Question 1

Which of the following statements is CORRECT?

Accepted Answer

A)  If a firm has the highest price/earnings ratio of any firm in its industry, then, other things held constant, this suggests that the board of directors should fire the president. 
B)  If a firm has the highest market/book ratio of any firm in its industry, then, other things held constant, this suggests that the board of directors should fire the president. 
C)  Other things held constant, the higher a firm's expected future growth rate, the lower its P/E ratio is likely to be. 
D)  The higher the market/book ratio, then, other things held constant, the higher one would expect to find the Market Value Added (MV
A) . 
E)  If a firm has a history of high Economic Value Added (EV
A)  numbers each year, and if investors expect this situation to continue, then its market/book ratio and MVA are both likely to be below average. 
A)  If a firm has the highest price/earnings ratio of any firm in its industry, then, other things held constant, this suggests that the board of directors should fire the president. 
B)  If a firm has the highest market/book ratio of any firm in its industry, then, other things held constant, this suggests that the board of directors should fire the president. 
C)  Other things held constant, the higher a firm's expected future growth rate, the lower its P/E ratio is likely to be. 
D)  The higher the market/book ratio, then, other things held constant, the higher one would expect to find the Market Value Added (MV
A) . 
E)  If a firm has a history of high Economic Value Added (EV
A)  numbers each year, and if investors expect this situation to continue, then its market/book ratio and MVA are both likely to be below average. D

Question 2

Suppose Firms A and B have the same amount of assets, pay the same interest rate on their debt, have the same basic earning power (BEP), and have the same tax rate However, Firm A has a higher debt ratio If BEP is greater than the interest rate on debt, Firm A will have a higher ROE as a result of its higher debt ratio.

Accepted Answer

A) True 
 B)False  True

Question 3

Chambliss Corp.'s total assets at the end of last year were $305,000 and its EBIT was 62,500 What was its basic earning power (BEP)?

Accepted Answer

A)  18.49% 
B)  19.47% 
C)  20.49% 
D)  21.52% 
E)  22.59% 
A)  18.49% 
B)  19.47% 
C)  20.49% 
D)  21.52% 
E)  22.59% C

Question 4

Which of the following statements is CORRECT?

Accepted Answer

A)  If two firms differ only in their use of debt-i.e., they have identical assets, sales, operating costs, and tax rates-but one firm has a higher debt ratio, the firm that uses more debt will have a higher profit margin on sales. 
B)  If one firm has a higher debt ratio than another, we can be certain that the firm with the higher debt ratio will have the lower TIE ratio, as that ratio depends entirely on the amount of debt a firm uses. 
C)  A firm's use of debt will have no effect on its profit margin on sales. 
D)  If two firms differ only in their use of debt-i.e., they have identical assets, sales, operating costs, interest rates on their debt, and tax rates-but one firm has a higher debt ratio, the firm that uses more debt will have a lower profit margin on sales. 
E)  The debt ratio as it is generally calculated makes an adjustment for the use of assets leased under operating leases, so the debt ratios of firms that lease different percentages of their assets are still comparable. 
A)  If two firms differ only in their use of debt-i.e., they have identical assets, sales, operating costs, and tax rates-but one firm has a higher debt ratio, the firm that uses more debt will have a higher profit margin on sales. 
B)  If one firm has a higher debt ratio than another, we can be certain that the firm with the higher debt ratio will have the lower TIE ratio, as that ratio depends entirely on the amount of debt a firm uses. 
C)  A firm's use of debt will have no effect on its profit margin on sales. 
D)  If two firms differ only in their use of debt-i.e., they have identical assets, sales, operating costs, interest rates on their debt, and tax rates-but one firm has a higher debt ratio, the firm that uses more debt will have a lower profit margin on sales. 
E)  The debt ratio as it is generally calculated makes an adjustment for the use of assets leased under operating leases, so the debt ratios of firms that lease different percentages of their assets are still comparable.

Question 5

Bostian, Inchas total assets of $625,000Its total debt outstanding is $185,000 The Board of Directors has directed the CFO to move towards a debt ratio of 55% How much debt must the company add or subtract to achieve the target debt ratio?

Accepted Answer

A)  $158,750 
B)  $166,688 
C)  $175,022 
D)  $183,773 
E)  $192,962 
A)  $158,750 
B)  $166,688 
C)  $175,022 
D)  $183,773 
E)  $192,962

Question 6

is the firm's ROA?

Accepted Answer

A)  2.70% 
B)  2.97% 
C)  3.26% 
D)  3.59% 
E)  3.95% 
A)  2.70% 
B)  2.97% 
C)  3.26% 
D)  3.59% 
E)  3.95%

Question 7

Considered alone, which of the following would increase a company's current ratio?

Accepted Answer

A)  An increase in accounts payable. 
B)  An increase in net fixed assets. 
C)  An increase in accrued liabilities. 
D)  An increase in notes payable. 
E)  An increase in accounts receivable. 
A)  An increase in accounts payable. 
B)  An increase in net fixed assets. 
C)  An increase in accrued liabilities. 
D)  An increase in notes payable. 
E)  An increase in accounts receivable.

Question 8

Which of the following statements is CORRECT?

Accepted Answer

A)  If a firm increases its sales while holding its inventories constant, then, other things held constant, its inventory turnover ratio will decrease. 
B)  A reduction in inventories held would have no effect on the current ratio. 
C)  An increase in inventories would have no effect on the current ratio. 
D)  If a firm increases its sales while holding its inventories constant, then, other things held constant, its inventory turnover ratio will increase. 
E)  A reduction in the inventory turnover ratio will generally lead to an increase in the ROE. 
A)  If a firm increases its sales while holding its inventories constant, then, other things held constant, its inventory turnover ratio will decrease. 
B)  A reduction in inventories held would have no effect on the current ratio. 
C)  An increase in inventories would have no effect on the current ratio. 
D)  If a firm increases its sales while holding its inventories constant, then, other things held constant, its inventory turnover ratio will increase. 
E)  A reduction in the inventory turnover ratio will generally lead to an increase in the ROE.

Question 9

"apparent," but not the "true," financial position of a company whose sales are seasonal can differ dramatically, depending on the time of year when the financial statements are constructed.

Accepted Answer

A) True 
 B)False

Question 10

year Mason Inchad a total assets turnover of 1.33 and an equity multiplier of 1.75 Its sales were $195,000 and its net income was $10,549 The CFO believes that the company could have operated more efficiently, lowered its costs, and increased its net income by $5,250 without changing its sales, assets, or capital structure Had it cut costs and increased its net income in this amount, by how much would the ROE have changed?

Accepted Answer

A)  5.66% 
B)  5.95% 
C)  6.27% 
D)  6.58% 
E)  6.91% 
A)  5.66% 
B)  5.95% 
C)  6.27% 
D)  6.58% 
E)  6.91%

Question 11

firm wants to strengthen its financial position Which of the following actions would increase its quick ratio?

Accepted Answer

A)  Issue new common stock and use the proceeds to acquire additional fixed assets. 
B)  Offer price reductions along with generous credit terms that would (1) enable the firm to sell some of its excess inventory and (2)lead to an increase in accounts receivable. 
C)  Issue new common stock and use the proceeds to increase inventories. 
D)  Speed up the collection of receivables and use the cash generated to increase inventories. 
E)  Use some of its cash to purchase additional inventories. 
A)  Issue new common stock and use the proceeds to acquire additional fixed assets. 
B)  Offer price reductions along with generous credit terms that would (1) enable the firm to sell some of its excess inventory and (2)lead to an increase in accounts receivable. 
C)  Issue new common stock and use the proceeds to increase inventories. 
D)  Speed up the collection of receivables and use the cash generated to increase inventories. 
E)  Use some of its cash to purchase additional inventories.

Question 12

Suppose firms follow similar financing policies, face similar risks, have equal access to capital, and operate in competitive product and capital markets Under these conditions, then firms that have high profit margins will tend to have high asset turnover ratios, and firms with low profit margins will tend to have low turnover ratios.

Accepted Answer

A) True 
 B)False

Question 13

Companies A and C each reported the same earnings per share (EPS), but Company A's stock trades at a higher priceWhich of the following statements is CORRECT?

Accepted Answer

A)  Company A trades at a higher P/E ratio. 
B)  Company A probably has fewer growth opportunities. 
C)  Company A is probably judged by investors to be riskier. 
D)  Company A must have a higher market-to-book ratio. 
E)  Company A must pay a lower dividend. 
A)  Company A trades at a higher P/E ratio. 
B)  Company A probably has fewer growth opportunities. 
C)  Company A is probably judged by investors to be riskier. 
D)  Company A must have a higher market-to-book ratio. 
E)  Company A must pay a lower dividend.

Question 14

problem with ratio analysis is that relationships can be manipulated For example, we know that if our current ratio is less than 1.0, then using some of our cash to pay off some of our current liabilities would cause the current ratio to increase and thus make the firm look stronger.

Accepted Answer

A) True 
 B)False

Question 15

is the firm's market-to-book ratio?

Accepted Answer

A)  0.56 
B)  0.66 
C)  0.78 
D)  0.92 
E)  1.08 
A)  0.56 
B)  0.66 
C)  0.78 
D)  0.92 
E)  1.08

Question 16

Which of the following statements is CORRECT?

Accepted Answer

A)  If a firm increases its sales while holding its accounts receivable constant, then, other things held constant, its days' sales outstanding will decline. 
B)  If a security analyst saw that a firm's days' sales outstanding (DSO) was higher than the industry average and was also increasing and trending still higher, this would be interpreted as a sign of strength. 
C)  If a firm increases its sales while holding its accounts receivable constant, then, other things held constant, its days' sales outstanding (DSO) will increase. 
D)  There is no relationship between the days' sales outstanding (DSO) and the average collection period (ACP). These ratios measure entirely different things. 
E)  A reduction in accounts receivable would have no effect on the current ratio, but it would lead to an increase in the quick ratio. 
A)  If a firm increases its sales while holding its accounts receivable constant, then, other things held constant, its days' sales outstanding will decline. 
B)  If a security analyst saw that a firm's days' sales outstanding (DSO) was higher than the industry average and was also increasing and trending still higher, this would be interpreted as a sign of strength. 
C)  If a firm increases its sales while holding its accounts receivable constant, then, other things held constant, its days' sales outstanding (DSO) will increase. 
D)  There is no relationship between the days' sales outstanding (DSO) and the average collection period (ACP). These ratios measure entirely different things. 
E)  A reduction in accounts receivable would have no effect on the current ratio, but it would lead to an increase in the quick ratio.

Question 17

is the firm's cash flow per share?

Accepted Answer

A)  $10.06 
B)  $10.59 
C)  $11.15 
D)  $11.74 
E)  $12.35 
A)  $10.06 
B)  $10.59 
C)  $11.15 
D)  $11.74 
E)  $12.35

Question 18

Market value ratios provide management with an indication of how investors view the firm's past performance and especially its future prospects.

Accepted Answer

A) True 
 B)False

Question 19

is the firm's dividends per share?

Accepted Answer

A)  $2.62 
B)  $2.91 
C)  $3.20 
D)  $3.53 
E)  $3.88 
A)  $2.62 
B)  $2.91 
C)  $3.20 
D)  $3.53 
E)  $3.88

Question 20

Amram Company's current ratio is 1.9 Considered alone, which of the following actions would reduce the company's current ratio?

Accepted Answer

A)  Use cash to reduce accounts payable. 
B)  Borrow using short-term notes payable and use the proceeds to reduce accruals. 
C)  Borrow using short-term notes payable and use the proceeds to reduce long-term debt. 
D)  Use cash to reduce accruals. 
E)  Use cash to reduce short-term notes payable. 
A)  Use cash to reduce accounts payable. 
B)  Borrow using short-term notes payable and use the proceeds to reduce accruals. 
C)  Borrow using short-term notes payable and use the proceeds to reduce long-term debt. 
D)  Use cash to reduce accruals. 
E)  Use cash to reduce short-term notes payable.

Which of the following statements is CORRECT?

Chambliss Corp.'s total assets at the end of last year were $305,000 and its EBIT was 62,500 What was its basic earning power (BEP)?

Which of the following statements is CORRECT?

Bostian, Inchas total assets of $625,000Its total debt outstanding is $185,000 The Board of Directors has directed the CFO to move towards a debt ratio of 55% How much debt must the company add or subtract to achieve the target debt ratio?

is the firm's ROA?

Considered alone, which of the following would increase a company's current ratio?

Which of the following statements is CORRECT?

"apparent," but not the "true," financial position of a company whose sales are seasonal can differ dramatically, depending on the time of year when the financial statements are constructed.

firm wants to strengthen its financial position Which of the following actions would increase its quick ratio?

Companies A and C each reported the same earnings per share (EPS), but Company A's stock trades at a higher priceWhich of the following statements is CORRECT?

problem with ratio analysis is that relationships can be manipulated For example, we know that if our current ratio is less than 1.0, then using some of our cash to pay off some of our current liabilities would cause the current ratio to increase and thus make the firm look stronger.

is the firm's market-to-book ratio?

Which of the following statements is CORRECT?

is the firm's cash flow per share?

Market value ratios provide management with an indication of how investors view the firm's past performance and especially its future prospects.

is the firm's dividends per share?

Amram Company's current ratio is 1.9 Considered alone, which of the following actions would reduce the company's current ratio?

Overview

Risk and Return: Part I

Risk and Return: Part II

Bonds

Stocks

Financial Options

Forecasting

Cost of Capital

Corporate Valuation

Capital Budgeting

Cash Flows and Risk

Real Options

Cap Structure

Cap Structure II

Dividends

Ipos, Invsmt Banking

Leasing

Hybrids

Working Capital

Derivatives

Bankruptcy, Reorganization, and Liquidation

Mergers

Filters

Exam 8: Financial Analysis

Which of the following statements is CORRECT?

Chambliss Corp.'s total assets at the end of last year were $305,000 and its EBIT was 62,500 What was its basic earning power (BEP)?

Which of the following statements is CORRECT?

Bostian, Inchas total assets of $625,000Its total debt outstanding is $185,000 The Board of Directors has directed the CFO to move towards a debt ratio of 55% How much debt must the company add or subtract to achieve the target debt ratio?

is the firm's ROA?

Considered alone, which of the following would increase a company's current ratio?

Which of the following statements is CORRECT?

"apparent," but not the "true," financial position of a company whose sales are seasonal can differ dramatically, depending on the time of year when the financial statements are constructed.

firm wants to strengthen its financial position Which of the following actions would increase its quick ratio?

Companies A and C each reported the same earnings per share (EPS), but Company A's stock trades at a higher priceWhich of the following statements is CORRECT?

problem with ratio analysis is that relationships can be manipulated For example, we know that if our current ratio is less than 1.0, then using some of our cash to pay off some of our current liabilities would cause the current ratio to increase and thus make the firm look stronger.

is the firm's market-to-book ratio?

Which of the following statements is CORRECT?

is the firm's cash flow per share?

Market value ratios provide management with an indication of how investors view the firm's past performance and especially its future prospects.

is the firm's dividends per share?

Amram Company's current ratio is 1.9 Considered alone, which of the following actions would reduce the company's current ratio?

Overview

Risk and Return: Part I

Risk and Return: Part II

Bonds

Stocks

Financial Options

Forecasting

Cost of Capital

Corporate Valuation

Capital Budgeting

Cash Flows and Risk

Real Options

Cap Structure

Cap Structure II

Dividends

Ipos, Invsmt Banking

Leasing

Hybrids

Working Capital

Derivatives

Bankruptcy, Reorganization, and Liquidation

Mergers

Filters