Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

Which one of these costs 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

Question 3

Last year's asset turnover ratio was 2.0.Sales have increased by 25% and average total assets have increased by 10% since that time.What is the asset turnover ratio today?

Accepted Answer

A)  1.82 
B)  2.05 
C)  2.15 
D)  2.27 
A)  1.82 
B)  2.05 
C)  2.15 
D)  2.27

Question 4

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 5

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 6

Lease obligations are included in certain leverage ratios because leases:

Accepted Answer

A)  require the payment of interest. 
B)  represent long-term fixed obligations. 
C)  must be financed through a bank. 
D)  are perpetual obligations. 
A)  require the payment of interest. 
B)  represent long-term fixed obligations. 
C)  must be financed through a bank. 
D)  are perpetual obligations.

Question 7

If a company uses cash to pay off some of its accounts payables,what effect will this have on its liquidity ratios,given that the ratios exceeded 1 before the payoff?

Accepted Answer

A)  the quick ratio and current ratio will both increase. 
B)  the quick ratio and current ratio will both decrease. 
C)  the quick ratio will increase but the current ratio will remain unchanged. 
D)  the current ratio will increase but the quick ratio will remain unchanged. 
A)  the quick ratio and current ratio will both increase. 
B)  the quick ratio and current ratio will both decrease. 
C)  the quick ratio will increase but the current ratio will remain unchanged. 
D)  the current ratio will increase but the quick ratio will remain unchanged.

Question 8

The difference between the current and quick ratios is that inventory has been subtracted from current assets.

Accepted Answer

A) True 
 B)False

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

How would you interpret an inventory turnover ratio of 10.7?

Accepted Answer

A)  it takes 50 days on average to collect receivables. 
B)  inventory is converted into sales every 50 days. 
C)  the firm has sufficient inventories to maintain sales for 34.1 days. 
D)  assets are converted into sales every 50 days. 
A)  it takes 50 days on average to collect receivables. 
B)  inventory is converted into sales every 50 days. 
C)  the firm has sufficient inventories to maintain sales for 34.1 days. 
D)  assets are converted into sales every 50 days.

Question 11

When Tri-C Corp.compares its ratios to industry averages,it has a higher current ratio,an average quick ratio,and a lower inventory turnover.What might you assume about Tri-C?

Accepted Answer

A)  its cash balance is too low. 
B)  its cost of goods sold is too low. 
C)  its current liabilities are too low. 
D)  its average inventory is too high. 
A)  its cash balance is too low. 
B)  its cost of goods sold is too low. 
C)  its current liabilities are too low. 
D)  its average inventory is too high.

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

Market value added is the difference between the market value of the firm's equity and its book value.

Accepted Answer

A) True 
 B)False

Question 14

High levels of liquidity are most apt to indicate:

Accepted Answer

A)  low levels of net working capital. 
B)  low profit margins. 
C)  high levels of economic value added. 
D)  inefficient use of assets. 
A)  low levels of net working capital. 
B)  low profit margins. 
C)  high levels of economic value added. 
D)  inefficient use of assets.

Question 15

Which of the following actions could improve a firm's current ratio if it is now less than 1.0?

Accepted Answer

A)  converting marketable securities to cash. 
B)  paying accounts payable with cash. 
C)  buying inventory on credit. 
D)  selling inventory at cost. 
A)  converting marketable securities to cash. 
B)  paying accounts payable with cash. 
C)  buying inventory on credit. 
D)  selling inventory at cost.

Question 16

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 17

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 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

Other things equal,an increase in average accounts receivable will increase a firm's return on assets.

Accepted Answer

A) True 
 B)False

Question 20

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.

Exam 4: Measuring Corporate Performance

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

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

Last year's asset turnover ratio was 2.0.Sales have increased by 25% and average total assets have increased by 10% since that time.What is the asset turnover ratio today?

Efficiency ratios:

Which one of these statements is correct?

Lease obligations are included in certain leverage ratios because leases:

If a company uses cash to pay off some of its accounts payables,what effect will this have on its liquidity ratios,given that the ratios exceeded 1 before the payoff?

The difference between the current and quick ratios is that inventory has been subtracted from current assets.

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

How would you interpret an inventory turnover ratio of 10.7?

When Tri-C Corp.compares its ratios to industry averages,it has a higher current ratio,an average quick ratio,and a lower inventory turnover.What might you assume about Tri-C?

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

Market value added is the difference between the market value of the firm's equity and its book value.

High levels of liquidity are most apt to indicate:

Which of the following actions could improve a firm's current ratio if it is now less than 1.0?

A times interest earned ratio of 5 indicates the firm:

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

Other things equal,an increase in average accounts receivable will increase a firm's return on assets.

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

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 and Payout 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