Question 1

Which of the following firms would be most likely to pay out a high proportion of its earnings as dividends?

Accepted Answer

A)  a firm with a lot of ongoing high-return investment projects 
B)  a firm with stable earnings 
C)  a firm with volatile earnings 
D)  All of these are equally likely to pay out a high proportion of their earnings as dividends 
A)  a firm with a lot of ongoing high-return investment projects 
B)  a firm with stable earnings 
C)  a firm with volatile earnings 
D)  All of these are equally likely to pay out a high proportion of their earnings as dividends

Question 2

Which of the following ratios would probably not be used to assess the profitability of a firm?

Accepted Answer

A)  return on stockholders' equity 
B)  return on investment 
C)  times interest earned 
D)  None of these are correct 
A)  return on stockholders' equity 
B)  return on investment 
C)  times interest earned 
D)  None of these are correct

Question 3

An increase in the average collection period may suggest all of the following EXCEPT ____.

Accepted Answer

A)  the company caters to slow-paying customers 
B)  customers are not paying their bills on time 
C)  sales have decreased 
D)  an overly liberal credit policy 
A)  the company caters to slow-paying customers 
B)  customers are not paying their bills on time 
C)  sales have decreased 
D)  an overly liberal credit policy

Question 4

What is the return on stockholders' equity for a firm with a net profit margin of 5.2 percent, sales of $620,000, an equity multiplier of 1.8, and total assets of $380,000?

Accepted Answer

A)  8.48% 
B)  5.74% 
C)  15.27% 
D)  9.36% 
A)  8.48% 
B)  5.74% 
C)  15.27% 
D)  9.36%

Question 5

In an inflationary period, a firm is likely to show short-lived profit increases because ____.

Accepted Answer

A)  accounts receivable collections increase 
B)  cash balances decline 
C)  inventory profits are realized 
D)  All of these are correct 
A)  accounts receivable collections increase 
B)  cash balances decline 
C)  inventory profits are realized 
D)  All of these are correct

Question 6

____ indicate the firm's capacity to meet its debt obligations, both short-term and long-term.

Accepted Answer

A)  Liquidity ratios 
B)  Activity ratios 
C)  Financial leverage management ratios 
D)  Profitability ratios 
A)  Liquidity ratios 
B)  Activity ratios 
C)  Financial leverage management ratios 
D)  Profitability ratios

Question 7

Christy would like to improve the current ratio of her firm, which is now 0.5, so that she will have a better chance of obtaining a working capital loan. Which of the following options would improve her current ratio?

Accepted Answer

A)  use cash to pay off notes payable 
B)  collect some of her accounts receivables 
C)  purchase additional inventory on credit 
D)  borrow short-term funds to pay off some payables 
A)  use cash to pay off notes payable 
B)  collect some of her accounts receivables 
C)  purchase additional inventory on credit 
D)  borrow short-term funds to pay off some payables

Question 8

All of the following are users of financial information EXCEPT ____.

Accepted Answer

A)  customers 
B)  bankers 
C)  security analysts 
D)  unions 
A)  customers 
B)  bankers 
C)  security analysts 
D)  unions

Question 9

Given the following information, determine Taylor Company's cash balance. Sales = $10,000,000 (all on credit)
Current ratio = 3.0
Current liabilities = $800,000
Average collection period = 36.5 days (Assume 365 days/year)
Quick ratio = 1.50
Current assets = cash + accounts receivable + inventory

Accepted Answer

A)  $200,000 
B)  $1,400,000 
C)  $2,400,000 
D)  $500,000 
A)  $200,000 
B)  $1,400,000 
C)  $2,400,000 
D)  $500,000

Question 10

The fixed asset turnover ratio is influenced by ____.

Accepted Answer

A)  the length of time since acquisition 
B)  the depreciation policies adopted by the firm 
C)  the extent to which fixed assets are leased rather than owned 
D)  All of these are correct 
A)  the length of time since acquisition 
B)  the depreciation policies adopted by the firm 
C)  the extent to which fixed assets are leased rather than owned 
D)  All of these are correct

Question 11

Heavily using debt to finance assets results in higher ____ as compared to ROI.

Accepted Answer

A)  return on sales 
B)  return on stockholders' equity 
C)  return on assets 
D)  times interest earned 
A)  return on sales 
B)  return on stockholders' equity 
C)  return on assets 
D)  times interest earned

Question 12

The greater the amount of financial leverage used by a firm, the greater its ____, all other things being equal.

Accepted Answer

A)  profitability 
B)  liquidity 
C)  risk 
D)  size 
A)  profitability 
B)  liquidity 
C)  risk 
D)  size

Question 13

Bondholders and other long-term creditors tend to prefer a ____ debt ratio because it provides ____ a major financial problem.

Accepted Answer

A)  low; greater protection in the event of 
B)  high; greater protection in the event of 
C)  low; less likelihood of 
D)  high; less likelihood of 
A)  low; greater protection in the event of 
B)  high; greater protection in the event of 
C)  low; less likelihood of 
D)  high; less likelihood of

Question 14

What information can be determined by common-size financial statements?

Accepted Answer

A common-size balance sheet shows the fi

Question 15

The ratio group most likely to be used to indicate a firm's ability to meet short-term financial obligations would be ____.

Accepted Answer

A)  liquidity ratios 
B)  financial leverage ratios 
C)  activity ratios 
D)  profitability ratios 
A)  liquidity ratios 
B)  financial leverage ratios 
C)  activity ratios 
D)  profitability ratios

Question 16

If a firm's common-size income statement shows that the earnings after tax percentage is too low, the firm may have spent too much money on ____.

Accepted Answer

A)  total assets as a percentage of long-term liabilities 
B)  expenses as a percentage of current assets 
C)  cost of sales as a percentage of net sales 
D)  taxes paid as a percentage of stockholders' equity 
A)  total assets as a percentage of long-term liabilities 
B)  expenses as a percentage of current assets 
C)  cost of sales as a percentage of net sales 
D)  taxes paid as a percentage of stockholders' equity

Question 17

The major types of financial ratios include all of the following EXCEPT ____.

Accepted Answer

A)  market-based 
B)  liquidity 
C)  financial leverage management 
D)  equity 
A)  market-based 
B)  liquidity 
C)  financial leverage management 
D)  equity

Question 18

A financial ratio is a(n) ____ that indicates something about a company's activities.

Accepted Answer

A)  analysis 
B)  theory 
C)  management philosophy 
D)  relationship 
A)  analysis 
B)  theory 
C)  management philosophy 
D)  relationship

Question 19

What is the return on investment for a firm that has a debt ratio of 0.65, a net profit margin of 6.5%, sales of $740,000, and a total asset turnover of 4?

Accepted Answer

A)  26.0% 
B)  16.9% 
C)  6.5% 
D)  4.6% 
A)  26.0% 
B)  16.9% 
C)  6.5% 
D)  4.6%

Question 20

A trend analysis indicates a firm's performance ____.

Accepted Answer

A)  more accurately than any other type of analysis 
B)  over time 
C)  at one given point in time 
D)  without relying on financial ratios 
A)  more accurately than any other type of analysis 
B)  over time 
C)  at one given point in time 
D)  without relying on financial ratios

Exam 3: Evaluation of Financial Performance

Which of the following firms would be most likely to pay out a high proportion of its earnings as dividends?

Which of the following ratios would probably not be used to assess the profitability of a firm?

An increase in the average collection period may suggest all of the following EXCEPT ____.

What is the return on stockholders' equity for a firm with a net profit margin of 5.2 percent, sales of $620,000, an equity multiplier of 1.8, and total assets of $380,000?

In an inflationary period, a firm is likely to show short-lived profit increases because ____.

____ indicate the firm's capacity to meet its debt obligations, both short-term and long-term.

Christy would like to improve the current ratio of her firm, which is now 0.5, so that she will have a better chance of obtaining a working capital loan. Which of the following options would improve her current ratio?

All of the following are users of financial information EXCEPT ____.

Given the following information, determine Taylor Company's cash balance. Sales = $10,000,000 (all on credit) Current ratio = 3.0 Current liabilities = $800,000 Average collection period = 36.5 days (Assume 365 days/year) Quick ratio = 1.50 Current assets = cash + accounts receivable + inventory

The fixed asset turnover ratio is influenced by ____.

Heavily using debt to finance assets results in higher ____ as compared to ROI.

The greater the amount of financial leverage used by a firm, the greater its ____, all other things being equal.

Bondholders and other long-term creditors tend to prefer a ____ debt ratio because it provides ____ a major financial problem.

What information can be determined by common-size financial statements?

The ratio group most likely to be used to indicate a firm's ability to meet short-term financial obligations would be ____.

If a firm's common-size income statement shows that the earnings after tax percentage is too low, the firm may have spent too much money on ____.

The major types of financial ratios include all of the following EXCEPT ____.

A financial ratio is a(n) ____ that indicates something about a company's activities.

What is the return on investment for a firm that has a debt ratio of 0.65, a net profit margin of 6.5%, sales of $740,000, and a total asset turnover of 4?

A trend analysis indicates a firm's performance ____.

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

Bondholders and other long-term creditors tend to prefer a debt ratio because it provides a major financial problem.