Question 1

What effect on the growth rate of earnings can be accomplished by decreasing the dividend-payout ratio from 70% to 40% if the firm has an ROE of 20%?

Accepted Answer

A) The growth rate can increase from 6% to 10.5%. 
B) The growth rate can increase from 6% to 12%. 
C) The growth rate can increase from 8% to 14%. 
D) The growth rate can increase from 11% to 14%. current growth rate in earnings = plowback ratio x ROE = .3 x .2 = 6% 
A) The growth rate can increase from 6% to 10.5%. 
B) The growth rate can increase from 6% to 12%. 
C) The growth rate can increase from 8% to 14%. 
D) The growth rate can increase from 11% to 14%. current growth rate in earnings = plowback ratio x ROE = .3 x .2 = 6%

Question 2

What is the inventory turnover ratio for ABC Corp.if cost of goods sold equals $5,000, current ratio equals 3.0, quick ratio equals 1.5, and the firm has 1,800 in current assets?

Accepted Answer

A) 4.25 
B) 5.56 
C) 6.75 
D) 7.85 
A) 4.25 
B) 5.56 
C) 6.75 
D) 7.85

Question 3

A firm with no leases has a long-term debt ratio of 50 percent.This means that the book value of equity:

Accepted Answer

A) Equals the book value of long-term debt 
B) Is less than the book value of long-term debt 
C) is greater than the book value of long-term debt 
D) is unknown in relation to the book value of long-term debt 
A) Equals the book value of long-term debt 
B) Is less than the book value of long-term debt 
C) is greater than the book value of long-term debt 
D) is unknown in relation to the book value of long-term debt

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) Help answer questions of firm stability 
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) Help answer questions of firm stability

Question 5

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

Accepted Answer

A) 32.1% 
B) 35.5% 
C) 37.6% 
D) 39.4% If total debt/equity = .65 then total liabilities/total assets = .65/1.65 
A) 32.1% 
B) 35.5% 
C) 37.6% 
D) 39.4% If total debt/equity = .65 then total liabilities/total assets = .65/1.65

Question 6

What is the residual income or EVA for a firm with $1 million in total capital, $300,000 in net income, and a 20 percent cost of capital?

Accepted Answer

A) $100,000 
B) $140,000 
C) $240,000 
D) $500,000 Total capital x cost of capital
$1 million x .2 = $200,000
Residual income = Net Income - Cost of Capital
= 300,000 - 200,000 
A) $100,000 
B) $140,000 
C) $240,000 
D) $500,000 Total capital x cost of capital
$1 million x .2 = $200,000
Residual income = Net Income - Cost of Capital
= 300,000 - 200,000

Question 7

What is the book value per share for a firm with 2 million shares outstanding at a price of $50, a market-to-book ratio of .75, and a dividend payout ratio of 50 percent?

Accepted Answer

A) $33.33 
B) $37.50 
C) $62.50 
D) $66.67 market-to-book ratio = stock price/book value per share
)75 = $50/book value per share 
A) $33.33 
B) $37.50 
C) $62.50 
D) $66.67 market-to-book ratio = stock price/book value per share
)75 = $50/book value per share

Question 8

"Asset turnover ratio" and "inventory turnover ratio" are both efficiency ratios.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following changes will provide an increase (if only in the short-run) in a firm's ROE?

Accepted Answer

A) An increase in total assets 
B) An increase in the dividend-payout ratio 
C) An increase in equity 
D) The payment of a stock dividend 
A) An increase in total assets 
B) An increase in the dividend-payout ratio 
C) An increase in equity 
D) The payment of a stock dividend

Question 10

How is Tobin's q similar and dissimilar to a firm's market-to-book ratio? Note that Tobin's q is the ratio of market value of assets to replacement cost of the assets.

Accepted Answer

The market-to-book ratio shows the relat

Question 11

Which of the following is correct for a firm with a debt-equity ratio of .45 if long-term debt equals 500 and equity equals 2,000? The firm has:

Accepted Answer

A) Current liabilities that is valued at 400 
B) Current assets that is valued at 400 
C) Retained earnings that are valued at 900 
D) preferred stock of 400 Total Debt = Current Debt + Long Term Debt
Debt/Equity Ratio = .45
Therefore, Debt/Equity Ratio x Shareholder Equity = Value of Total Debt
)45 x 2,000 = 900 Total Debt
Therefore, if Total Debt = 900 = Current Debt + Long Term Debt
900 = Current Debt + 500 
A) Current liabilities that is valued at 400 
B) Current assets that is valued at 400 
C) Retained earnings that are valued at 900 
D) preferred stock of 400 Total Debt = Current Debt + Long Term Debt
Debt/Equity Ratio = .45
Therefore, Debt/Equity Ratio x Shareholder Equity = Value of Total Debt
)45 x 2,000 = 900 Total Debt
Therefore, if Total Debt = 900 = Current Debt + Long Term Debt
900 = Current Debt + 500

Question 12

Calculate the dividend per share that is paid when the earnings per share are $6.00 and plowback ratio is 0.85:

Accepted Answer

A) $0.51 
B) $0.71 
C) $0.90 
D) $5.10 Payout ratio = 1 - 0.85 = 0.15
0)15 = Dividend per share/$6 
A) $0.51 
B) $0.71 
C) $0.90 
D) $5.10 Payout ratio = 1 - 0.85 = 0.15
0)15 = Dividend per share/$6

Question 13

If a firm's average collection period is 42 days, and this compares favourably to the industry average, what questions may you want to ask before assuming that the firm is "efficient?"

Accepted Answer

Does the firm offer the same terms on it

Question 14

"Return on assets" and "return on equity" are both profitability ratios.

Accepted Answer

A) True 
 B)False

Question 15

The board of directors is dissatisfied with last year's ROE of 15 percent.If the profit margin and asset turnover remain unchanged at 8 percent and 1.25 respectively, by how much must the total debt ratio increase to achieve 20 percent ROE?

Accepted Answer

A) Total debt ratio must increase by .5 
B) Total debt ratio must increase by 5 
C) Total debt ratio must increase by 5 percent 
D) Total debt ratio must increase by 16.67 percent Last Year:
ROE = .15 = Profit margin x Asset turnover x leverage rate
= )08 x 1.25 x 1.5
This Year:
ROE = .20 = .08 x 1.25 x? 
A) Total debt ratio must increase by .5 
B) Total debt ratio must increase by 5 
C) Total debt ratio must increase by 5 percent 
D) Total debt ratio must increase by 16.67 percent Last Year:
ROE = .15 = Profit margin x Asset turnover x leverage rate
= )08 x 1.25 x 1.5
This Year:
ROE = .20 = .08 x 1.25 x?

Question 16

A firm has $600,000 in current assets and $150,000 in current liabilities.Which of the following is correct if they use cash to pay off $50,000 in accounts payable?

Accepted Answer

A) Current ratio will increase to 5.0. 
B) Net working capital will increase to $500,000 
C) Current ratio will decrease 
D) Net working capital will not change 
A) Current ratio will increase to 5.0. 
B) Net working capital will increase to $500,000 
C) Current ratio will decrease 
D) Net working capital will not change

Question 17

Measures of a firm's efficiency with respect to earnings include:

Accepted Answer

A) Profit margin, ROA, P/E ratio, ROE 
B) Market-to-book, ROE, Payout ratio 
C) Profit margin, ROA, ROE, Payout ratio 
D) ROA, ROE, P/E ratio, Payout ratio 
A) Profit margin, ROA, P/E ratio, ROE 
B) Market-to-book, ROE, Payout ratio 
C) Profit margin, ROA, ROE, Payout ratio 
D) ROA, ROE, P/E ratio, Payout ratio

Question 18

A firm with below average earnings growth in one year is likely to:

Accepted Answer

A) have below average earnings growth in the following year 
B) have had below average earnings growth in the previous year 
C) have either above or below average earnings growth in the following year, (it is random) 
D) continue this trend downward in the years to follow 
A) have below average earnings growth in the following year 
B) have had below average earnings growth in the previous year 
C) have either above or below average earnings growth in the following year, (it is random) 
D) continue this trend downward in the years to follow

Question 19

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 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 greater than 1.0

Question 20

XYZ Corp.has improved its average collection period from 55 to 40 days.Which one of XYZ are other ratios may appear worse as a result of the improved receivables collection?

Accepted Answer

A) Inventory turnover 
B) Quick ratio 
C) Net profit margin 
D) Return on equity 
A) Inventory turnover 
B) Quick ratio 
C) Net profit margin 
D) Return on equity

Exam 4: Measuring Corporate Performance

What effect on the growth rate of earnings can be accomplished by decreasing the dividend-payout ratio from 70% to 40% if the firm has an ROE of 20%?

What is the inventory turnover ratio for ABC Corp.if cost of goods sold equals $5,000, current ratio equals 3.0, quick ratio equals 1.5, and the firm has 1,800 in current assets?

A firm with no leases has a long-term debt ratio of 50 percent.This means that the book value of equity:

Efficiency ratios:

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

What is the residual income or EVA for a firm with $1 million in total capital, $300,000 in net income, and a 20 percent cost of capital?

What is the book value per share for a firm with 2 million shares outstanding at a price of $50, a market-to-book ratio of .75, and a dividend payout ratio of 50 percent?

"Asset turnover ratio" and "inventory turnover ratio" are both efficiency ratios.

Which of the following changes will provide an increase (if only in the short-run) in a firm's ROE?

How is Tobin's q similar and dissimilar to a firm's market-to-book ratio? Note that Tobin's q is the ratio of market value of assets to replacement cost of the assets.

Which of the following is correct for a firm with a debt-equity ratio of .45 if long-term debt equals 500 and equity equals 2,000? The firm has:

Calculate the dividend per share that is paid when the earnings per share are $6.00 and plowback ratio is 0.85:

If a firm's average collection period is 42 days, and this compares favourably to the industry average, what questions may you want to ask before assuming that the firm is "efficient?"

"Return on assets" and "return on equity" are both profitability ratios.

The board of directors is dissatisfied with last year's ROE of 15 percent.If the profit margin and asset turnover remain unchanged at 8 percent and 1.25 respectively, by how much must the total debt ratio increase to achieve 20 percent ROE?

A firm has $600,000 in current assets and $150,000 in current liabilities.Which of the following is correct if they use cash to pay off $50,000 in accounts payable?

Measures of a firm's efficiency with respect to earnings include:

A firm with below average earnings growth in one year is likely to:

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

XYZ Corp.has improved its average collection period from 55 to 40 days.Which one of XYZ are other ratios may appear worse as a result of the improved receivables collection?

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

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Working Capital Management

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

Conclusion

What We Do and Do Not Know About Finance

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