Question 1

When a firm's long-term debt-equity ratio is.98, the firm:

Accepted Answer

A) has too much long-term debt in relation to leases. 
B) has less long-term debt than equity. 
C) is nearing insolvency. 
D) has as much in long-term liabilities as in equity. 
A) has too much long-term debt in relation to leases. 
B) has less long-term debt than equity. 
C) is nearing insolvency. 
D) has as much in long-term liabilities as in equity.

Question 2

The net working capital of a firm will decrease when accrued wages are paid with cash.

Accepted Answer

A) True 
 B)False

Question 3

What is primarily responsible for the potential distortion among the ROA of different firms when net income is used in the numerator of ROA?

Accepted Answer

A) firms have different dividend payout ratios. 
B) some firms use fully depreciated assets. 
C) financial leverage varies among firms. 
D) unprofitable firms will not have any tax liability. 
A) firms have different dividend payout ratios. 
B) some firms use fully depreciated assets. 
C) financial leverage varies among firms. 
D) unprofitable firms will not have any tax liability.

Question 4

The board of directors is dissatisfied with last year's ROE of 15%.If the profit margin and asset turnover ratio remain unchanged at 8% and 1.25, respectively, by how much must the leverage ratio (i.e., assets/equity) increase to achieve 20% ROE?

Accepted Answer

A) 50% 
B) 5% 
C) 16.67% 
D) 33.33% 
A) 50% 
B) 5% 
C) 16.67% 
D) 33.33%

Question 5

What is the market price of a share of stock for a firm with 100,000 shares outstanding, a book value of equity of $3,000,000, and a market-to-book ratio of 3?

Accepted Answer

A) $10 
B) $30 
C) $90 
D) $105 
A) $10 
B) $30 
C) $90 
D) $105

Question 6

The income statement of a firm shows the value of its assets and liabilities over a specified period of time.

Accepted Answer

A) True 
 B)False

Question 7

Net working capital is determined from the difference between current assets and current liabilities.

Accepted Answer

A) True 
 B)False

Question 8

An asset's liquidity measures its:

Accepted Answer

A) potential for generating a profit. 
B) cash requirements. 
C) ease and cost of being converted to cash. 
D) proportion of debt financing. 
A) potential for generating a profit. 
B) cash requirements. 
C) ease and cost of being converted to cash. 
D) proportion of debt financing.

Question 9

Which one of these changes indicates an improvement in a firm's asset management efficiency?

Accepted Answer

A) an increase in the amount of assets per dollar of sales. 
B) an increase in the inventory turnover rate. 
C) a decrease in the receivables turnover rate. 
D) an increase in the average days in inventory. 
A) an increase in the amount of assets per dollar of sales. 
B) an increase in the inventory turnover rate. 
C) a decrease in the receivables turnover rate. 
D) an increase in the average days in inventory.

Question 10

The current ratio is a good proxy for a firm's:

Accepted Answer

A) liquidity. 
B) efficiency. 
C) degree of leverage. 
D) profitability. 
A) liquidity. 
B) efficiency. 
C) degree of leverage. 
D) profitability.

Question 11

The reduction in value over time of intangible assets is known as amortization.

Accepted Answer

A) True 
 B)False

Question 12

If a firm's cash coverage ratio is greater than its times interest earned ratio, then the:

Accepted Answer

A) firm's assets are not fully depreciated. 
B) firm has no lease obligations. 
C) firm has very little long-term debt. 
D) firm has a high degree of liquidity. 
A) firm's assets are not fully depreciated. 
B) firm has no lease obligations. 
C) firm has very little long-term debt. 
D) firm has a high degree of liquidity.

Question 13

By how much must a firm reduce its assets in order to improve ROA from 10% to 12% if the firm's operating profit margin is 5% on sales of $4 million? (Use the value in dollars)

Accepted Answer

A) $240,000 
B) $333,333 
C) $400,000 
D) $516,167 
A) $240,000 
B) $333,333 
C) $400,000 
D) $516,167

Question 14

The asset turnover ratio and inventory turnover ratio are both efficiency ratios.

Accepted Answer

A) True 
 B)False

Question 15

A firm's after-tax operating income was $1,000,000 in 2020.It started the year with a total capitalization of $8,000,000 and ended the year with a total capitalization of $9,000,000.The additional capital raised during 2020 started to affect the operating income in 2021.Which value best represents the return on capital for 2021?

Accepted Answer

A) 12.5% 
B) 11.8% 
C) 11.1% 
D) 10.0% 
A) 12.5% 
B) 11.8% 
C) 11.1% 
D) 10.0%

Question 16

The net working capital to total assets ratio is always a larger number than the current ratio.

Accepted Answer

A) True 
 B)False

Question 17

A healthy current ratio and an unhealthy quick ratio may be caused by excess inventory.

Accepted Answer

A) True 
 B)False

Question 18

If the cash coverage ratio exceeds the times interest earned ratio, then the firm has:

Accepted Answer

A) a positive cash flow. 
B) depreciable assets. 
C) no long-term debt. 
D) short-term debts. 
A) a positive cash flow. 
B) depreciable assets. 
C) no long-term debt. 
D) short-term debts.

Question 19

The higher the times interest earned ratio, the higher the interest expense.

Accepted Answer

A) True 
 B)False

Question 20

A firm's profit margin when ignoring the effects of financing is 20% with an EBIT of $1.5 million and sales of $5 million.How much did the firm pay in taxes? (Enter the answer in dollars)

Accepted Answer

A) $50,000 
B) $300,000 
C) $350,000 
D) $500,000 
A) $50,000 
B) $300,000 
C) $350,000 
D) $500,000

Exam 4: Measuring Corporate Performance

When a firm's long-term debt-equity ratio is.98, the firm:

The net working capital of a firm will decrease when accrued wages are paid with cash.

What is primarily responsible for the potential distortion among the ROA of different firms when net income is used in the numerator of ROA?

The board of directors is dissatisfied with last year's ROE of 15%.If the profit margin and asset turnover ratio remain unchanged at 8% and 1.25, respectively, by how much must the leverage ratio (i.e., assets/equity) increase to achieve 20% ROE?

What is the market price of a share of stock for a firm with 100,000 shares outstanding, a book value of equity of $3,000,000, and a market-to-book ratio of 3?

The income statement of a firm shows the value of its assets and liabilities over a specified period of time.

Net working capital is determined from the difference between current assets and current liabilities.

An asset's liquidity measures its:

Which one of these changes indicates an improvement in a firm's asset management efficiency?

The current ratio is a good proxy for a firm's:

The reduction in value over time of intangible assets is known as amortization.

If a firm's cash coverage ratio is greater than its times interest earned ratio, then the:

By how much must a firm reduce its assets in order to improve ROA from 10% to 12% if the firm's operating profit margin is 5% on sales of $4 million? (Use the value in dollars)

The asset turnover ratio and inventory turnover ratio are both efficiency ratios.

The net working capital to total assets ratio is always a larger number than the current ratio.

A healthy current ratio and an unhealthy quick ratio may be caused by excess inventory.

If the cash coverage ratio exceeds the times interest earned ratio, then the firm has:

The higher the times interest earned ratio, the higher the interest expense.

A firm's profit margin when ignoring the effects of financing is 20% with an EBIT of $1.5 million and sales of $5 million.How much did the firm pay in taxes? (Enter the answer in dollars)

Goals and Governance of the Firm

Financial Markets and Institutions

Accounting and Finance

The Time Value of Money

Valuing Bonds

Valuing Stocks

Net Present Value and Other Investment Criteria

Using Discounted Cash Flow Analysis to Make Investment Decisions

Project Analysis

Introduction to Risk, Return, and the Opportunity Cost of Capital

Risk, Return, and Capital Budgeting

The Weighted-Average Cost of Capital and Company Valuation

Introduction to Corporate Financing and Governance

Venture Capital, Ipos, and Seasoned Offerings

Debt Policy

Leasing

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Cash and Inventory Management

Credit Management and Collection

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

Filters