Question 1

Briefly describe the relationship between accounting standards and different countries' legal traditions.

Accepted Answer

Generally, companies from countries with English or Scandinavian legal traditions provide more accounting information and are aimed at protection of shareholders. On the other hand, accounting standards from countries with French or German legal traditions are aimed at protecting creditors.

Question 2

Operating profit margin is calculated as

Accepted Answer

A) (after-tax interest plus net income)/sales. 
B) net income/sales. 
C) net income/cost of goods sold. 
D) None of these answers are correct. 
A) (after-tax interest plus net income)/sales. 
B) net income/sales. 
C) net income/cost of goods sold. 
D) None of these answers are correct. A

Question 3

Which of the following costs are not accounted for on the income statement?

Accepted Answer

A) Direct labor 
B) Indirect labor 
C) Opportunity cost 
D) Legal costs 
A) Direct labor 
B) Indirect labor 
C) Opportunity cost 
D) Legal costs C

Question 4

Assume a book value per share of $10 and a price per share of $24. What is the market capitalization of a firm with 2,000,000 outstanding shares?

Accepted Answer

A) $2,000,000 
B) $20,000,000 
C) $28,000,000 
D) $48,000,000 
A) $2,000,000 
B) $20,000,000 
C) $28,000,000 
D) $48,000,000

Question 5

When a firm improves (lowers)its average collection period, it generally

Accepted Answer

A) requires additional cash investment in inventory. 
B) releases cash locked up in accounts receivable. 
C) does not alter its cash position. 
D) cannot reduce its receivables. 
A) requires additional cash investment in inventory. 
B) releases cash locked up in accounts receivable. 
C) does not alter its cash position. 
D) cannot reduce its receivables.

Question 6

When a firm improves (lowers)its days of inventory, it generally

Accepted Answer

A) requires additional cash investment in inventory. 
B) releases cash locked up in inventory. 
C) does not alter its cash position. 
D) cannot reduce its inventories. 
A) requires additional cash investment in inventory. 
B) releases cash locked up in inventory. 
C) does not alter its cash position. 
D) cannot reduce its inventories.

Question 7

On the balance sheet, assets are listed in increasing order of liquidity.

Accepted Answer

A) True 
 B)False

Question 8

Assume the following data: Current assets = 500; Current liabilities = 250; Inventory = 200; Accounts receivable = 200. Calculate the cash ratio. (Assume that the firm has no marketable securities.)

Accepted Answer

A) 0.4 
B) 2.0 
C) 1.5 
D) 1.2 
A) 0.4 
B) 2.0 
C) 1.5 
D) 1.2

Question 9

The difference between total assets of a firm and its total liabilities is called

Accepted Answer

A) net working capital. 
B) net current assets. 
C) net worth. 
D) net liabilities. 
A) net working capital. 
B) net current assets. 
C) net worth. 
D) net liabilities.

Question 10

Inventory consists of:

Accepted Answer

A) finished goods. 
B) raw material and finished goods. 
C) raw material, work in process, and prepaid rent. 
D) raw material, work in process, and finished goods. 
A) finished goods. 
B) raw material and finished goods. 
C) raw material, work in process, and prepaid rent. 
D) raw material, work in process, and finished goods.

Question 11

Assume the following data: EBIT = 100; Depreciation = 40; Interest = 20; Dividends = 10. Calculate the cash coverage ratio.

Accepted Answer

A) 7.0 
B) 5.0 
C) 4.7 
D) 14.0 
A) 7.0 
B) 5.0 
C) 4.7 
D) 14.0

Question 12

Equity investors have contributed $250,000 to your start-up business, while creditors provided a loan of $300,000. You have calculated your firm's WACC at 10 percent. The annual interest payment is $25,000 and the marginal corporate tax rate is 21 percent. How much profit will your equityholders need to earn in order to break even in economic terms (i.e., EVA of zero)?

Accepted Answer

A) $25,000 
B) $35,250 
C) $30,000 
D) $13,075 
A) $25,000 
B) $35,250 
C) $30,000 
D) $13,075

Question 13

What are the three basic financial statements?

Accepted Answer

The three basic financial stat

Question 14

Market value ratios indicate how highly the firm is valued by managers.

Accepted Answer

A) True 
 B)False

Question 15

Market value ratios indicate
I. whether the firm is using its assets productively;
II. whether the firm is liquid;
III. whether the firm is profitable;
IV. how highly the firm is valued by investors

Accepted Answer

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

Question 16

Discuss the DuPont system.

Accepted Answer

The DuPont system is a quick way of look

Question 17

Assets are listed on the balance sheet in order of

Accepted Answer

A) decreasing liquidity. 
B) increasing size and relative life. 
C) decreasing size. 
D) relative life. 
A) decreasing liquidity. 
B) increasing size and relative life. 
C) decreasing size. 
D) relative life.

Question 18

The calculation of market value added for a firm requires the use of the book value per share.

Accepted Answer

A) True 
 B)False

Question 19

Assume a book value per share of $5 and a price per share of $12. What is the market value added of a firm with 2,000,000 outstanding shares?

Accepted Answer

A) $1,000,000 
B) $10,000,000 
C) $14,000,000 
D) $24,000,000 
A) $1,000,000 
B) $10,000,000 
C) $14,000,000 
D) $24,000,000

Question 20

Earnings before interest and taxes are calculated as

Accepted Answer

A) total revenues − costs. 
B) total revenues − costs − depreciation. 
C) total revenues − costs + depreciation - taxes. 
D) total revenues − costs − depreciation − taxes. 
A) total revenues − costs. 
B) total revenues − costs − depreciation. 
C) total revenues − costs + depreciation - taxes. 
D) total revenues − costs − depreciation − taxes.

Exam 28: Financial Analysis

Briefly describe the relationship between accounting standards and different countries' legal traditions.

Operating profit margin is calculated as

Which of the following costs are not accounted for on the income statement?

Assume a book value per share of $10 and a price per share of $24. What is the market capitalization of a firm with 2,000,000 outstanding shares?

When a firm improves (lowers)its average collection period, it generally

When a firm improves (lowers)its days of inventory, it generally

On the balance sheet, assets are listed in increasing order of liquidity.

Assume the following data: Current assets = 500; Current liabilities = 250; Inventory = 200; Accounts receivable = 200. Calculate the cash ratio. (Assume that the firm has no marketable securities.)

The difference between total assets of a firm and its total liabilities is called

Inventory consists of:

Assume the following data: EBIT = 100; Depreciation = 40; Interest = 20; Dividends = 10. Calculate the cash coverage ratio.

What are the three basic financial statements?

Market value ratios indicate how highly the firm is valued by managers.

Market value ratios indicate I. whether the firm is using its assets productively; II. whether the firm is liquid; III. whether the firm is profitable; IV. how highly the firm is valued by investors

Discuss the DuPont system.

Assets are listed on the balance sheet in order of

The calculation of market value added for a firm requires the use of the book value per share.

Assume a book value per share of $5 and a price per share of $12. What is the market value added of a firm with 2,000,000 outstanding shares?

Earnings before interest and taxes are calculated as

Introduction to Corporate Finance

How to Calculate Present Values

Valuing Bonds

The Value of Common Stocks

Net Present Value and Other Investment Criteria

Making Investment Decisions With the Net Present Value Rule

Introduction to Risk and Return

Portfolio Theory and the Capital Asset Pricing Model

Risk and the Cost of Capital

Project Analysis

How to Ensure That Projects Truly Have Positive Npvs

Agency Problems and Investment

Efficient Markets and Behavioral Finance

An Overview of Corporate Financing

How Corporations Issue Securities

Payout Policy

Does Debt Policy Matter

How Much Should a Corporation Borrow

Financing and Valuation

Understanding Options

Valuing Options

Real Options

Credit Risk and the Value of Corporate Debt

The Many Different Kinds of Debt

Leasing

Managing Risk

Managing International Risks

Financial Planning

Working Capital Management

Mergers

Corporate Restructuring

Governance and Corporate Control Around the World

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