Question 1

The fixed-charge coverage ratio includes all of the following in the denominator EXCEPT ____ .

Accepted Answer

A)  lease payments 
B)  preferred dividends before tax 
C)  Before-tax sinking fund 
D)  common stock dividends 
A)  lease payments 
B)  preferred dividends before tax 
C)  Before-tax sinking fund 
D)  common stock dividends

Question 2

____ ratios indicate how efficiently a firm is using its assets to generate sales.

Accepted Answer

A)  Liquidity 
B)  Asset management 
C)  Financial leverage 
D)  Equity 
A)  Liquidity 
B)  Asset management 
C)  Financial leverage 
D)  Equity

Question 3

When considering the quality of a firm's earnings, high quality earnings tend to be ____

Accepted Answer

A)  cash earnings 
B)  derived from infrequently recurring transactions 
C)  earnings per sale 
D)  earnings per share 
A)  cash earnings 
B)  derived from infrequently recurring transactions 
C)  earnings per sale 
D)  earnings per share

Question 4

A(n) ____ calculates a firm's total assets and total liabilities and stockholders' equity, in dollars.

Accepted Answer

A)  income statement 
B)  balance sheet 
C)  common-size balance sheet 
D)  common-size income statement 
A)  income statement 
B)  balance sheet 
C)  common-size balance sheet 
D)  common-size income statement

Question 5

;he ____ ratio, sometimes called the "acid test," is a more stringent measure of ____ than the current ratio.

Accepted Answer

A)  quick; liquidity 
B)  fixed-asset turnover; activity 
C)  net profit margin; gross profit margin 
D)  equity; activity 
A)  quick; liquidity 
B)  fixed-asset turnover; activity 
C)  net profit margin; gross profit margin 
D)  equity; activity

Question 6

A(n) ____ calculates a firm's earnings after taxes, in dollars.

Accepted Answer

A)  income statement 
B)  balance sheet 
C)  common-size balance sheet 
D)  common-size income statement 
A)  income statement 
B)  balance sheet 
C)  common-size balance sheet 
D)  common-size income statement

Question 7

A firm wants to receive cash earnings. Management's viewpoint is that cash earnings are ____.

Accepted Answer

A)  stock dividends 
B)  high quality earnings 
C)  retained earnings 
D)  debt retirement 
A)  stock dividends 
B)  high quality earnings 
C)  retained earnings 
D)  debt retirement

Question 8

How much cash and marketable securities does Gray Day Computer Co. have if the firm has a current ratio of 2.5, a quick ratio of 1.2, and current liabilities of $12,000? Gray's credit sales are $98,000, and its average collection period is 40 days? (Assume 365 days per year.)

Accepted Answer

A)  $3,660 
B)  $14,440 
C)  $10,740 
D)  $12,660 
A)  $3,660 
B)  $14,440 
C)  $10,740 
D)  $12,660

Question 9

Although ratios can provide valuable information, they can also be misleading for which of the following reasons?

Accepted Answer

A)  Ratios are only as reliable as the accounting data on which they are based. 
B)  Compilation of industry norms often does not report information about the distribution of values. 
C)  Comparative analysis depends on the availability of data for appropriately defined industries. 
D)  All of these are correct. 
A)  Ratios are only as reliable as the accounting data on which they are based. 
B)  Compilation of industry norms often does not report information about the distribution of values. 
C)  Comparative analysis depends on the availability of data for appropriately defined industries. 
D)  All of these are correct.

Question 10

A firm has revenue of $60,000, its total operating costs (excluding depreciation) and cost of goods sold are $50,620, depreciation is $4,620, and its interest expense on outstanding loans is $2,000. What is the firm's EBITDA?

Accepted Answer

A)  $55,380 
B)  $2,760 
C)  $9,380 
D)  $12,000 
A)  $55,380 
B)  $2,760 
C)  $9,380 
D)  $12,000

Question 11

The ____ ratio indicates the percentage of a firm's earnings that are distributed as dividends.

Accepted Answer

A)  dividend yield 
B)  payout 
C)  return on earnings 
D)  earnings 
A)  dividend yield 
B)  payout 
C)  return on earnings 
D)  earnings

Question 12

Which of the following financial ratios is market-based?

Accepted Answer

A)  debt-to-equity 
B)  price-to-earnings 
C)  return on investment 
D)  gross profit margin 
A)  debt-to-equity 
B)  price-to-earnings 
C)  return on investment 
D)  gross profit margin

Question 13

Stocks with ____ dividend yield often indicate ____ expected future growth.

Accepted Answer

A)  high; high 
B)  low; low 
C)  low; high 
D)  high; low 
A)  high; high 
B)  low; low 
C)  low; high 
D)  high; low

Question 14

A common-size balance sheet shows the firm's assets and liabilities as a percentage of ____.

Accepted Answer

A)  stockholders' equity 
B)  industry averages 
C)  total assets 
D)  net sales 
A)  stockholders' equity 
B)  industry averages 
C)  total assets 
D)  net sales

Question 15

Common stock prices are dependent on the amount and stability of a firm's cash flows so common stockholders are especially interested in ____.

Accepted Answer

A)  profitability measurements 
B)  accounting profits 
C)  earnings after tax 
D)  NOPAT 
A)  profitability measurements 
B)  accounting profits 
C)  earnings after tax 
D)  NOPAT

Question 16

Nukin' Gnats Pest Control is trying to determine its cash flow per share. It has revenue of $50,000, $35,000 of expenses, $4,000 of depreciation, and $3,000 of interest expense. The firm is in the 40% tax bracket. The firm has 75,000 shares of common stock outstanding. The firm has a $15 stock price per share. Its stock price to cash flow is ____.

Accepted Answer

A)  150 
B)  75 
C)  100 
D)  125 
A)  150 
B)  75 
C)  100 
D)  125

Question 17

Nukin' Gnats Pest Control is trying to determine its cash flow per share. It has revenue of $50,000, $35,000 of expenses, $4,000 of depreciation, and $3,000 of interest expense. The firm is in the 40% tax bracket. The firm has 75,000 shares of common stock outstanding. Its cash flow per share is ____.

Accepted Answer

A)  $0.08 
B)  $0.12 
C)  $0.92 
D)  $0.46 
A)  $0.08 
B)  $0.12 
C)  $0.92 
D)  $0.46

Question 18

What is the market price of a share of stock for a firm that pays dividends of $1.20 per share, has a P/E of 14, and a dividend payout ratio of 0.4?

Accepted Answer

A)  $16.80 
B)  $42 
C)  $3 
D)  $28 
A)  $16.80 
B)  $42 
C)  $3 
D)  $28

Question 19

Nuking Gnats Pest Service, Inc. has a debt ratio of 50% and an equity multiplier of 2. What is Nuking Gnats' stockholders' equity if total debt is $100,000?

Accepted Answer

A)  $100,000 
B)  $150,000 
C)  $200,000 
D)  $50,000 
A)  $100,000 
B)  $150,000 
C)  $200,000 
D)  $50,000

Question 20

Which of the following is NOT true about generally accepted accounting principles (GAAP)?

Accepted Answer

A)  They are outlined in Statements of Financial Accounting Standards. 
B)  In the United States, they are issued by the Financial Standards Accounting Board. 
C)  They are stringent, giving firms little latitude in reporting financial situations. 
D)  Two firms that both follow GAAP can still have significant differences in how they compute their financial outcomes. 
A)  They are outlined in Statements of Financial Accounting Standards. 
B)  In the United States, they are issued by the Financial Standards Accounting Board. 
C)  They are stringent, giving firms little latitude in reporting financial situations. 
D)  Two firms that both follow GAAP can still have significant differences in how they compute their financial outcomes.

Exam 3: Evaluation of Financial Performance

The fixed-charge coverage ratio includes all of the following in the denominator EXCEPT ____ .

____ ratios indicate how efficiently a firm is using its assets to generate sales.

When considering the quality of a firm's earnings, high quality earnings tend to be ____

A(n) ____ calculates a firm's total assets and total liabilities and stockholders' equity, in dollars.

;he ____ ratio, sometimes called the "acid test," is a more stringent measure of ____ than the current ratio.

A(n) ____ calculates a firm's earnings after taxes, in dollars.

A firm wants to receive cash earnings. Management's viewpoint is that cash earnings are ____.

How much cash and marketable securities does Gray Day Computer Co. have if the firm has a current ratio of 2.5, a quick ratio of 1.2, and current liabilities of $12,000? Gray's credit sales are $98,000, and its average collection period is 40 days? (Assume 365 days per year.)

Although ratios can provide valuable information, they can also be misleading for which of the following reasons?

A firm has revenue of $60,000, its total operating costs (excluding depreciation) and cost of goods sold are $50,620, depreciation is $4,620, and its interest expense on outstanding loans is $2,000. What is the firm's EBITDA?

The ____ ratio indicates the percentage of a firm's earnings that are distributed as dividends.

Which of the following financial ratios is market-based?

Stocks with ____ dividend yield often indicate ____ expected future growth.

A common-size balance sheet shows the firm's assets and liabilities as a percentage of ____.

Common stock prices are dependent on the amount and stability of a firm's cash flows so common stockholders are especially interested in ____.

What is the market price of a share of stock for a firm that pays dividends of $1.20 per share, has a P/E of 14, and a dividend payout ratio of 0.4?

Nuking Gnats Pest Service, Inc. has a debt ratio of 50% and an equity multiplier of 2. What is Nuking Gnats' stockholders' equity if total debt is $100,000?

Which of the following is NOT true about generally accepted accounting principles (GAAP)?

The Role and Objective of Financial Management

The Domestic and International Financial Marketplace

Financial Planning and Forecasting

The Time Value of Money

Continuous Compounding and Discounting

Fixed Income Securities: Characteristics and Valuation

Common Stock: Characteristics, Valuation, and Issuance

Analysis of Risk and Return

Capital Budgeting and Cash Flow Analysis

Mutually Exclusive Investments Having Unequal Lives

Capital Budgeting: Decision Criteria and Real Option Considerations

Capital Budgeting and Risk

The Cost of Capital

Capital Structure Concepts

Breakeven Analysis

Capital Structure Management in Practice

Dividend Policy

Working Capital Policy and Short-Term Financing

The Management of Cash and Marketable Securities

The Management of Accounts Receivable and Inventories

Lease and Intermediate Term Financing

Financing With Derivatives

Bond Refunding Analysis

Risk Management

International Financial Management

Corporate Restructuring

Filters

;he ratio, sometimes called the "acid test," is a more stringent measure of than the current ratio.

Stocks with dividend yield often indicate expected future growth.