Question 1

A times interest earned ratio of 5 indicates the firm:

Accepted Answer

A) pays 5 times its earnings in interest expense. 
B) earns significantly more than its interest obligations. 
C) has interest expense equal to 5% of EBIT. 
D) has a low tax liability. 
A) pays 5 times its earnings in interest expense. 
B) earns significantly more than its interest obligations. 
C) has interest expense equal to 5% of EBIT. 
D) has a low tax liability.

Question 2

Which one of these ratios is commonly referred to as the acid-test ratio?

Accepted Answer

A) times interest earned ratio. 
B) quick ratio. 
C) cash coverage ratio. 
D) cash ratio. 
A) times interest earned ratio. 
B) quick ratio. 
C) cash coverage ratio. 
D) cash ratio.

Question 3

A corporation declares $25 million in net income, $1 million in preferred stock dividends, and $7 million in common stock dividends.By how much will shareholders' equity increase on the balance sheet?

Accepted Answer

A) $17 million 
B) $18 million 
C) $19 million 
D) $25 million 
A) $17 million 
B) $18 million 
C) $19 million 
D) $25 million

Question 4

Which of these indicates that a firm is efficient?

Accepted Answer

A) a high average collection period. 
B) a high day's sales in inventories. 
C) a low asset turnover. 
D) a high inventory turnover. 
A) a high average collection period. 
B) a high day's sales in inventories. 
C) a low asset turnover. 
D) a high inventory turnover.

Question 5

A firm's quick ratio of.49 suggests the firm:

Accepted Answer

A) has a low level of current liabilities. 
B) has been overstating the value of its inventory. 
C) faces a potentially serious liquidity crisis. 
D) should reduce its holdings of cash and/or marketable securities. 
A) has a low level of current liabilities. 
B) has been overstating the value of its inventory. 
C) faces a potentially serious liquidity crisis. 
D) should reduce its holdings of cash and/or marketable securities.

Question 6

A firm reports a net profit margin of 10% on sales of $3 million when ignoring the effects of financing.If taxes are $200,000, how much is EBIT (Operating Income)? (Use the value in dollars)

Accepted Answer

A) $100,000 
B) $300,000 
C) $500,000 
D) $800,000 
A) $100,000 
B) $300,000 
C) $500,000 
D) $800,000

Question 7

An increase in which one of the following will have no effect on the cash coverage ratio?

Accepted Answer

A) depreciation 
B) interest 
C) sales 
D) cost of goods sold 
A) depreciation 
B) interest 
C) sales 
D) cost of goods sold

Question 8

If a company has a healthy current ratio but a significantly lower quick ratio, then you can assume that:

Accepted Answer

A) the cost of goods sold represents more than half of sales. 
B) current liabilities exceed current assets. 
C) the firm sells only on a cash basis. 
D) inventory represents a large portion of the firm's current assets. 
A) the cost of goods sold represents more than half of sales. 
B) current liabilities exceed current assets. 
C) the firm sells only on a cash basis. 
D) inventory represents a large portion of the firm's current assets.

Question 9

What is the approximate total debt ratio for a firm with a total debt-equity ratio of.65?

Accepted Answer

A) 35% 
B) 39% 
C) 54% 
D) 65% 
A) 35% 
B) 39% 
C) 54% 
D) 65%

Question 10

Which one of these statements is correct?

Accepted Answer

A) market value added measures the difference between the total market value and the total book value of equity. 
B) net income is also called economic value added. 
C) EVA measures the net profit of a firm after deducting the cost of the assets used in the production process. 
D) EVA considers the cost of long-term debt financing but excludes the cost of equity financing. 
A) market value added measures the difference between the total market value and the total book value of equity. 
B) net income is also called economic value added. 
C) EVA measures the net profit of a firm after deducting the cost of the assets used in the production process. 
D) EVA considers the cost of long-term debt financing but excludes the cost of equity financing.

Question 11

Which of these assets is generally considered to be the most liquid?

Accepted Answer

A) buildings 
B) land 
C) finished goods inventory 
D) accounts receivable 
A) buildings 
B) land 
C) finished goods inventory 
D) accounts receivable

Question 12

How much will Gamma Inc.'s equity holders earn given a total asset turnover of.85, an operating profit margin of.15, and a debt-equity ratio of.25?

Accepted Answer

A) 9.56% 
B) 15.94% 
C) 16.96% 
D) 38.25% 
A) 9.56% 
B) 15.94% 
C) 16.96% 
D) 38.25%

Question 13

In the past year, TVG had revenues of $3 million, cost of goods sold of $2.5 million, and depreciation expense of $200,000.The firm has a single issue of debt outstanding with a face value of $1 million, market value of $.92 million, and a coupon rate of 8%.What is the firm's times interest earned ratio? (Use value in dollars)

Accepted Answer

A) 3.75 
B) 2.98 
C) 2.80 
D) 3.40 
A) 3.75 
B) 2.98 
C) 2.80 
D) 3.40

Question 14

Net working capital to total assets and current ratio are both liquidity ratios.

Accepted Answer

A) True 
 B)False

Question 15

If a firm has a debt-equity ratio of.45, long-term debt of $500, and equity of $2,000, then:

Accepted Answer

A) current liabilities must be $400. 
B) current assets must be $400. 
C) retained earnings must be $900. 
D) preferred stock must be $400. 
A) current liabilities must be $400. 
B) current assets must be $400. 
C) retained earnings must be $900. 
D) preferred stock must be $400.

Question 16

Efficiency ratios:

Accepted Answer

A) include the quick ratio, asset turnover ratio, and return on equity. 
B) are used to measure how well the company uses its assets. 
C) are used to measure how liquid the company is. 
D) measure the profits generated by a firm's equity and assets. 
A) include the quick ratio, asset turnover ratio, and return on equity. 
B) are used to measure how well the company uses its assets. 
C) are used to measure how liquid the company is. 
D) measure the profits generated by a firm's equity and assets.

Question 17

TSI Inc.has enough liquid assets to finance its operations for 67 days and cash, marketable securities, and receivables totaling $1,000.TSI's average daily expenditures from operations are:

Accepted Answer

A) $6.70. 
B) $8.23. 
C) $14.93. 
D) $22.28. 
A) $6.70. 
B) $8.23. 
C) $14.93. 
D) $22.28.

Question 18

The use of debt in the firm's capital structure will increase ROE if the firm:

Accepted Answer

A) has more debt than equity. 
B) pays less in taxes than in interest. 
C) earns a higher return than the rate paid on debt. 
D) has a times interest earned ratio greater than 1.0. 
A) has more debt than equity. 
B) pays less in taxes than in interest. 
C) earns a higher return than the rate paid on debt. 
D) has a times interest earned ratio greater than 1.0.

Question 19

Which one of the following will increase a firm's times interest earned ratio?

Accepted Answer

A) an increase in debt. 
B) a decrease in cost of goods sold. 
C) an increase in interest expense. 
D) a decrease in net income. 
A) an increase in debt. 
B) a decrease in cost of goods sold. 
C) an increase in interest expense. 
D) a decrease in net income.

Question 20

Which one of these cost accounts for the difference between accounting income and economic value added?

Accepted Answer

A) depreciation 
B) cost of capital 
C) taxes 
D) dividends 
A) depreciation 
B) cost of capital 
C) taxes 
D) dividends

Exam 4: Measuring Corporate Performance

A times interest earned ratio of 5 indicates the firm:

Which one of these ratios is commonly referred to as the acid-test ratio?

A corporation declares $25 million in net income, $1 million in preferred stock dividends, and $7 million in common stock dividends.By how much will shareholders' equity increase on the balance sheet?

Which of these indicates that a firm is efficient?

A firm's quick ratio of.49 suggests the firm:

A firm reports a net profit margin of 10% on sales of $3 million when ignoring the effects of financing.If taxes are $200,000, how much is EBIT (Operating Income)? (Use the value in dollars)

An increase in which one of the following will have no effect on the cash coverage ratio?

If a company has a healthy current ratio but a significantly lower quick ratio, then you can assume that:

What is the approximate total debt ratio for a firm with a total debt-equity ratio of.65?

Which one of these statements is correct?

Which of these assets is generally considered to be the most liquid?

How much will Gamma Inc.'s equity holders earn given a total asset turnover of.85, an operating profit margin of.15, and a debt-equity ratio of.25?

Net working capital to total assets and current ratio are both liquidity ratios.

If a firm has a debt-equity ratio of.45, long-term debt of $500, and equity of $2,000, then:

Efficiency ratios:

TSI Inc.has enough liquid assets to finance its operations for 67 days and cash, marketable securities, and receivables totaling $1,000.TSI's average daily expenditures from operations are:

The use of debt in the firm's capital structure will increase ROE if the firm:

Which one of the following will increase a firm's times interest earned ratio?

Which one of these cost accounts for the difference between accounting income and economic value added?

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