Question 1

The net working capital to total assets ratio is always a larger number than the current ratio.

Accepted Answer

A) True 
 B)False

Question 2

Instead of increasing its long-term debt by borrowing money to purchase new stereo equipment,Jay's Jams Inc.decides to lease the equipment.How does this affect its long-term debt ratio?

Accepted Answer

A)  It will decrease. 
B)  It will increase. 
C)  It will remain unchanged. 
D)  The effects are unknown without the amount of the lease obligation. 
A)  It will decrease. 
B)  It will increase. 
C)  It will remain unchanged. 
D)  The effects are unknown without the amount of the lease obligation.

Question 3

When a firm's debt-equity ratio is 1.0,the firm:

Accepted Answer

A)  has too much long-term debt in relation to leases. 
B)  has less long-term debt than equity. 
C)  is nearing insolvency. 
D)  has as much in long-term liabilities as in equity. 
A)  has too much long-term debt in relation to leases. 
B)  has less long-term debt than equity. 
C)  is nearing insolvency. 
D)  has as much in long-term liabilities as in equity.

Question 4

A firm's net profit margin when ignoring the effects of financing is 20% with an EBIT of $1.5 million and sales of $5 million.How much did the firm pay in taxes?

Accepted Answer

A)  $50,000 
B)  $300,000 
C)  $350,000 
D)  $500,000 
A)  $50,000 
B)  $300,000 
C)  $350,000 
D)  $500,000

Question 5

An asset's liquidity measures its:

Accepted Answer

A)  potential for generating a profit. 
B)  cash requirements. 
C)  ease and cost of being converted to cash. 
D)  proportion of debt financing. 
A)  potential for generating a profit. 
B)  cash requirements. 
C)  ease and cost of being converted to cash. 
D)  proportion of debt financing.

Question 6

A firm with no leases has a long-term debt ratio of 50%.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 7

If a firm's average collection period is 42 days,and this compares favorably 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 8

A healthy current ratio and an unhealthy quick ratio may be caused by excess inventory.

Accepted Answer

A) True 
 B)False

Question 9

How much will Gamma Inc.'s equityholders earn given the following information: total asset turnover is 0.85,profit margin is 0.15,and debt-equity ratio is 0.25?

Accepted Answer

A)  9.56% 
B)  15.94% 
C)  16.96% 
D)  38.25% 
A)  9.56% 
B)  15.94% 
C)  16.96% 
D)  38.25%

Question 10

If a firm's cash coverage ratio is greater than its times interest earned ratio,then:

Accepted Answer

A)  the firm's assets are not fully depreciated. 
B)  the firm has no lease obligations. 
C)  the firm has very little long-term debt. 
D)  the firm has a high degree of liquidity. 
A)  the firm's assets are not fully depreciated. 
B)  the firm has no lease obligations. 
C)  the firm has very little long-term debt. 
D)  the firm has a high degree of liquidity.

Question 11

If a company uses cash to pay off some of its accounts payables,what effect will this have on its liquidity ratios,given that the ratios exceeded 1.0 before the payoff?

Accepted Answer

A)  The quick ratio and current ratio will both increase. 
B)  The quick ratio and current ratio will both decrease. 
C)  The quick ratio will increase but the current ratio will remain unchanged. 
D)  The current ratio will increase but the quick ratio will remain unchanged. 
A)  The quick ratio and current ratio will both increase. 
B)  The quick ratio and current ratio will both decrease. 
C)  The quick ratio will increase but the current ratio will remain unchanged. 
D)  The current ratio will increase but the quick ratio will remain unchanged.

Question 12

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 13

Which of the following choices would be guaranteed to increase a firm's ROE if the ROA is currently 10% and the leverage ratio equals 1.0?

Accepted Answer

A)  Decrease the leverage ratio 
B)  Increase the debt burden from its current level 
C)  Decrease assets from the current level 
D)  Decrease the debt burden from its current level 
A)  Decrease the leverage ratio 
B)  Increase the debt burden from its current level 
C)  Decrease assets from the current level 
D)  Decrease the debt burden from its current level

Question 14

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 are valued at 400. 
B)  current assets that are valued at 400. 
C)  retained earnings that are valued at 900. 
D)  preferred stock of 400. 
A)  current liabilities that are valued at 400. 
B)  current assets that are valued at 400. 
C)  retained earnings that are valued at 900. 
D)  preferred stock of 400.

Question 15

A firm's after-tax operating income was $1,000,000 in 2010.It started the year with a total capitalization of $8,000,000 and ended 2010 with a total capitalization of $9,000,000.If the capital raised in 2010 did not contribute significantly to 2010's operating income,which of the following best represents the firm's return on capital in 2010?

Accepted Answer

A)  12.5% 
B)  11.8% 
C)  11.1% 
D)  10.0% 
A)  12.5% 
B)  11.8% 
C)  11.1% 
D)  10.0%

Question 16

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 17

Which of the following is correct?

Accepted Answer

A)  Market value added measures the difference between the market value of the firm's equity and its book value. 
B)  Residual income is also called economic value added. 
C)  EVA measures the net profit of a firm or division after deducting the cost of the capital employed. 
D)  All of these. 
A)  Market value added measures the difference between the market value of the firm's equity and its book value. 
B)  Residual income is also called economic value added. 
C)  EVA measures the net profit of a firm or division after deducting the cost of the capital employed. 
D)  All of these.

Question 18

A company with bond debt of 80,lease obligations of 20,total assets of 1,000,and total liabilities of 350 has a:

Accepted Answer

A)  total debt ratio of approximately .10. 
B)  total debt ratio of approximately .23. 
C)  long-term debt ratio of approximately .15. 
D)  debt-to-equity ratio of approximately .15. 
A)  total debt ratio of approximately .10. 
B)  total debt ratio of approximately .23. 
C)  long-term debt ratio of approximately .15. 
D)  debt-to-equity ratio of approximately .15.

Question 19

Net working capital is determined from the difference between current assets and current liabilities.

Accepted Answer

A) True 
 B)False

Question 20

Sappy Syrup's ROA equals the industry average,but its ROE exceeds the industry average.How is this possible?

Accepted Answer

If ROA equals the industry ave

Exam 4: Measuring Corporate Performance

The net working capital to total assets ratio is always a larger number than the current ratio.

Instead of increasing its long-term debt by borrowing money to purchase new stereo equipment,Jay's Jams Inc.decides to lease the equipment.How does this affect its long-term debt ratio?

When a firm's debt-equity ratio is 1.0,the firm:

A firm's net profit margin when ignoring the effects of financing is 20% with an EBIT of $1.5 million and sales of $5 million.How much did the firm pay in taxes?

An asset's liquidity measures its:

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

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

A healthy current ratio and an unhealthy quick ratio may be caused by excess inventory.

How much will Gamma Inc.'s equityholders earn given the following information: total asset turnover is 0.85,profit margin is 0.15,and debt-equity ratio is 0.25?

If a firm's cash coverage ratio is greater than its times interest earned ratio,then:

If a company uses cash to pay off some of its accounts payables,what effect will this have on its liquidity ratios,given that the ratios exceeded 1.0 before the payoff?

Efficiency ratios:

Which of the following choices would be guaranteed to increase a firm's ROE if the ROA is currently 10% and the leverage ratio equals 1.0?

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:

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?

Which of the following is correct?

A company with bond debt of 80,lease obligations of 20,total assets of 1,000,and total liabilities of 350 has a:

Net working capital is determined from the difference between current assets and current liabilities.

Sappy Syrup's ROA equals the industry average,but its ROE exceeds the industry average.How is this possible?

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

Risk, Return, and Capital Budgeting

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

Filters