Question 1

Which of the following statements is correct?

Accepted Answer

A)  The use of debt in the capital structure results in tax benefits to the firm. 
B)  Debt is referred to as "financial leverage" because it magnifies returns to shareholders. 
C)  Debt management ratios evaluate whether a firm is financing its assets with a reasonable amount of debt versus equity financing. 
D)  All of these statements are correct. 
A)  The use of debt in the capital structure results in tax benefits to the firm. 
B)  Debt is referred to as "financial leverage" because it magnifies returns to shareholders. 
C)  Debt management ratios evaluate whether a firm is financing its assets with a reasonable amount of debt versus equity financing. 
D)  All of these statements are correct. D

Question 2

To interpret financial ratios, managers, analysts, and investors use the follow type of benchmarks:

Accepted Answer

A)  competitive analysis 
B)  cross-industry analysis 
C)  time-industry analysis 
D)  time series analysis 
A)  competitive analysis 
B)  cross-industry analysis 
C)  time-industry analysis 
D)  time series analysis D

Question 3

Which ratio measures the operating return on the firm's assets irrespective of financial leverage and taxes?

Accepted Answer

A)  Basic earning power ratio 
B)  Profit margin 
C)  Return on Assets 
D)  Operating Leverage Return 
A)  Basic earning power ratio 
B)  Profit margin 
C)  Return on Assets 
D)  Operating Leverage Return A

Question 4

Market Value Ratios Tina's Track Supply's market-to-book ratio is currently 4.5 times and PE ratio is 10.5 times. If Tina's Track Supply's common stock is currently selling at $100 per share, what is the book value per share and earnings per share?

Accepted Answer

A)  $450, $1050, respectively 
B)  $1050, $450, respectively 
C)  $22.2222, $9.5238, respectively 
D)  $9.5238, $22.2222, respectively 
A)  $450, $1050, respectively 
B)  $1050, $450, respectively 
C)  $22.2222, $9.5238, respectively 
D)  $9.5238, $22.2222, respectively

Question 5

This measures the number of days accounts receivable are held before the firm collects cash from the sale.

Accepted Answer

A)  Accounts receivable turnover 
B)  Average collection period 
C)  Average payment period 
D)  Accounts payable turnover 
A)  Accounts receivable turnover 
B)  Average collection period 
C)  Average payment period 
D)  Accounts payable turnover

Question 6

This ratio measures the number of dollars of operating earnings available to meet each dollar of interest obligations on the firm's debt.

Accepted Answer

A)  Fixed charge coverage ratio 
B)  Times interest earned 
C)  Cash coverage ratio 
D)  ROA 
A)  Fixed charge coverage ratio 
B)  Times interest earned 
C)  Cash coverage ratio 
D)  ROA

Question 7

Debt Management Ratios Calculate the times interest earned ratio for Tierre's Ts, Inc. using the following information. Sales = $200,000, cost of goods sold = $50,000, depreciation expense = $13,000, addition to retained earnings = $70,000, dividends per share = $0.50, tax rate = 30%, and number of shares of common stock outstanding = 1,000. Tierre's Ts has no preferred stock outstanding.

Accepted Answer

A)  0.1814 
B)  0.4854 
C)  0.685 
D)  3.7756 
A)  0.1814 
B)  0.4854 
C)  0.685 
D)  3.7756

Question 8

Market Value Ratios Fancy Paws' year-end price on its common stock is $20. The firm has a profit margin of 12%, total assets of $20 million, a total asset turnover ratio of 0.5, no preferred stock, and there are 2 million shares of common stock outstanding. What is the PE ratio for Fancy Paws?

Accepted Answer

A)  3.33 
B)  8.33 
C)  10.00 
D)  33.33 
A)  3.33 
B)  8.33 
C)  10.00 
D)  33.33

Question 9

This is the maximum growth rate that can be achieved by financing asset growth with new debt and retained earnings.

Accepted Answer

A)  internal growth rate 
B)  retained earnings growth rate 
C)  sustainable growth rate 
D)  weighted growth rate 
A)  internal growth rate 
B)  retained earnings growth rate 
C)  sustainable growth rate 
D)  weighted growth rate

Question 10

Sustainable Growth Rate Last year Rain Repel Corporation had an ROE of 10% and a dividend payout ratio of 80%. What is the sustainable growth rate?

Accepted Answer

A)  1.11% 
B)  2.04% 
C)  44.44% 
D)  50.00% 
A)  1.11% 
B)  2.04% 
C)  44.44% 
D)  50.00%

Question 11

Which of the following statements is correct?

Accepted Answer

A)  If a firm has a very high fixed asset turnover, it means that the firm may be nearing its maximum production capacity. 
B)  An extremely low average collection period will maximize net income. 
C)  In general, a firm should strive for a high average payment period because it wants to pay for its purchases as quickly as possible. 
D)  All of these statements are correct. 
A)  If a firm has a very high fixed asset turnover, it means that the firm may be nearing its maximum production capacity. 
B)  An extremely low average collection period will maximize net income. 
C)  In general, a firm should strive for a high average payment period because it wants to pay for its purchases as quickly as possible. 
D)  All of these statements are correct.

Question 12

Liquidity and Asset Management Ratios Oasis Products, Inc. has current liabilities = $10 million, current ratio = 1.5 times, inventory turnover ratio = 12 times, average collection period = 20 days, and sales = $100 million. What is the value of their cash and marketable securities?

Accepted Answer

A)  $1,187,215 
B)  $8,333,333 
C)  $15,000,000 
D)  $17,146,188 
A)  $1,187,215 
B)  $8,333,333 
C)  $15,000,000 
D)  $17,146,188

Question 13

Which ratio measures the number of dollars of operating cash available to meet each dollar of interest and other fixed charges that the firm owes?

Accepted Answer

A)  Times interest earned 
B)  Fixed-charge coverage ratio 
C)  Cash coverage ratio 
D)  Operating coverage ratio 
A)  Times interest earned 
B)  Fixed-charge coverage ratio 
C)  Cash coverage ratio 
D)  Operating coverage ratio

Question 14

This ratio measures a firm's ability to pay short-term obligations with its available cash and market securities.

Accepted Answer

A)  cash 
B)  current 
C)  internal-growth 
D)  quick or acid test 
A)  cash 
B)  current 
C)  internal-growth 
D)  quick or acid test

Question 15

Debt Management Ratios You are considering a stock investment in one of two firms (LotsofDebt, Inc. and LotsofEquity, Inc.), both of which operate in the same industry. LotsofDebt, Inc. finances its $100 million in assets with $90 million in debt and $10 million in equity. LotsofEquity, Inc. finances its $100 million in assets with $10 million in debt and $90 million in equity. What are the debt ratio, equity multiplier, and debt-to-equity ratio for the two firms?

Accepted Answer

A)  LotsofDebt: 90%, 10 times, 9 times, respectively; and LotsofEquity: 10%, 1.11 times, .1111 times, respectively. 
B)  LotsofDebt: 10%, 1.11 times, .1111 times, respectively; and LotsofEquity: 90%, 10 times, 9 times, respectively. 
C)  LotsofDebt: 90%, 1.11 times, .1111 times, respectively; and LotsofEquity: 10%, 10 times, 9 times, respectively. 
D)  LotsofDebt: 10%, 10 times, 9 times, respectively; and LotsofEquity: 90%, 1.11 times, .1111 times, respectively. 
A)  LotsofDebt: 90%, 10 times, 9 times, respectively; and LotsofEquity: 10%, 1.11 times, .1111 times, respectively. 
B)  LotsofDebt: 10%, 1.11 times, .1111 times, respectively; and LotsofEquity: 90%, 10 times, 9 times, respectively. 
C)  LotsofDebt: 90%, 1.11 times, .1111 times, respectively; and LotsofEquity: 10%, 10 times, 9 times, respectively. 
D)  LotsofDebt: 10%, 10 times, 9 times, respectively; and LotsofEquity: 90%, 1.11 times, .1111 times, respectively.

Question 16

Which of the following statements is correct?

Accepted Answer

A)  Performing cross-sectional ratio analysis refers to assessing how a firm performed over a certain section of time. 
B)  Performing cross-sectional analysis is easy since industries are usually clustered with firms that are identical. 
C)  Time-series analysis is useless in assessing improvement or deterioration of ratios since the data is historical. 
D)  To interpret financial ratios, users should analyze the performance of the firm over time and the performance of the firm against one or more companies in the same industry. 
A)  Performing cross-sectional ratio analysis refers to assessing how a firm performed over a certain section of time. 
B)  Performing cross-sectional analysis is easy since industries are usually clustered with firms that are identical. 
C)  Time-series analysis is useless in assessing improvement or deterioration of ratios since the data is historical. 
D)  To interpret financial ratios, users should analyze the performance of the firm over time and the performance of the firm against one or more companies in the same industry.

Question 17

A firm reported an ROE of 19%. The firm's debt ratio was 45%, sales were $12 million, and the capital intensity ratio was 1.1 times. Calculate the net income for the firm.

Accepted Answer

A)  0.34 million 
B)  1.38 million 
C)  1.93 million 
D)  2.06 million 
A)  0.34 million 
B)  1.38 million 
C)  1.93 million 
D)  2.06 million

Question 18

Liquidity Ratios You have the following information on Marco's Polo Shop: total liabilities and equity = $205 million, current liabilities = $45 million, inventory = $60 million, and quick ratio = 2.4 times. Using this information, what is the balance for fixed assets on Marco Polo's balance sheet?

Accepted Answer

A)  $37 m 
B)  $97 m 
C)  $145 m 
D)  $157 m 
A)  $37 m 
B)  $97 m 
C)  $145 m 
D)  $157 m

Question 19

Which ratio assesses how efficiently a firm uses its fixed assets?

Accepted Answer

A)  Capital intensity ratio 
B)  Current ratio 
C)  Average collection period 
D)  Fixed asset turnover 
A)  Capital intensity ratio 
B)  Current ratio 
C)  Average collection period 
D)  Fixed asset turnover

Question 20

DuPont Analysis Last year Mocha Java, Inc. had an ROA of 10%, a profit margin of 5%, and sales of $25 million. What is Mocha Java's total assets?

Accepted Answer

A)  $0.125 m 
B)  $1.25 m 
C)  $12.5 m 
D)  $125 m 
A)  $0.125 m 
B)  $1.25 m 
C)  $12.5 m 
D)  $125 m

Which of the following statements is correct?

To interpret financial ratios, managers, analysts, and investors use the follow type of benchmarks:

Which ratio measures the operating return on the firm's assets irrespective of financial leverage and taxes?

Market Value Ratios Tina's Track Supply's market-to-book ratio is currently 4.5 times and PE ratio is 10.5 times. If Tina's Track Supply's common stock is currently selling at $100 per share, what is the book value per share and earnings per share?

This measures the number of days accounts receivable are held before the firm collects cash from the sale.

This ratio measures the number of dollars of operating earnings available to meet each dollar of interest obligations on the firm's debt.

Market Value Ratios Fancy Paws' year-end price on its common stock is $20. The firm has a profit margin of 12%, total assets of $20 million, a total asset turnover ratio of 0.5, no preferred stock, and there are 2 million shares of common stock outstanding. What is the PE ratio for Fancy Paws?

This is the maximum growth rate that can be achieved by financing asset growth with new debt and retained earnings.

Sustainable Growth Rate Last year Rain Repel Corporation had an ROE of 10% and a dividend payout ratio of 80%. What is the sustainable growth rate?

Which of the following statements is correct?

Liquidity and Asset Management Ratios Oasis Products, Inc. has current liabilities = $10 million, current ratio = 1.5 times, inventory turnover ratio = 12 times, average collection period = 20 days, and sales = $100 million. What is the value of their cash and marketable securities?

Which ratio measures the number of dollars of operating cash available to meet each dollar of interest and other fixed charges that the firm owes?

This ratio measures a firm's ability to pay short-term obligations with its available cash and market securities.

Which of the following statements is correct?

A firm reported an ROE of 19%. The firm's debt ratio was 45%, sales were $12 million, and the capital intensity ratio was 1.1 times. Calculate the net income for the firm.

Liquidity Ratios You have the following information on Marco's Polo Shop: total liabilities and equity = $205 million, current liabilities = $45 million, inventory = $60 million, and quick ratio = 2.4 times. Using this information, what is the balance for fixed assets on Marco Polo's balance sheet?

Which ratio assesses how efficiently a firm uses its fixed assets?

DuPont Analysis Last year Mocha Java, Inc. had an ROA of 10%, a profit margin of 5%, and sales of $25 million. What is Mocha Java's total assets?

Introduction to Financial Management

Reviewing Financial Statements

Time Value of Money 1: Analyzing Single Cash Flows

Time Value of Money 2: Analyzing Annuity Cash Flows

Understanding Financial Markets and Institutions

Valuing Bonds

Valuing Stocks

Characterizing Risk and Return

Estimating Risk and Return

Calculating the Cost of Capital

Estimating Cash Flows on Capital Budgeting Projects

Weighing Net Present Value and Other Capital Budgeting Criteria

Working Capital Management and Policies

Financial Planning and Forecasting

Assessing Long-Term Debt, Equity, and Capital Structure

Sharing Firm Wealth: Dividends, Share Repurchases, and Other Payouts

Issuing Capital and the Investment Banking Process

International Corporate Finance

Mergers and Acquisitions and Financial Distress

Filters

Exam 3: Analyzing Financial Statements

Which of the following statements is correct?

To interpret financial ratios, managers, analysts, and investors use the follow type of benchmarks:

Which ratio measures the operating return on the firm's assets irrespective of financial leverage and taxes?

Market Value Ratios Tina's Track Supply's market-to-book ratio is currently 4.5 times and PE ratio is 10.5 times. If Tina's Track Supply's common stock is currently selling at $100 per share, what is the book value per share and earnings per share?

This measures the number of days accounts receivable are held before the firm collects cash from the sale.

This ratio measures the number of dollars of operating earnings available to meet each dollar of interest obligations on the firm's debt.

Market Value Ratios Fancy Paws' year-end price on its common stock is $20. The firm has a profit margin of 12%, total assets of $20 million, a total asset turnover ratio of 0.5, no preferred stock, and there are 2 million shares of common stock outstanding. What is the PE ratio for Fancy Paws?

This is the maximum growth rate that can be achieved by financing asset growth with new debt and retained earnings.

Sustainable Growth Rate Last year Rain Repel Corporation had an ROE of 10% and a dividend payout ratio of 80%. What is the sustainable growth rate?

Which of the following statements is correct?

Liquidity and Asset Management Ratios Oasis Products, Inc. has current liabilities = $10 million, current ratio = 1.5 times, inventory turnover ratio = 12 times, average collection period = 20 days, and sales = $100 million. What is the value of their cash and marketable securities?

Which ratio measures the number of dollars of operating cash available to meet each dollar of interest and other fixed charges that the firm owes?

This ratio measures a firm's ability to pay short-term obligations with its available cash and market securities.

Which of the following statements is correct?

A firm reported an ROE of 19%. The firm's debt ratio was 45%, sales were $12 million, and the capital intensity ratio was 1.1 times. Calculate the net income for the firm.

Liquidity Ratios You have the following information on Marco's Polo Shop: total liabilities and equity = $205 million, current liabilities = $45 million, inventory = $60 million, and quick ratio = 2.4 times. Using this information, what is the balance for fixed assets on Marco Polo's balance sheet?

Which ratio assesses how efficiently a firm uses its fixed assets?

DuPont Analysis Last year Mocha Java, Inc. had an ROA of 10%, a profit margin of 5%, and sales of $25 million. What is Mocha Java's total assets?

Introduction to Financial Management

Reviewing Financial Statements

Time Value of Money 1: Analyzing Single Cash Flows

Time Value of Money 2: Analyzing Annuity Cash Flows

Understanding Financial Markets and Institutions

Valuing Bonds

Valuing Stocks

Characterizing Risk and Return

Estimating Risk and Return

Calculating the Cost of Capital

Estimating Cash Flows on Capital Budgeting Projects

Weighing Net Present Value and Other Capital Budgeting Criteria

Working Capital Management and Policies

Financial Planning and Forecasting

Assessing Long-Term Debt, Equity, and Capital Structure

Sharing Firm Wealth: Dividends, Share Repurchases, and Other Payouts

Issuing Capital and the Investment Banking Process

International Corporate Finance

Mergers and Acquisitions and Financial Distress

Filters