Question 1

Economic value added (EVA) is a measure of operating performance that indicates how successful a firm has been at:

Accepted Answer

A) increasing the growth in earnings 
B) increasing the MVA of the enterprise in any given year 
C) increasing the rate of return on investment 
D) all of these 
A) increasing the growth in earnings 
B) increasing the MVA of the enterprise in any given year 
C) increasing the rate of return on investment 
D) all of these

Question 2

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 3

Which of the following financial ratios are market-based ratios?

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 4

A firm with a debt ratio of 0.75, will have an equity multiplier of

Accepted Answer

A) 0.25 
B) 1.00 
C) 0.75 
D) 4.00 
A) 0.25 
B) 1.00 
C) 0.75 
D) 4.00

Question 5

If a firm's return on investment, i.e., earnings after taxes divided by total assets, is 7%, and the firm has no preferred stock financing, it is

Accepted Answer

A) possible that its return on stockholders' equity is 10%. 
B) possible that its return on stockholders' equity is 5%. 
C) not possible for its debt-to-equity ratio to be 1.0. 
D) not possible for its net profit margin to be 7%. 
A) possible that its return on stockholders' equity is 10%. 
B) possible that its return on stockholders' equity is 5%. 
C) not possible for its debt-to-equity ratio to be 1.0. 
D) not possible for its net profit margin to be 7%.

Question 6

The data from is especially useful when analyzing small firms.

Accepted Answer

A) Prentice-Hall 
B) Robert Morris Associates 
C) Dan Bradbury Ltd. 
D) Securities and Exchange Commission 
A) Prentice-Hall 
B) Robert Morris Associates 
C) Dan Bradbury Ltd. 
D) Securities and Exchange Commission

Question 7

There are numerous sources which provide financial analysis via the internet.List some of those resources.

Accepted Answer

Internet data Sources for fina

Question 8

Deferred taxes may occur due to the use of

Accepted Answer

A) different tax schedules 
B) different depreciation methods for taxes and financial reporting 
C) long-term equipment 
D) different cash flow methods 
A) different tax schedules 
B) different depreciation methods for taxes and financial reporting 
C) long-term equipment 
D) different cash flow methods

Question 9

When using financial ratios to analyze a company's ability to maximize shareholders' wealth, all of the following cautions should be considered EXCEPT:

Accepted Answer

A) financial ratios are flags indicating potential areas of strength or weakness. 
B) a financial ratio must be dissected to discover its true meaning. 
C) a financial ratio must be compared to some standard 
D) although there may be accounting differences between companies, these differences do not impact financial ratios. 
A) financial ratios are flags indicating potential areas of strength or weakness. 
B) a financial ratio must be dissected to discover its true meaning. 
C) a financial ratio must be compared to some standard 
D) although there may be accounting differences between companies, these differences do not impact financial ratios.

Question 10

The ratio is a more severe measure of a firm's ability to meet fixed financial obligations than is the times interest earned ratio.

Accepted Answer

A) acid test 
B) debt 
C) fixed charge coverage 
D) debt to equity 
A) acid test 
B) debt 
C) fixed charge coverage 
D) debt to equity

Question 11

To increase the return on stockholders' equity, management could increase the .

Accepted Answer

A) current ratio 
B) price-to-earnings ratio 
C) dividend yield 
D) equity multiplier 
A) current ratio 
B) price-to-earnings ratio 
C) dividend yield 
D) equity multiplier

Question 12

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 13

The quick ratio is the same as current ratio except it does not consider

Accepted Answer

A) cash 
B) accounts receivable 
C) prepaid items 
D) inventories 
A) cash 
B) accounts receivable 
C) prepaid items 
D) inventories

Question 14

Wall Mart Pictures and Decor Company has a net profit margin of 10% and its inventory turnover is 9, what is its annual cost of sales? You also know that Wall Mart's average inventory is $96,700 and its annual sales are $1,000,000.

Accepted Answer

A) $870,000 
B) $850,000 
C) $870,300 
D) $790,000 
A) $870,000 
B) $850,000 
C) $870,300 
D) $790,000

Question 15

What are the main purposes of financial analysis and what does it identify?

Accepted Answer

Financial analysis identifies the major

Question 16

A firm's price to earnings ratio is 8 and its market to book ratio is 2.If its earnings per share are $4.00, what is the book value per share?

Accepted Answer

A) $ 8.00 
B) $32.00 
C) $64.00 
D) $16.00 
A) $ 8.00 
B) $32.00 
C) $64.00 
D) $16.00

Question 17

What would be the times interest earned of a company, if its total interest charges are $20,000, sales are $220,000, and its net profit margin is 6 percent? Assume a tax rate of 40 percent.

Accepted Answer

A) 2.65 
B) 1.1 
C) 2.1 
D) 1.2 
A) 2.65 
B) 1.1 
C) 2.1 
D) 1.2

Question 18

The major types of financial ratios include all of the following except

Accepted Answer

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

Question 19

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 20

AK, Inc.is considering issuing additional long-term debt to finance an expansion.The company currently has $20 million in 5% debt outstanding.Its earnings after-tax (EAT) are $3.0 million, and its marginal and average tax rate is 40 percent.The company is required by the debt holders to maintain its times interest earned ratio at 3.0 or greater.How much additional 10 percent debt can the company issue now and maintain its times interest earned ratio at 3.0? Assume for this calculation that earnings before interest and taxes remains at its present level.

Accepted Answer

A) $10 million 
B) $ 6 million 
C) $ 1 million 
D) $5 million 
A) $10 million 
B) $ 6 million 
C) $ 1 million 
D) $5 million

Exam 3: Evaluation of Financial Performance

Economic value added (EVA) is a measure of operating performance that indicates how successful a firm has been at:

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?

Which of the following financial ratios are market-based ratios?

A firm with a debt ratio of 0.75, will have an equity multiplier of

If a firm's return on investment, i.e., earnings after taxes divided by total assets, is 7%, and the firm has no preferred stock financing, it is

The data from is especially useful when analyzing small firms.

There are numerous sources which provide financial analysis via the internet.List some of those resources.

Deferred taxes may occur due to the use of

When using financial ratios to analyze a company's ability to maximize shareholders' wealth, all of the following cautions should be considered EXCEPT:

The ratio is a more severe measure of a firm's ability to meet fixed financial obligations than is the times interest earned ratio.

To increase the return on stockholders' equity, management could increase the .

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?

The quick ratio is the same as current ratio except it does not consider

Wall Mart Pictures and Decor Company has a net profit margin of 10% and its inventory turnover is 9, what is its annual cost of sales? You also know that Wall Mart's average inventory is $96,700 and its annual sales are $1,000,000.

What are the main purposes of financial analysis and what does it identify?

A firm's price to earnings ratio is 8 and its market to book ratio is 2.If its earnings per share are $4.00, what is the book value per share?

What would be the times interest earned of a company, if its total interest charges are $20,000, sales are $220,000, and its net profit margin is 6 percent? Assume a tax rate of 40 percent.

The major types of financial ratios include all of the following 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 Role and Objective of Financial Management

The Domestic and International Financial Marketplace

Financial Planning and Forecasting

The Time Value of Money

A: The Time Value of Money

Fixed-Income Securities: Characteristics and Valuation

Common Stock: Characteristics, Valuation, and Issuance

Analysis of Risk and Return

Capital Budgeting and Cash Flow Analysis

Capital Budgeting: Decision Criteria and Real Option Considerations

A: Capital Budgeting: Decision Criteria and Real Option Considerations

Capital Budgeting and Risk

The Cost of Capital, Capital Structure, and Dividend Policy

Capital Structure Concepts

Capital Structure Management in Practice

A: Capital Structure Management in Practice

Dividend Policy

Working Capital Management

The Management of Cash and Marketable Securities

The Management of Accounts Receivable and Inventories

Lease and Intermediate-Term Financing

Financing with Derivatives

A: Financing with Derivatives

Risk Management

International Financial Management

Corporate Restructuring

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