Question 1

The acid-test ratio of a firm would be unaffected by which of the following?

Accepted Answer

A)  Accounts payable are reduced by obtaining a short-term loan. 
B)  Common stock is sold and the money is invested in marketable securities. 
C)  Inventories are sold for cash. 
D)  Inventories are sold on a short-term credit basis. 
A)  Accounts payable are reduced by obtaining a short-term loan. 
B)  Common stock is sold and the money is invested in marketable securities. 
C)  Inventories are sold for cash. 
D)  Inventories are sold on a short-term credit basis.

Question 2

Please refer to Table 4-3 for the following questions.
Table 4-3
Emery Corporation
Balance Sheet Income Statement
  
-Based on the information in Table 4-3,the debt ratio is

Accepted Answer

A)  18.38%. 
B)  40.24%. 
C)  48.48%. 
D)  53.43%. 
A)  18.38%. 
B)  40.24%. 
C)  48.48%. 
D)  53.43%.

Question 3

Operating return on assets is equal to the operating profit margin times total asset turnover.

Accepted Answer

A) True 
 B)False

Question 4

The current ratio of a firm would equal its quick ratio whenever

Accepted Answer

A)  the firm has no inventory. 
B)  the firm's inventory is equal to its other current assets. 
C)  the firm's inventory is equal to its current liabilities. 
D)  the firm's current ratio is equal to one. 
A)  the firm has no inventory. 
B)  the firm's inventory is equal to its other current assets. 
C)  the firm's inventory is equal to its current liabilities. 
D)  the firm's current ratio is equal to one.

Question 5

Operating return on assets (OROA)is equal to operating profit margin times fixed assets turnover.

Accepted Answer

A) True 
 B)False

Question 6

If company A has a lower average collection period than company B,then company A will have a higher accounts receivable turnover.

Accepted Answer

A) True 
 B)False

Question 7

Complete the following balance sheet using the information given.Round account balances to the nearest dollar.

Accepted Answer

1.Use the return on equity to calculate

Question 8

Please refer to Table 4-2 for the following questions.
Table 4-2
Drummond Company
Balance Sheet
  
-Based on the information in Table 4-2,the inventory turnover ratio is

Accepted Answer

A)  1.29 times. 
B)  2.37 times. 
C)  4.43 times. 
D)  2.99 times. 
A)  1.29 times. 
B)  2.37 times. 
C)  4.43 times. 
D)  2.99 times.

Question 9

Economic Value Added attempts to measure a firm's economic profit rather than its accounting profit.

Accepted Answer

A) True 
 B)False

Question 10

Ratios of almost all companies are easily comparable because all public companies prepare their financial reports based upon generally accepted accounting principles.

Accepted Answer

A) True 
 B)False

Question 11

Please refer to Table 4-1 for the following questions.
Table 4-1
Stewart Company
Balance Sheet
  
-Based on the information in Table 4-1,the times interest earned ratio is

Accepted Answer

A)  32.33 times. 
B)  23.75 times. 
C)  19.00 times. 
D)  12.33 times. 
A)  32.33 times. 
B)  23.75 times. 
C)  19.00 times. 
D)  12.33 times.

Question 12

Please refer to Table 4-5 for the following questions.
Table 4-5
Yen Inc.
Balance Sheet
   
Yen Inc.
Income Statement
For the year ended December 31, 2010
  
-Based on the information contained in Tables 4-5,what was the total amount of Yen's common stock dividend for 2010?

Accepted Answer

A)  $17,000 
B)  $12,800 
C)  $9,000 
D)  $8,000 
A)  $17,000 
B)  $12,800 
C)  $9,000 
D)  $8,000

Question 13

HighLev Incorporated borrows heavily and uses the leverage to boost its return on equity to 30% this year,nearly 10% higher than the industry average.However,HighLev's stock price decreases relative to its industry counterparts.How is this possible?

Accepted Answer

A)  Markets are inefficient and fail to recognize the benefits of leverage. 
B)  The increased debt resulted in interest payments that made HighLev's operating income drop even though return on equity increased. 
C)  Shareholders are not interested in return on equity. 
D)  The high levels of debt increased the riskiness of HighLev relative to its competitors. 
A)  Markets are inefficient and fail to recognize the benefits of leverage. 
B)  The increased debt resulted in interest payments that made HighLev's operating income drop even though return on equity increased. 
C)  Shareholders are not interested in return on equity. 
D)  The high levels of debt increased the riskiness of HighLev relative to its competitors.

Question 14

WRJ has a debt ratio of .4,current liabilities of $18,000,and total assets of $120,000.What is the level of WRJ's total liabilities?

Accepted Answer

A)  $22,000 
B)  $48,000 
C)  $58,000 
D)  $63,934 
A)  $22,000 
B)  $48,000 
C)  $58,000 
D)  $63,934

Question 15

Please refer to Table 4-2 for the following questions.
Table 4-2
Drummond Company
Balance Sheet
  
-Based on the information in Table 4-2,the current ratio is

Accepted Answer

A)  2.97. 
B)  2.46. 
C)  2.35. 
D)  2.23. 
A)  2.97. 
B)  2.46. 
C)  2.35. 
D)  2.23.

Question 16

The computation of return on equity,or ROE,does not include retained earnings as part of common equity because retained earnings includes all net income for the company since its inception and analysts are trying to calculate the return for just the current year.

Accepted Answer

A) True 
 B)False

Question 17

Beverly Corp.had total sales of $1,200,000 in 2010 (80 percent of its sales are credit).The company's gross profit margin is 25 percent,its ending inventory is $150,000,and its accounts receivable balance is $90,000.What additional amount of cash could the firm have generated if it had increased its inventory turnover ratio to 9.0 and reduced its average collection period to 28.21875 days?

Accepted Answer

Currently,cost of goods sold is $900,000

Question 18

Theoretically,market values of assets are better for evaluating the creation of shareholder wealth than accounting numbers,but accounting numbers are used because they are more readily available.

Accepted Answer

A) True 
 B)False

Question 19

Smith Corporation has earned a return on capital invested of 10% for the past two years,but an investment analyst reviewing the company has stated the company is not creating shareholder value.This may be due to the fact that

Accepted Answer

A)  the risk-free rate of interest is 3%. 
B)  the corporation's inventory turnover is high. 
C)  investors' required rate of return is 8%. 
D)  investors' required rate of return is 12%. 
A)  the risk-free rate of interest is 3%. 
B)  the corporation's inventory turnover is high. 
C)  investors' required rate of return is 8%. 
D)  investors' required rate of return is 12%.

Question 20

Common stockholders may use financial ratios to monitor manager actions to help lessen agency problems.

Accepted Answer

A) True 
 B)False

The acid-test ratio of a firm would be unaffected by which of the following?

Please refer to Table 4-3 for the following questions. Table 4-3 Emery Corporation Balance Sheet Income Statement -Based on the information in Table 4-3,the debt ratio is

Operating return on assets is equal to the operating profit margin times total asset turnover.

The current ratio of a firm would equal its quick ratio whenever

Operating return on assets (OROA)is equal to operating profit margin times fixed assets turnover.

If company A has a lower average collection period than company B,then company A will have a higher accounts receivable turnover.

Complete the following balance sheet using the information given.Round account balances to the nearest dollar.

Please refer to Table 4-2 for the following questions. Table 4-2 Drummond Company Balance Sheet -Based on the information in Table 4-2,the inventory turnover ratio is

Economic Value Added attempts to measure a firm's economic profit rather than its accounting profit.

Ratios of almost all companies are easily comparable because all public companies prepare their financial reports based upon generally accepted accounting principles.

Please refer to Table 4-1 for the following questions. Table 4-1 Stewart Company Balance Sheet -Based on the information in Table 4-1,the times interest earned ratio is

Please refer to Table 4-5 for the following questions. Table 4-5 Yen Inc. Balance Sheet Yen Inc. Income Statement For the year ended December 31, 2010 -Based on the information contained in Tables 4-5,what was the total amount of Yen's common stock dividend for 2010?

HighLev Incorporated borrows heavily and uses the leverage to boost its return on equity to 30% this year,nearly 10% higher than the industry average.However,HighLev's stock price decreases relative to its industry counterparts.How is this possible?

WRJ has a debt ratio of .4,current liabilities of $18,000,and total assets of $120,000.What is the level of WRJ's total liabilities?

Please refer to Table 4-2 for the following questions. Table 4-2 Drummond Company Balance Sheet -Based on the information in Table 4-2,the current ratio is

The computation of return on equity,or ROE,does not include retained earnings as part of common equity because retained earnings includes all net income for the company since its inception and analysts are trying to calculate the return for just the current year.

Theoretically,market values of assets are better for evaluating the creation of shareholder wealth than accounting numbers,but accounting numbers are used because they are more readily available.

Smith Corporation has earned a return on capital invested of 10% for the past two years,but an investment analyst reviewing the company has stated the company is not creating shareholder value.This may be due to the fact that

Common stockholders may use financial ratios to monitor manager actions to help lessen agency problems.

An Introduction to the Foundations of Financial Management

The Financial Markets and Interest Rates

Understanding Financial Statements and Cash Flows

The Time Value of Money

The Meaning and Measurement of Risk and Return

The Valuation and Characteristics of Bonds

The Valuation and Characteristics of Stock

The Cost of Capital

Capital-Budgeting Techniques and Practice

Cash Flows and Other Topics in Capital Budgeting

Determining the Financing Mix

Dividend Policy and Internal Financing

Short-Term Financial Planning

Working-Capital Management

International Business Finance

Cash,receivables,and Inventory Management

Filters

Exam 4: Evaluating a Firms Financial Performance

The acid-test ratio of a firm would be unaffected by which of the following?

Please refer to Table 4-3 for the following questions. Table 4-3 Emery Corporation Balance Sheet Income Statement -Based on the information in Table 4-3,the debt ratio is

Operating return on assets is equal to the operating profit margin times total asset turnover.

The current ratio of a firm would equal its quick ratio whenever

Operating return on assets (OROA)is equal to operating profit margin times fixed assets turnover.

If company A has a lower average collection period than company B,then company A will have a higher accounts receivable turnover.

Complete the following balance sheet using the information given.Round account balances to the nearest dollar.

Please refer to Table 4-2 for the following questions. Table 4-2 Drummond Company Balance Sheet -Based on the information in Table 4-2,the inventory turnover ratio is

Economic Value Added attempts to measure a firm's economic profit rather than its accounting profit.

Ratios of almost all companies are easily comparable because all public companies prepare their financial reports based upon generally accepted accounting principles.

Please refer to Table 4-1 for the following questions. Table 4-1 Stewart Company Balance Sheet -Based on the information in Table 4-1,the times interest earned ratio is

Please refer to Table 4-5 for the following questions. Table 4-5 Yen Inc. Balance Sheet Yen Inc. Income Statement For the year ended December 31, 2010 -Based on the information contained in Tables 4-5,what was the total amount of Yen's common stock dividend for 2010?

HighLev Incorporated borrows heavily and uses the leverage to boost its return on equity to 30% this year,nearly 10% higher than the industry average.However,HighLev's stock price decreases relative to its industry counterparts.How is this possible?

WRJ has a debt ratio of .4,current liabilities of $18,000,and total assets of $120,000.What is the level of WRJ's total liabilities?

Please refer to Table 4-2 for the following questions. Table 4-2 Drummond Company Balance Sheet -Based on the information in Table 4-2,the current ratio is

The computation of return on equity,or ROE,does not include retained earnings as part of common equity because retained earnings includes all net income for the company since its inception and analysts are trying to calculate the return for just the current year.

Theoretically,market values of assets are better for evaluating the creation of shareholder wealth than accounting numbers,but accounting numbers are used because they are more readily available.

Smith Corporation has earned a return on capital invested of 10% for the past two years,but an investment analyst reviewing the company has stated the company is not creating shareholder value.This may be due to the fact that

Common stockholders may use financial ratios to monitor manager actions to help lessen agency problems.

An Introduction to the Foundations of Financial Management

The Financial Markets and Interest Rates

Understanding Financial Statements and Cash Flows

The Time Value of Money

The Meaning and Measurement of Risk and Return

The Valuation and Characteristics of Bonds

The Valuation and Characteristics of Stock

The Cost of Capital

Capital-Budgeting Techniques and Practice

Cash Flows and Other Topics in Capital Budgeting

Determining the Financing Mix

Dividend Policy and Internal Financing

Short-Term Financial Planning

Working-Capital Management

International Business Finance

Cash,receivables,and Inventory Management

Filters