size statement value of inventory?

Accepted Answer

A) 10.0% 
B) 16.67% 
C) 25.0% 
D) 40.0% 
E) 67.67%

Question 6

Financial ratios that measure a firm's ability to pay its bills over the short run without undue stress are known as _____ ratios.

Accepted Answer

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

Question 7

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.

Question 8

Which one of the following sets of ratios applies most directly to shareholders?

Accepted Answer

A) return on assets and profit margin 
B) quick ratio and times interest earned 
C) price-earnings ratio and debt-equity ratio 
D) market-to-book ratio and price-earnings ratio 
E) cash coverage ratio and times equity multiplier

Question 9

What is the debt-equity ratio for 2011?

Accepted Answer

A) 22.5% 
B) 26.2% 
C) 35.5% 
D) 45.1% 
E) 47.7%

Question 10

Fleur International had a 3% profit margin and a 35% dividend payout ratio.The total asset turnover is 1.25 and the equity multiplier is 1.30.What is the sustainable growth rate?

Accepted Answer

A) 3.27% 
B) 3.67% 
C) 4.27% 
D) 5.60% 
E) None of the above

Question 11

Which one of the following statements is correct?

Accepted Answer

A) Book values should always be given precedence over market values. 
B) Financial statements are frequently the basis used for performance evaluations. 
C) Historical information has no value when predicting the future. 
D) Potential lenders place little value on financial statement information. 
E) Reviewing financial information over time has very limited value.

Question 12

Syed's Industries has accounts receivable of $700,inventory of $1,200,sales of $4,200,and cost of goods sold of $3,500.How long does it take Syed's to both sell its inventory and then collect the payment on the sale?

Accepted Answer

A) 110 days 
B) 131 days 
C) 145 days 
D) 186 days 
E) 210 days

Question 13

The financial ratio measured as the price per share of stock divided by earnings per share is known as the:

Accepted Answer

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

Question 14

The cash ratio is measured as:

Accepted Answer

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

Question 15

Which of the following will increase sustainable growth?

Accepted Answer

A) Buy back existing stock 
B) Decrease debt 
C) Increase profit margin 
D) Increase asset requirement or asset turnover ratio 
E) Increase dividend payout ratio

Question 16

The only difference between Joe's and Moe's is that Joe's has old,fully depreciated equipment.Moe's just purchased all new equipment which will be depreciated over eight years.Assuming all else equal:

Accepted Answer

A) Joe's will have a lower profit margin. 
B) Joe's will have a lower return on equity. 
C) Moe's will have a higher net income. 
D) Moe's will have a lower profit margin. 
E) Moe's will have a higher return on assets.

Question 17

Moulton Incorporated has a 10% return on assets and a 20% dividend payout ratio.What is the internal growth rate?

Accepted Answer

A) 8.2% 
B) 8.7% 
C) 9.4% 
D) 10% 
E) None of the above

Question 18

An increase in which one of the following accounts increases a firm's current ratio without affecting its quick ratio?

Accepted Answer

A) accounts payable 
B) cash 
C) inventory 
D) accounts receivable 
E) fixed assets

Question 19

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

Accepted Answer

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

Question 20

Samuelson's has a debt-equity ratio of 40%,sales of $8,000,net income of $600,and total debt of $2,400.What is the return on equity?

Accepted Answer

A) 6.25% 
B) 7.50% 
C) 9.75% 
D) 10.00% 
E) 11.25%

Exam 3: Financial Statements Analysis and Long-Term Planning