Question 1

__________ is a true statement.

Accepted Answer

A) During periods of inflation, LIFO makes the balance sheet less representative of the actual inventory values than if FIFO were used 
B) During periods of inflation, FIFO makes the balance sheet less representative of actual inventory values than if LIFO were used 
C) After inflation ends, distortion due to LIFO will disappear as inventory is sold 
D) During periods of inflation, LIFO overstates earnings relative to FIFO 
A) During periods of inflation, LIFO makes the balance sheet less representative of the actual inventory values than if FIFO were used 
B) During periods of inflation, FIFO makes the balance sheet less representative of actual inventory values than if LIFO were used 
C) After inflation ends, distortion due to LIFO will disappear as inventory is sold 
D) During periods of inflation, LIFO overstates earnings relative to FIFO

Question 2

The financial statements of Black Barn Company are given below.   Refer to the financial statements of Black Barn Company.The firm's quick ratio for 2009 is

Accepted Answer

A) 1.69. 
B) 1.52. 
C) 1.23. 
D) 1.07. 
E) 1.00. 
A) 1.69. 
B) 1.52. 
C) 1.23. 
D) 1.07. 
E) 1.00.

Question 3

The dollar value of a firm's return in excess of its opportunity costs is called its

Accepted Answer

A) profitability measure. 
B) excess return. 
C) economic value added. 
D) prospective capacity. 
E) return margin. 
A) profitability measure. 
B) excess return. 
C) economic value added. 
D) prospective capacity. 
E) return margin.

Question 4

A firm has an ROE of -2%, a debt/equity ratio of 1.0, a tax rate of 0%, and an interest rate on debt of 10%.The firm's ROA is

Accepted Answer

A) 2%. 
B) 4%. 
C) 6%. 
D) 8%. 
E) None of the options 
A) 2%. 
B) 4%. 
C) 6%. 
D) 8%. 
E) None of the options

Question 5

Assuming continued inflation, a firm that uses LIFO will tend to have a(n) ________current ratio than a firm using FIFO, and the difference will tend to __________ as time passes.

Accepted Answer

A) higher; increase 
B) higher; decrease 
C) lower; decrease 
D) lower; increase 
E) identical; remain the same 
A) higher; increase 
B) higher; decrease 
C) lower; decrease 
D) lower; increase 
E) identical; remain the same

Question 6

__________ best explains a ratio of sales/average net fixed assets that exceeds the industry average.

Accepted Answer

A) The firm expanded plant and equipment in the past few years 
B) The firm makes less efficient use of assets than competing firms 
C) The firm has a substantial amount of old plant and equipment 
D) The firm uses straight-line depreciation 
A) The firm expanded plant and equipment in the past few years 
B) The firm makes less efficient use of assets than competing firms 
C) The firm has a substantial amount of old plant and equipment 
D) The firm uses straight-line depreciation

Question 7

The financial statements of Snapit Company are given below.   Refer to the financial statements of Snapit Company.The firm's quick ratio for 2009 is

Accepted Answer

A) 1.68. 
B) 1.12. 
C) 0.72. 
D) 1.92. 
E) None of the options 
A) 1.68. 
B) 1.12. 
C) 0.72. 
D) 1.92. 
E) None of the options

Question 8

The financial statements of Midwest Tours are given below.   Refer to the financial statements of Midwest Tours.The firm's leverage ratio for 2009 is

Accepted Answer

A) 1.62. 
B) 1.56. 
C) 2.00. 
D) 2.42. 
E) 2.17. 
A) 1.62. 
B) 1.56. 
C) 2.00. 
D) 2.42. 
E) 2.17.

Question 9

The financial statements of Midwest Tours are given below.   Refer to the financial statements of Midwest Tours.The firm's average collection period for 2009 is

Accepted Answer

A) 69.35. 
B) 69.73. 
C) 68.53. 
D) 67.77. 
E) 68.52. 
A) 69.35. 
B) 69.73. 
C) 68.53. 
D) 67.77. 
E) 68.52.

Question 10

A firm has a (net profit/pretax profit) ratio of 0.6, a leverage ratio of 2, a (pretax profit/EBIT) of 0.6, an asset turnover ratio of 2.5, a current ratio of 1.5, and a return on sales ratio of 4%.The firm's ROE is

Accepted Answer

A) 4.2%. 
B) 5.2%. 
C) 6.2%. 
D) 7.2%. 
E) None of the options 
A) 4.2%. 
B) 5.2%. 
C) 6.2%. 
D) 7.2%. 
E) None of the options

Question 11

Ferris Corp.wants to increase its current ratio from the present level of 1.5 when it closes the books next week.The action of __________ will have the desired effect.

Accepted Answer

A) payment of current payables from cash 
B) sales of current marketable securities for cash 
C) write-down of impaired assets 
D) delay of next payroll 
E) None of the options 
A) payment of current payables from cash 
B) sales of current marketable securities for cash 
C) write-down of impaired assets 
D) delay of next payroll 
E) None of the options

Question 12

Which of the financial statements recognizes only transactions in which cash changes hands

Accepted Answer

A) Balance sheet 
B) Income statement 
C) Statement of cash flows 
D) Balance sheet and income statement 
E) All of the options 
A) Balance sheet 
B) Income statement 
C) Statement of cash flows 
D) Balance sheet and income statement 
E) All of the options

Question 13

If the interest rate on debt is higher than ROA, a firm will __________ by increasing the use of debt in the capital structure.

Accepted Answer

A) increase the ROE 
B) not change the ROE 
C) decrease the ROE 
D) change the ROE in an indeterminable manner 
A) increase the ROE 
B) not change the ROE 
C) decrease the ROE 
D) change the ROE in an indeterminable manner

Question 14

A firm has a lower asset turnover ratio than the industry average, which implies

Accepted Answer

A) the firm has a lower P/E ratio than other firms in the industry. 
B) the firm is less likely to avoid insolvency in the short run than other firms in the industry. 
C) the firm is less profitable than other firms in the industry. 
D) the firm is utilizing assets less efficiently than other firms in the industry. 
E) the firm has lower spending on new fixed assets than other firms in the industry. 
A) the firm has a lower P/E ratio than other firms in the industry. 
B) the firm is less likely to avoid insolvency in the short run than other firms in the industry. 
C) the firm is less profitable than other firms in the industry. 
D) the firm is utilizing assets less efficiently than other firms in the industry. 
E) the firm has lower spending on new fixed assets than other firms in the industry.

Question 15

The financial statements of Black Barn Company are given below.   Refer to the financial statements of Black Barn Company.The firm's fixed asset turnover ratio for 2009 is

Accepted Answer

A) 2.04. 
B) 2.58. 
C) 2.97. 
D) 1.58. 
E) None of the options 
A) 2.04. 
B) 2.58. 
C) 2.97. 
D) 1.58. 
E) None of the options

Question 16

The financial statements of Midwest Tours are given below.   Refer to the financial statements of Midwest Tours.The firm's P/E ratio for 2009 is

Accepted Answer

A) 4.74. 
B) 6.63. 
C) 5.21. 
D) 5.00. 
A) 4.74. 
B) 6.63. 
C) 5.21. 
D) 5.00.

Question 17

The financial statements of Snapit Company are given below.   Refer to the financial statements of Snapit Company.The firm's market to book value for 2009 is

Accepted Answer

A) 0.7256. 
B) 1.5294. 
C) 2.9400. 
D) 3.6142. 
A) 0.7256. 
B) 1.5294. 
C) 2.9400. 
D) 3.6142.

Question 18

Common size financial statements make it easier to compare firms

Accepted Answer

A) of different sizes. 
B) in different industries. 
C) with different degree of leverage. 
D) that use different inventory valuation methods (FIFO vs.LIFO). 
A) of different sizes. 
B) in different industries. 
C) with different degree of leverage. 
D) that use different inventory valuation methods (FIFO vs.LIFO).

Question 19

The financial statements of Midwest Tours are given below.   Refer to the financial statements of Midwest Tours.The firm's quick ratio for 2009 is

Accepted Answer

A) 1.71. 
B) 0.78. 
C) 0.85. 
D) 1.56. 
A) 1.71. 
B) 0.78. 
C) 0.85. 
D) 1.56.

Question 20

The financial statements of Black Barn Company are given below.   Refer to the financial statements of Black Barn Company.The firm's times interest earned ratio for 2009 is

Accepted Answer

A) 8.86. 
B) 7.17. 
C) 9.66. 
D) 6.86. 
E) None of the options 
A) 8.86. 
B) 7.17. 
C) 9.66. 
D) 6.86. 
E) None of the options

Exam 19: Financial Statement Analysis

__________ is a true statement.

The financial statements of Black Barn Company are given below. Refer to the financial statements of Black Barn Company.The firm's quick ratio for 2009 is

The dollar value of a firm's return in excess of its opportunity costs is called its

A firm has an ROE of -2%, a debt/equity ratio of 1.0, a tax rate of 0%, and an interest rate on debt of 10%.The firm's ROA is

Assuming continued inflation, a firm that uses LIFO will tend to have a(n) ________current ratio than a firm using FIFO, and the difference will tend to __________ as time passes.

__________ best explains a ratio of sales/average net fixed assets that exceeds the industry average.

The financial statements of Snapit Company are given below. Refer to the financial statements of Snapit Company.The firm's quick ratio for 2009 is

The financial statements of Midwest Tours are given below. Refer to the financial statements of Midwest Tours.The firm's leverage ratio for 2009 is

The financial statements of Midwest Tours are given below. Refer to the financial statements of Midwest Tours.The firm's average collection period for 2009 is

A firm has a (net profit/pretax profit) ratio of 0.6, a leverage ratio of 2, a (pretax profit/EBIT) of 0.6, an asset turnover ratio of 2.5, a current ratio of 1.5, and a return on sales ratio of 4%.The firm's ROE is

Ferris Corp.wants to increase its current ratio from the present level of 1.5 when it closes the books next week.The action of __________ will have the desired effect.

Which of the financial statements recognizes only transactions in which cash changes hands

If the interest rate on debt is higher than ROA, a firm will __________ by increasing the use of debt in the capital structure.

A firm has a lower asset turnover ratio than the industry average, which implies

The financial statements of Black Barn Company are given below. Refer to the financial statements of Black Barn Company.The firm's fixed asset turnover ratio for 2009 is

The financial statements of Midwest Tours are given below. Refer to the financial statements of Midwest Tours.The firm's P/E ratio for 2009 is

The financial statements of Snapit Company are given below. Refer to the financial statements of Snapit Company.The firm's market to book value for 2009 is

Common size financial statements make it easier to compare firms

The financial statements of Midwest Tours are given below. Refer to the financial statements of Midwest Tours.The firm's quick ratio for 2009 is

The financial statements of Black Barn Company are given below. Refer to the financial statements of Black Barn Company.The firm's times interest earned ratio for 2009 is

The Investment Environment

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Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

Capital Allocation to Risky Assets

Optimal Risky Portfolios

Index Models

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The Term Structure of Interest Rates

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Macroeconomic and Industry Analysis

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Options Markets: Introduction

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Portfolio Performance Evaluation

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Assuming continued inflation, a firm that uses LIFO will tend to have a(n) current ratio than a firm using FIFO, and the difference will tend to __ as time passes.