Question 1

What are the standard measures of a firm's leverage,liquidity,efficiency,and profitability? What is the significance of each of these measures?

Accepted Answer

If you are analyzing a company's financi

Question 2

What is primarily responsible for the potential distortion among the ROA of different firms when net income is used in the numerator of ROA?

Accepted Answer

A)  Firms have different dividend payout ratios. 
B)  Some firms use fully depreciated assets. 
C)  Financial leverage varies among firms. 
D)  Unprofitable firms will not have tax liability. 
A)  Firms have different dividend payout ratios. 
B)  Some firms use fully depreciated assets. 
C)  Financial leverage varies among firms. 
D)  Unprofitable firms will not have tax liability.

Question 3

The current ratio is a good proxy for a firm's:

Accepted Answer

A)  liquidity. 
B)  efficiency. 
C)  leverage. 
D)  profitability. 
A)  liquidity. 
B)  efficiency. 
C)  leverage. 
D)  profitability.

Question 4

Return on assets is always a larger number than the return on equity.

Accepted Answer

A) True 
 B)False

Question 5

An example of liquid assets would be:

Accepted Answer

A)  buildings. 
B)  company cars. 
C)  finished goods. 
D)  fixed assets. 
A)  buildings. 
B)  company cars. 
C)  finished goods. 
D)  fixed assets.

Question 6

Increasing leverage will always act to increase a firm's ROE.

Accepted Answer

A) True 
 B)False

Question 7

Calculate the average collection period for Dotte Inc.if its accounts receivables were $500 and $600 at the end of each of the last two years,and its revenue over the last year was $3,000.

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 8

When Tri-C Corp.compares its ratios to industry averages,it has a higher current ratio,an average quick ratio,and a low inventory turnover.What might you assume about Tri-C?

Accepted Answer

A)  Its cash balance is too low. 
B)  Its cost of goods sold is too low. 
C)  Its current liabilities are too low. 
D)  Its average inventory is too high. 
A)  Its cash balance is too low. 
B)  Its cost of goods sold is too low. 
C)  Its current liabilities are too low. 
D)  Its average inventory is too high.

Question 9

Which of the following will increase a firm's times interest earned ratio?

Accepted Answer

A)  An increase in debt 
B)  A decrease in cost of goods sold 
C)  An increase in interest expense 
D)  A decrease in net income 
A)  An increase in debt 
B)  A decrease in cost of goods sold 
C)  An increase in interest expense 
D)  A decrease in net income

Question 10

What is the ROA of a firm with $150,000 in average receivables,which represents 60 days sales,average assets of $750,000,and a profit margin of 9%?

Accepted Answer

A)  7.50% 
B)  9.00% 
C)  10.95% 
D)  16.70% 
A)  7.50% 
B)  9.00% 
C)  10.95% 
D)  16.70%

Question 11

A corporation declares $25 million in net income,$1 million in preferred stock dividends,and $7 million in common stock dividends.By how much will shareholders' equity increase on the balance sheet?

Accepted Answer

A)  $17 million 
B)  $18 million 
C)  $19 million 
D)  $25 million 
A)  $17 million 
B)  $18 million 
C)  $19 million 
D)  $25 million

Question 12

A firm reports an ROE of 14%,a leverage ratio of 1.5,an asset turnover of 1.667,and a profit margin of 9%.Calculate the firm's ROA and then comment on the ROA in relation to ROE.What is happening?

Accepted Answer

ROA = profit margin * asset turnover = .

Question 13

The sum of the payout ratio and the plowback ratio will always equal 1.0.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following would likely be most detrimental to a firm's current ratio if that ratio is currently 2.0?

Accepted Answer

A)  Buy raw materials on credit. 
B)  Sell marketable securities at cost. 
C)  Pay off accounts payable with cash. 
D)  Pay off a portion of long-term debt with cash. 
A)  Buy raw materials on credit. 
B)  Sell marketable securities at cost. 
C)  Pay off accounts payable with cash. 
D)  Pay off a portion of long-term debt with cash.

Question 15

XYZ Corp.has improved its average collection period from 55 to 40 days.Which one of XYZ's other ratios may appear worse as a result of the improved receivables collection?

Accepted Answer

A)  Inventory turnover 
B)  Quick ratio 
C)  Net profit margin 
D)  Return on equity 
A)  Inventory turnover 
B)  Quick ratio 
C)  Net profit margin 
D)  Return on equity

Question 16

What is the market price of a share of stock for a firm with 100,000 shares outstanding,a book value of equity of $3,000,000,and a market/book ratio of 3.0?

Accepted Answer

A)  $8.57 
B)  $30.00 
C)  $90.00 
D)  $105.00 
A)  $8.57 
B)  $30.00 
C)  $90.00 
D)  $105.00

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

A company has announced $50,000 in net income after paying taxes of $26,000 and interest of $20,000.It intends to pay $17,000 of net income as dividends.Its assets have averaged $600,000 over the past year,during which its total debt ratio has averaged 40%.Given this information,answer the following about the company's profitability:
a.Calculate the ROA and ROE.
b.Calculate the payout and plowback ratios.
c.What effect will the plowback have on the company's growth in equity?

Accepted Answer

a. @#IMG-DLM& 
b. @#IMG-DLM& c.growth in

Question 19

The higher the times interest earned ratio,the higher the interest expense.

Accepted Answer

A) True 
 B)False

Question 20

TuPont Corp.has net income of $1.95 million,an effective tax rate of 35%,interest expense of $400,000,an asset turnover of 2.0,and $14 million in total assets,of which $7 million is debt.Use the Du Pont system to calculate its ROE,decomposed into leverage ratio,asset turnover,profit margin,and debt burden.

Accepted Answer

The answer of TuPont Corp.has net income of $1.95 million,an...

Exam 4: Measuring Corporate Performance

What are the standard measures of a firm's leverage,liquidity,efficiency,and profitability? What is the significance of each of these measures?

What is primarily responsible for the potential distortion among the ROA of different firms when net income is used in the numerator of ROA?

The current ratio is a good proxy for a firm's:

Return on assets is always a larger number than the return on equity.

An example of liquid assets would be:

Increasing leverage will always act to increase a firm's ROE.

Calculate the average collection period for Dotte Inc.if its accounts receivables were $500 and $600 at the end of each of the last two years,and its revenue over the last year was $3,000.

When Tri-C Corp.compares its ratios to industry averages,it has a higher current ratio,an average quick ratio,and a low inventory turnover.What might you assume about Tri-C?

Which of the following will increase a firm's times interest earned ratio?

What is the ROA of a firm with $150,000 in average receivables,which represents 60 days sales,average assets of $750,000,and a profit margin of 9%?

A corporation declares $25 million in net income,$1 million in preferred stock dividends,and $7 million in common stock dividends.By how much will shareholders' equity increase on the balance sheet?

A firm reports an ROE of 14%,a leverage ratio of 1.5,an asset turnover of 1.667,and a profit margin of 9%.Calculate the firm's ROA and then comment on the ROA in relation to ROE.What is happening?

The sum of the payout ratio and the plowback ratio will always equal 1.0.

Which of the following would likely be most detrimental to a firm's current ratio if that ratio is currently 2.0?

XYZ Corp.has improved its average collection period from 55 to 40 days.Which one of XYZ's other ratios may appear worse as a result of the improved receivables collection?

What is the market price of a share of stock for a firm with 100,000 shares outstanding,a book value of equity of $3,000,000,and a market/book ratio of 3.0?

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

The higher the times interest earned ratio,the higher the interest expense.

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