Question 1

The cash flow cycle can be described as the way in which net income flows into or out of the firm (i.e. ,a gain or a loss)during some specified period.

Accepted Answer

A) True 
 B)False  False

Question 2

Given the following information,calculate the market price per share of WAM Inc.
Earnings after interest and taxes= $200,000
Earnings per share= $2.00
Stockholders' equity= $2,000,000
Market/Book ratio= 0.20

Accepted Answer

A)  $20.00 
B)  $8.00 
C)  $4.00 
D)  $2.00 
E)  $1.00 
A)  $20.00 
B)  $8.00 
C)  $4.00 
D)  $2.00 
E)  $1.00 C

Question 3

If a firm has high current and quick ratios,this always is a good indication that a firm is managing its liquidity position well.

Accepted Answer

A) True 
 B)False  False

Question 4

A(n)____ is a statement summarizing the firm's revenue and expenses over an accounting period.

Accepted Answer

A)  income statement 
B)  balance sheet 
C)  statement of cash flows 
D)  statement of retained earnings 
A)  income statement 
B)  balance sheet 
C)  statement of cash flows 
D)  statement of retained earnings

Question 5

Which of the following statements is most correct?

Accepted Answer

A)  An increase in a firm's debt ratio,with no changes in its sales and operating costs,could be expected to lower its profit margin on sales. 
B)  An increase in the DSO,other things held constant,would generally lead to an increase in the total asset turnover ratio. 
C)  An increase in the DSO,other things held constant,would generally lead to an increase in the ROE. 
D)  In a competitive economy,where all firms earn similar returns on equity,one would expect to find lower profit margins for airlines,which require a lot of fixed assets relative to sales,than for fresh fish markets. 
E)  It is more important to adjust the Debt/Assets ratio than the inventory turnover ratio to account for seasonal fluctuations. 
A)  An increase in a firm's debt ratio,with no changes in its sales and operating costs,could be expected to lower its profit margin on sales. 
B)  An increase in the DSO,other things held constant,would generally lead to an increase in the total asset turnover ratio. 
C)  An increase in the DSO,other things held constant,would generally lead to an increase in the ROE. 
D)  In a competitive economy,where all firms earn similar returns on equity,one would expect to find lower profit margins for airlines,which require a lot of fixed assets relative to sales,than for fresh fish markets. 
E)  It is more important to adjust the Debt/Assets ratio than the inventory turnover ratio to account for seasonal fluctuations.

Question 6

Even if a stock split has no information content,and even if the dividend per share adjusted for the split does not increase,there can still be a real benefit (i.e. ,a higher value for shareholders)from such a split,but any such benefit is probably small.

Accepted Answer

A) True 
 B)False

Question 7

As a short-term creditor concerned with a company's ability to meet its financial obligation to you,which one of the following combinations of ratios would you most likely prefer?
Current Debt
Ratio TIE ratio

Accepted Answer

A)  0.5 0.5 0.33 
B)  1.0 1.0 0.50 
C)  1.5 1.5 0.50 
D)  2.0 1.0 0.67 
E)  2.5 0.5 0.71 
A)  0.5 0.5 0.33 
B)  1.0 1.0 0.50 
C)  1.5 1.5 0.50 
D)  2.0 1.0 0.67 
E)  2.5 0.5 0.71

Question 8

The financial position of companies whose business is seasonal can be dramatically different depending upon the time of year chosen to construct financial statements.This time sensitivity is especially true with respect to the firm's balance sheet.

Accepted Answer

A) True 
 B)False

Question 9

Depreciation,as shown on the income statement,is regarded as a use of cash because it is an expense.

Accepted Answer

A) True 
 B)False

Question 10

Alumbat Corporation has $800,000 of debt outstanding,and it pays an interest rate of 10 percent annually on its bank loan.Alumbat's annual sales are $3,200,000;its average tax rate is 40 percent;and its net profit margin on sales is 6 percent.If the company does not maintain a TIE ratio of at least 4 times,its bank will refuse to renew its loan,and bankruptcy will result.What is Alumbat's current TIE ratio?

Accepted Answer

A)  2.4 
B)  3.4 
C)  3.6 
D)  4.0 
E)  5.0 
A)  2.4 
B)  3.4 
C)  3.6 
D)  4.0 
E)  5.0

Question 11

The Charleston Company is a relatively small,privately owned firm.Last year the company had after-tax income of $15,000,and 10,000 shares were outstanding.The owners were trying to determine the market value for the stock,prior to taking the company public.A similar firm which is publicly traded had a price/earnings ratio of 5.0.Using only the information given,estimate the market value of one share of Charleston's stock.

Accepted Answer

A)  $10.00 
B)  $7.50 
C)  $5.00 
D)  $2.50 
E)  $1.50 
A)  $10.00 
B)  $7.50 
C)  $5.00 
D)  $2.50 
E)  $1.50

Question 12

During a period of lowering prices,the FIFO accounting method will produce a higher balance sheet inventory but a lower cost of goods sold than the LIFO accounting method.

Accepted Answer

A) True 
 B)False

Question 13

A stock split will cause a change in the total dollar amounts shown in which of the following balance sheet accounts?

Accepted Answer

A)  Cash. 
B)  Common stock. 
C)  Paid-in capital. 
D)  Retained earnings. 
E)  None of the above. 
A)  Cash. 
B)  Common stock. 
C)  Paid-in capital. 
D)  Retained earnings. 
E)  None of the above.

Question 14

Suppose two firms with the same amount of assets pay the same interest rate on their debt and earn the same rate of return on their assets,and that ROA is positive.However,one firm has a higher debt ratio.Under these conditions,the firm with the higher debt ratio will also have a higher rate of return on common equity.

Accepted Answer

A) True 
 B)False

Question 15

Using the direct method to determine cash flows from operations,start with net income,then add back all expenses not paid in cash and subtract all revenues that do not provide cash.

Accepted Answer

A) True 
 B)False

Question 16

The Meryl Corporation's common stock currently is selling at $100 per share,which represents a P/E ratio of 10.If the firm has 100 shares of common stock outstanding,a return on equity of 20 percent,and a debt ratio of 60 percent,what is its return on total assets (ROA)?

Accepted Answer

A)  8.0% 
B)  10.0% 
C)  12.0% 
D)  16.7% 
E)  20.0% 
A)  8.0% 
B)  10.0% 
C)  12.0% 
D)  16.7% 
E)  20.0%

Question 17

Which of the following statements is most correct? If a company lowers its DSO,but no changes occur in sales or operating costs,then

Accepted Answer

A)  the company might well end up with a higher debt ratio. 
B)  the company might well end up with a lower debt ratio. 
C)  the company would probably end up with a higher ROE. 
D)  the company's total asset turnover ratio would probably decline. 
E)  none of the above is a correct statement. 
A)  the company might well end up with a higher debt ratio. 
B)  the company might well end up with a lower debt ratio. 
C)  the company would probably end up with a higher ROE. 
D)  the company's total asset turnover ratio would probably decline. 
E)  none of the above is a correct statement.

Question 18

Makeover Inc.believes that at its current stock price of $16.00 the firm is undervalued in the market.Makeover plans to repurchase 2.4 million of its 20 million shares outstanding.The firm's managers expect that they can repurchase the entire 2.4 million shares at the expected equilibrium price after repurchase.The firm's current earnings are $44 million.If management's assumptions hold,what is the expected market price after repurchase?

Accepted Answer

A)  $16.00 
B)  $17.26 
C)  $18.18 
D)  $20.00 
E)  $24.40 
A)  $16.00 
B)  $17.26 
C)  $18.18 
D)  $20.00 
E)  $24.40

Question 19

The ____ is a statement reporting the effects of a firm's operating,investing,and financing activities on cash flows over an accounting period.

Accepted Answer

A)  income statement 
B)  balance sheet 
C)  statement of cash flows 
D)  statement of retained earnings 
A)  income statement 
B)  balance sheet 
C)  statement of cash flows 
D)  statement of retained earnings

Question 20

The retained earnings account on the balance sheet does not represent cash and in fact,represents a claim against the existing assets of the firm.This implies that retained earnings are in fact the reinvested earnings of stockholders.

Accepted Answer

A) True 
 B)False

The cash flow cycle can be described as the way in which net income flows into or out of the firm (i.e. ,a gain or a loss)during some specified period.

Given the following information,calculate the market price per share of WAM Inc. Earnings after interest and taxes= $200,000 Earnings per share= $2.00 Stockholders' equity= $2,000,000 Market/Book ratio= 0.20

If a firm has high current and quick ratios,this always is a good indication that a firm is managing its liquidity position well.

A(n)____ is a statement summarizing the firm's revenue and expenses over an accounting period.

Which of the following statements is most correct?

Even if a stock split has no information content,and even if the dividend per share adjusted for the split does not increase,there can still be a real benefit (i.e. ,a higher value for shareholders)from such a split,but any such benefit is probably small.

As a short-term creditor concerned with a company's ability to meet its financial obligation to you,which one of the following combinations of ratios would you most likely prefer? Current Debt Ratio TIE ratio

The financial position of companies whose business is seasonal can be dramatically different depending upon the time of year chosen to construct financial statements.This time sensitivity is especially true with respect to the firm's balance sheet.

Depreciation,as shown on the income statement,is regarded as a use of cash because it is an expense.

During a period of lowering prices,the FIFO accounting method will produce a higher balance sheet inventory but a lower cost of goods sold than the LIFO accounting method.

A stock split will cause a change in the total dollar amounts shown in which of the following balance sheet accounts?

Using the direct method to determine cash flows from operations,start with net income,then add back all expenses not paid in cash and subtract all revenues that do not provide cash.

The Meryl Corporation's common stock currently is selling at $100 per share,which represents a P/E ratio of 10.If the firm has 100 shares of common stock outstanding,a return on equity of 20 percent,and a debt ratio of 60 percent,what is its return on total assets (ROA)?

Which of the following statements is most correct? If a company lowers its DSO,but no changes occur in sales or operating costs,then

The ____ is a statement reporting the effects of a firm's operating,investing,and financing activities on cash flows over an accounting period.

The retained earnings account on the balance sheet does not represent cash and in fact,represents a claim against the existing assets of the firm.This implies that retained earnings are in fact the reinvested earnings of stockholders.

An Overview of Finance

Financial Assets Instruments

Financial Markets and the Investment Banking Process

Financial Intermediaries and the Banking System

The Cost of Money Interest Rates

Business Organizations and the Tax Environment

Financial Planning and Control

Time Value of Money

Valuation Concepts

Risk and Rates of Return

The Cost of Capital

Capital Budgeting

Capital Structure and Dividend Policy Decisions

Working Capital Management

Investment and Securities

Investment Analysis and Valuation Techniques

Filters

Exam 7: Analysis of Financial Statements

The cash flow cycle can be described as the way in which net income flows into or out of the firm (i.e. ,a gain or a loss)during some specified period.

Given the following information,calculate the market price per share of WAM Inc. Earnings after interest and taxes= $200,000 Earnings per share= $2.00 Stockholders' equity= $2,000,000 Market/Book ratio= 0.20

If a firm has high current and quick ratios,this always is a good indication that a firm is managing its liquidity position well.

A(n)____ is a statement summarizing the firm's revenue and expenses over an accounting period.

Which of the following statements is most correct?

Even if a stock split has no information content,and even if the dividend per share adjusted for the split does not increase,there can still be a real benefit (i.e. ,a higher value for shareholders)from such a split,but any such benefit is probably small.

As a short-term creditor concerned with a company's ability to meet its financial obligation to you,which one of the following combinations of ratios would you most likely prefer? Current Debt Ratio TIE ratio

The financial position of companies whose business is seasonal can be dramatically different depending upon the time of year chosen to construct financial statements.This time sensitivity is especially true with respect to the firm's balance sheet.

Depreciation,as shown on the income statement,is regarded as a use of cash because it is an expense.

During a period of lowering prices,the FIFO accounting method will produce a higher balance sheet inventory but a lower cost of goods sold than the LIFO accounting method.

A stock split will cause a change in the total dollar amounts shown in which of the following balance sheet accounts?

Using the direct method to determine cash flows from operations,start with net income,then add back all expenses not paid in cash and subtract all revenues that do not provide cash.

The Meryl Corporation's common stock currently is selling at $100 per share,which represents a P/E ratio of 10.If the firm has 100 shares of common stock outstanding,a return on equity of 20 percent,and a debt ratio of 60 percent,what is its return on total assets (ROA)?

Which of the following statements is most correct? If a company lowers its DSO,but no changes occur in sales or operating costs,then

The ____ is a statement reporting the effects of a firm's operating,investing,and financing activities on cash flows over an accounting period.

The retained earnings account on the balance sheet does not represent cash and in fact,represents a claim against the existing assets of the firm.This implies that retained earnings are in fact the reinvested earnings of stockholders.

An Overview of Finance

Financial Assets Instruments

Financial Markets and the Investment Banking Process

Financial Intermediaries and the Banking System

The Cost of Money Interest Rates

Business Organizations and the Tax Environment

Financial Planning and Control

Time Value of Money

Valuation Concepts

Risk and Rates of Return

The Cost of Capital

Capital Budgeting

Capital Structure and Dividend Policy Decisions

Working Capital Management

Investment and Securities

Investment Analysis and Valuation Techniques

Filters