Question 1

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 2

Which one of these firms has recently had a highest positive market value added in Canada in 2013?

Accepted Answer

A)  Royal Bank of Canada 
B)  Suncor 
C)  Husky Energy 
D)  Air Canada 
A)  Royal Bank of Canada 
B)  Suncor 
C)  Husky Energy 
D)  Air Canada

Question 3

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 4

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 5

Return on assets is always a larger number than the return on equity.

Accepted Answer

A) True 
 B)False

Question 6

If ROC is less than a firm's cost of capital,which of the following must be true?

Accepted Answer

A)  the firm's EVA is positive. 
B)  the firm's EVA is negative. 
C)  the firm's ROE is equal to zero. 
D)  the firm's ROE is negative. 
A)  the firm's EVA is positive. 
B)  the firm's EVA is negative. 
C)  the firm's ROE is equal to zero. 
D)  the firm's ROE is negative.

Question 7

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 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

The inventory turnover ratio compares:

Accepted Answer

A)  current assets to average inventory. 
B)  cost of goods sold to average inventory. 
C)  average receivables to average inventory. 
D)  average assets to average inventory. 
A)  current assets to average inventory. 
B)  cost of goods sold to average inventory. 
C)  average receivables to average inventory. 
D)  average assets to average inventory.

Question 10

Assume BDS acquired its main supplier,ABC.As a result of the acquisition,BDS finds that its profit margin increased but its ROA remained constant.A decrease in which one of these ratios is most apt to be the reason why the ROA did not increase with the increase in the profit margin?

Accepted Answer

A)  leverage ratio 
B)  market-to-book ratio 
C)  asset turnover 
D)  debt burden 
A)  leverage ratio 
B)  market-to-book ratio 
C)  asset turnover 
D)  debt burden

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

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 13

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

Accepted Answer

A) True 
 B)False

Question 14

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 15

Which one of the following would likely be most detrimental to a firm's current ratio if that ratio is currently 2?

Accepted Answer

A)  collecting payment on an accounts receivable. 
B)  selling marketable securities at cost. 
C)  paying off accounts payable with cash. 
D)  purchasing inventory on credit. 
A)  collecting payment on an accounts receivable. 
B)  selling marketable securities at cost. 
C)  paying off accounts payable with cash. 
D)  purchasing inventory on credit.

Question 16

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 17

An asset turnover ratio of 1.75 can be interpreted as:

Accepted Answer

A)  $1.75 in sales are generated by every $1 of assets. 
B)  $1.75 in additional assets are generated by every $1 of sales. 
C)  $1.75 in assets are used to generate $1 of sales. 
D)  $1 in sales are used to generate $1.75 in assets. 
A)  $1.75 in sales are generated by every $1 of assets. 
B)  $1.75 in additional assets are generated by every $1 of sales. 
C)  $1.75 in assets are used to generate $1 of sales. 
D)  $1 in sales are used to generate $1.75 in assets.

Question 18

Balsco's balance sheet shows total assets of $238,000 and total liabilities of $107,000.The firm has 55,000 shares of stock outstanding that sell for $11 a share.What is amount of market value added?

Accepted Answer

A)  $389,000 
B)  $474,000 
C)  $1,073,000 
D)  $123,712 
A)  $389,000 
B)  $474,000 
C)  $1,073,000 
D)  $123,712

Question 19

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 20

Receivable turnover ratio and asset turnover ratio are both efficiency ratios.

Accepted Answer

A) True 
 B)False

Exam 4: Measuring Corporate Performance

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

Which one of these firms has recently had a highest positive market value added in Canada in 2013?

Which of these indicates that a firm is efficient?

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?

Return on assets is always a larger number than the return on equity.

If ROC is less than a firm's cost of capital,which of the following must be true?

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?

An asset's liquidity measures its:

The inventory turnover ratio compares:

Assume BDS acquired its main supplier,ABC.As a result of the acquisition,BDS finds that its profit margin increased but its ROA remained constant.A decrease in which one of these ratios is most apt to be the reason why the ROA did not increase with the increase in the profit margin?

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

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

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

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)

Which one of the following would likely be most detrimental to a firm's current ratio if that ratio is currently 2?

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

An asset turnover ratio of 1.75 can be interpreted as:

Balsco's balance sheet shows total assets of $238,000 and total liabilities of $107,000.The firm has 55,000 shares of stock outstanding that sell for $11 a share.What is amount of market value added?

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?

Receivable turnover ratio and asset turnover ratio are both efficiency ratios.

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

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