Question 1

The net working capital of a firm will decrease when accrued wages are paid with cash.

Accepted Answer

A) True 
 B)False

Question 2

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.

Question 3

Which one of the following statements is most likely correct for a firm with an average collection period of 90 days?

Accepted Answer

A)  Its average daily sales are low. 
B)  Its average daily sales are high. 
C)  Its current ratio will be high. 
D) It is providing financing for approximately 25% of its annual sales. 
A)  Its average daily sales are low. 
B)  Its average daily sales are high. 
C)  Its current ratio will be high. 
D) It is providing financing for approximately 25% of its annual sales.

Question 4

Calculate the average collection period for Dots Inc. if its accounts receivables were $550 at the beginning of a year in which the firm generated $3,000 of sales?

Accepted Answer

A)  60 days 
B)  61 days 
C)  67 days 
D) 73 days 
A)  60 days 
B)  61 days 
C)  67 days 
D) 73 days

Question 5

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 6

EVA is the net profit of the firm adjusted for the cost of capital.

Accepted Answer

A) True 
 B)False

Question 7

After calculating a firm's financial ratios, in what manner might they be analyzed to assess the firm's performance?

Accepted Answer

In the primary analysis, it would be inf

Question 8

Which one of these changes indicates an improvement in a firm's asset management efficiency?

Accepted Answer

A)  An increase in the amount of assets per dollar of sales 
B)  An increase in the inventory turnover rate 
C)  A decrease in the receivables turnover rate 
D) An increase in the average days in inventory 
A)  An increase in the amount of assets per dollar of sales 
B)  An increase in the inventory turnover rate 
C)  A decrease in the receivables turnover rate 
D) An increase in the average days in inventory

Question 9

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

Accepted Answer

A)  $100,000 
B)  $140,000 
C)  $240,000 
D) $500,000 
A)  $100,000 
B)  $140,000 
C)  $240,000 
D) $500,000

Question 10

TSI Inc. has enough liquid assets to finance its operations for 67 days and cash, marketable securities, and receivables totaling $1,000. TSI's average daily expenditures from operations are:

Accepted Answer

A)  $6.70. 
B)  $8.23. 
C)  $14.93. 
D) $22.28. 
A)  $6.70. 
B)  $8.23. 
C)  $14.93. 
D) $22.28.

Question 11

The only measure of firm performance that accounts for cost of capital is:

Accepted Answer

A)  ROC. 
B)  ROA. 
C)  ROE. 
D) EVA. 
A)  ROC. 
B)  ROA. 
C)  ROE. 
D) EVA.

Question 12

Net working capital to total assets and current ratio are both liquidity ratios.

Accepted Answer

A) True 
 B)False

Question 13

What are the annual sales for a firm with $400,000 in debt, a total debt ratio of .4, and an asset turnover of 3?

Accepted Answer

A)  $333,333 
B)  $1,200,000 
C)  $1,800,000 
D) $3,000,000 
A)  $333,333 
B)  $1,200,000 
C)  $1,800,000 
D) $3,000,000

Question 14

Sappy Syrup has a profit margin below the industry average, but its ROA equals the industry average. How is this possible?

Accepted Answer

The firm must compensate for i

Question 15

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

Accepted Answer

Last year:
ROE = profit margin × asset t

Question 16

In each of the following cases, explain briefly which of the two companies is likely to be characterized by the higher ratio.
a. Debt-equity ratio: an electronics store or a tour operator
b. Payout ratio: BigBookstore or HomeRobots
c. Ratio of sales to assets: a restaurant or a car rental company
d. Average collection period: The Power Company or Joe's FastFood

Accepted Answer

a. The electronics store, which has more

Question 17

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 18

A retail store with zero net working capital has:

Accepted Answer

A)  no cash or marketable securities. 
B)  insufficient inventory. 
C)  no current debt. 
D) a quick ratio that is less than 1. 
A)  no cash or marketable securities. 
B)  insufficient inventory. 
C)  no current debt. 
D) a quick ratio that is less than 1.

Question 19

A deficiency of the standard measures of liquidity is that the measures:

Accepted Answer

A)  ignore a firm's reserve borrowing capacity. 
B)  fail to include accounts receivable as an asset. 
C)  give inventories equal weighting in the quick ratio. 
D) do not include the current portions of long-term debt. 
A)  ignore a firm's reserve borrowing capacity. 
B)  fail to include accounts receivable as an asset. 
C)  give inventories equal weighting in the quick ratio. 
D) do not include the current portions of long-term debt.

Question 20

What may make simple comparisons of financial ratios misleading?

Accepted Answer

Generally Accepted Accounting Principles

Exam 4: Measuring Corporate Performance

The net working capital of a firm will decrease when accrued wages are paid with cash.

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

Which one of the following statements is most likely correct for a firm with an average collection period of 90 days?

Calculate the average collection period for Dots Inc. if its accounts receivables were $550 at the beginning of a year in which the firm generated $3,000 of sales?

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

EVA is the net profit of the firm adjusted for the cost of capital.

After calculating a firm's financial ratios, in what manner might they be analyzed to assess the firm's performance?

Which one of these changes indicates an improvement in a firm's asset management efficiency?

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

TSI Inc. has enough liquid assets to finance its operations for 67 days and cash, marketable securities, and receivables totaling $1,000. TSI's average daily expenditures from operations are:

The only measure of firm performance that accounts for cost of capital is:

Net working capital to total assets and current ratio are both liquidity ratios.

What are the annual sales for a firm with $400,000 in debt, a total debt ratio of .4, and an asset turnover of 3?

Sappy Syrup has a profit margin below the industry average, but its ROA equals the industry average. How is this possible?

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

Lease obligations are included in certain leverage ratios because leases:

A retail store with zero net working capital has:

A deficiency of the standard measures of liquidity is that the measures:

What may make simple comparisons of financial ratios misleading?

Goals and Governance of the Corporation

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

How Corporations Raise Venture Capital and Issue Securities

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

Filters