Question 1

Projected accounts receivable can be calculated by dividing projected sales by accounts receivable turnover rate.

Accepted Answer

A) True 
 B)False

Question 2

The statement of cash flows for Georgey Company for 2004 and 2005 is as follows:
 $\begin{array}{lrr}
&2004&2005\
  \text {Net income}&\$189&\$170\
  \text {Adjustments to reconcile net income to net cash provided by operating }\
  \text {activities:}\
\text { Depreciation and amortization } & 201 & 173 \
\text { Deferred income taxes } & 14 & (20) \
\text { Restructuring charges } & 80 & 90 \
\text { Accounts receivable } & 30 & 20 \
\text { Inventory } & (30) & 50 \
\text { Current liabilities } & 10 & 30 \
\text { Cash flow from operations } & 494 & 513\\
\text { Sale of equipment } &200&300\
 \text { Purchase of equipment  } &(130)&(120)\
 \text { Cash flow from investing } &70&180\\
 \text { Dividends } &(120)&(130)\
 \text { Long-term debt } &(440)&(440)\
 \text { Cash flow from financing } &(650)&(570)\
\end{array}$

-Which of the following statements is correct?

Accepted Answer

A) Inventory was a use of cash for Georgey in 2005. 
B) Current liabilities increased in 2005. 
C) Georgey has a net outflow of cash in 2005. 
D) Restructuring charges were a use of cash for Georgey in 2004. 
A) Inventory was a use of cash for Georgey in 2005. 
B) Current liabilities increased in 2005. 
C) Georgey has a net outflow of cash in 2005. 
D) Restructuring charges were a use of cash for Georgey in 2004.

Question 3

Which of the following statements is incorrect?

Accepted Answer

A) It is possible for a profitable company to go out of business because of short-term liquidity problems. 
B) If a company has a current ratio greater than 1, it will never go out of business because of liquidity problems. 
C) The current ratio is always greater than or equal to the quick ratio. 
D) The accuracy of a cash flow forecast is inversely related to the forecast horizon. 
A) It is possible for a profitable company to go out of business because of short-term liquidity problems. 
B) If a company has a current ratio greater than 1, it will never go out of business because of liquidity problems. 
C) The current ratio is always greater than or equal to the quick ratio. 
D) The accuracy of a cash flow forecast is inversely related to the forecast horizon.

Question 4

When a company is experiencing rapid growth, which of the following statements is the most correct?

Accepted Answer

A) Cash flow from operations will be greater than cash flow from investing. 
B) The company will likely need more outside financing than if growth was slower. 
C) Cash flow from operations will be high due to rapid growth allowing company to pay down debt. 
D) Rapid growth will increase internally generated funds allowing higher dividend payments in periods of rapid growth. 
A) Cash flow from operations will be greater than cash flow from investing. 
B) The company will likely need more outside financing than if growth was slower. 
C) Cash flow from operations will be high due to rapid growth allowing company to pay down debt. 
D) Rapid growth will increase internally generated funds allowing higher dividend payments in periods of rapid growth.

Question 5

Cars Inc. and Automobile Inc. are two car manufactures. Cars Inc. manufactures high quality cars whereas Automobile Inc. manufactures lower end cars. Cars Inc. is more capital intensive than Automobile Inc., and relies more on fixed assets for its production. You are given the following information about the companies for year X1 (amounts in millions):
$\begin{array}{ll}
\text { Cars Inc.: } & \text { Automobile Inc.: } \
\text { Sales } \$ 4,376 & \text { Sales } \$ 2,746 \
\text { COGS } \$ 3,785(68.43 \% \text { - variable }) & \text { COGS } \$ 2,553(84.76 \% \text { - variable })
\end{array}$
The car manufacturing industry expects the following increases in sales in the following years (all compared to the previous year): year X2 2%, year X3 4%, year X4 3%, year X5 2%.

a. Comment on the cost structure for both companies and on the likely effect of the cost structure and type of cars manufactured on the price and gross margin of both companies.
b. Prepare a forecast of Cars Inc. sales, COGS, gross margin for years X2 to X5 based on the information given above.
c. Prepare a forecast of Automobile Inc. sales, COGS, gross margin for years X2 to X5 based on the information given above.
d. Comment on your results compared to your answer in part a.

Accepted Answer

a. Cars Inc. is more capital intensive t

Question 6

Research shows that ROEs tend to revert to a long-run equilibrium after about 5 years.

Accepted Answer

A) True 
 B)False

Projected accounts receivable can be calculated by dividing projected sales by accounts receivable turnover rate.

Which of the following statements is incorrect?

When a company is experiencing rapid growth, which of the following statements is the most correct?

Research shows that ROEs tend to revert to a long-run equilibrium after about 5 years.

Overview of Financial Statement Analysis

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

Credit Analysis

Equity Analysis and Valuation

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Exam 9: Prospective Analysis

Projected accounts receivable can be calculated by dividing projected sales by accounts receivable turnover rate.

Which of the following statements is incorrect?

When a company is experiencing rapid growth, which of the following statements is the most correct?

Research shows that ROEs tend to revert to a long-run equilibrium after about 5 years.

Overview of Financial Statement Analysis

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

Credit Analysis

Equity Analysis and Valuation

Filters