Question 1

If Dotte's Doors Corporation merges with its supplier,Wally's Wood,its profit margin will:

Accepted Answer

A)  most likely decrease. 
B)  most likely increase and continue to increase in the future. 
C)  most likely increase but be offset by an increase in the turnover ratio. 
D)  most likely increase but be offset by a decrease in the turnover ratio. 
A)  most likely decrease. 
B)  most likely increase and continue to increase in the future. 
C)  most likely increase but be offset by an increase in the turnover ratio. 
D)  most likely increase but be offset by a decrease in the turnover ratio.

Question 2

By how much must a firm reduce its assets in order to improve ROA from 10% to 12% if the firm's profit margin is 5% on sales of $4 million?

Accepted Answer

A)  $240,000 
B)  $333,333 
C)  $400,000 
D)  $516,167 
A)  $240,000 
B)  $333,333 
C)  $400,000 
D)  $516,167

Question 3

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 t

Question 4

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 5

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 a measure of efficiency, just like debt. 
A)  require the payment of interest. 
B)  represent long-term fixed obligations. 
C)  must be financed through a bank. 
D)  are a measure of efficiency, just like debt.

Question 6

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 7

What is the ROE for a firm with times interest earned ratio of 2,a tax liability of $1 million,and interest expense of $1.5 million if equity equals $1.5 million?

Accepted Answer

A)  -33.33% 
B)  30.00% 
C)  33.33% 
D)  50.00% 
A)  -33.33% 
B)  30.00% 
C)  33.33% 
D)  50.00%

Question 8

The difference between the current and quick ratios is that inventory has been subtracted from current assets.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is not necessarily true for a firm with a payout ratio of .15 and ROE of 20%?

Accepted Answer

A)  It reinvests 85% of its earnings back into the firm. 
B)  The firm's retained earnings will increase the book value of equity by 17%. 
C)  It pays a dividend of 15 cents per share. 
D)  The firm's earnings and equity will grow by 17% per year. 
A)  It reinvests 85% of its earnings back into the firm. 
B)  The firm's retained earnings will increase the book value of equity by 17%. 
C)  It pays a dividend of 15 cents per share. 
D)  The firm's earnings and equity will grow by 17% per year.

Question 10

Market value added is the difference between the market value of the firm's equity and its book value.

Accepted Answer

A) True 
 B)False

Question 11

Last year's asset turnover ratio was 2.0.Sales have increased by 25% and average total assets have increased by 10% since that time.What is the current asset turnover ratio?

Accepted Answer

A)  1.82 
B)  2.05 
C)  2.15 
D)  2.27 
A)  1.82 
B)  2.05 
C)  2.15 
D)  2.27

Question 12

The reduction in value over time of intangible assets is known as amortization.

Accepted Answer

A) True 
 B)False

Question 13

A firm has sales of $5 million,average total assets of $1.6 million,average fixed assets of $1 million,and average current liabilities of $300,000.Given this information,answer the following about the firm's efficiency:
a.Calculate asset turnover,fixed asset turnover,and NWC turnover ratios.
b.Can the fixed asset turnover be considered appropriate and yet the total asset turnover be considered low by industry standards? How?
c.What in general might improve NWC turnover?

Accepted Answer

a. @#IMG-DLM& b.This can occur if the average leve

Question 14

Compared to accounting profits,why is EVA a better measure of a company's performance? What might happen to a manager if his or her plant earns a negative EVA?

Accepted Answer

Accounting profits are calculated after

Question 15

What is the approximate total debt ratio for a firm with a total debt to equity ratio of .65?

Accepted Answer

A)  35% 
B)  39% 
C)  54% 
D)  65% 
A)  35% 
B)  39% 
C)  54% 
D)  65%

Question 16

Net Corp.has an ROE of 30% and would like to see earnings grow at a 18% annual rate.What percentage of earnings can it afford to pay out as dividends?

Accepted Answer

A)  13.33% 
B)  25.00% 
C)  40.00% 
D)  75.00% 
A)  13.33% 
B)  25.00% 
C)  40.00% 
D)  75.00%

Question 17

What is the book value per share for a firm with 2 million shares outstanding at a price of $50,a market-to-book ratio of .75,and a dividend payout ratio of 50%?

Accepted Answer

A)  $33.33 
B)  $37.50 
C)  $62.50 
D)  $66.67 
A)  $33.33 
B)  $37.50 
C)  $62.50 
D)  $66.67

Question 18

An asset turnover ratio of 1.75 can be interpreted as:

Accepted Answer

A)  $1.75 in sales are generated for every $1.00 of assets. 
B)  $1.75 in additional assets are generated for every $1.00 of sales. 
C)  $1.75 in assets are used to generate $1.00 of sales. 
D)  $1.00 in sales are used to generate $1.75 in assets. 
A)  $1.75 in sales are generated for every $1.00 of assets. 
B)  $1.75 in additional assets are generated for every $1.00 of sales. 
C)  $1.75 in assets are used to generate $1.00 of sales. 
D)  $1.00 in sales are used to generate $1.75 in assets.

Question 19

Given that a company has a healthy current ratio but a significantly lower quick ratio,which of the following may not be true?

Accepted Answer

A)  The company may have an inventory problem. 
B)  The numerator of the quick ratio includes cash, marketable securities, and receivables. 
C)  The quick ratio is always smaller than the current ratio. 
D)  The company is rich in cash and receivables. 
A)  The company may have an inventory problem. 
B)  The numerator of the quick ratio includes cash, marketable securities, and receivables. 
C)  The quick ratio is always smaller than the current ratio. 
D)  The company is rich in cash and receivables.

Question 20

Last year's return on equity was 30%.This year the ROE has decreased to 20%,while the same amount of earnings was generated this year.The firm has no preferred stock.What caused the decrease?

Accepted Answer

A)  Equity decreased by 10%. 
B)  Equity decreased by 50%. 
C)  Equity increased by 10%. 
D)  Equity increased by 50%. 
A)  Equity decreased by 10%. 
B)  Equity decreased by 50%. 
C)  Equity increased by 10%. 
D)  Equity increased by 50%.

Exam 4: Measuring Corporate Performance

If Dotte's Doors Corporation merges with its supplier,Wally's Wood,its profit margin will:

By how much must a firm reduce its assets in order to improve ROA from 10% to 12% if the firm's profit margin is 5% on sales of $4 million?

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:

Lease obligations are included in certain leverage ratios because leases:

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

What is the ROE for a firm with times interest earned ratio of 2,a tax liability of $1 million,and interest expense of $1.5 million if equity equals $1.5 million?

The difference between the current and quick ratios is that inventory has been subtracted from current assets.

Which of the following is not necessarily true for a firm with a payout ratio of .15 and ROE of 20%?

Market value added is the difference between the market value of the firm's equity and its book value.

Last year's asset turnover ratio was 2.0.Sales have increased by 25% and average total assets have increased by 10% since that time.What is the current asset turnover ratio?

The reduction in value over time of intangible assets is known as amortization.

Compared to accounting profits,why is EVA a better measure of a company's performance? What might happen to a manager if his or her plant earns a negative EVA?

What is the approximate total debt ratio for a firm with a total debt to equity ratio of .65?

Net Corp.has an ROE of 30% and would like to see earnings grow at a 18% annual rate.What percentage of earnings can it afford to pay out as dividends?

What is the book value per share for a firm with 2 million shares outstanding at a price of $50,a market-to-book ratio of .75,and a dividend payout ratio of 50%?

An asset turnover ratio of 1.75 can be interpreted as:

Given that a company has a healthy current ratio but a significantly lower quick ratio,which of the following may not be true?

Last year's return on equity was 30%.This year the ROE has decreased to 20%,while the same amount of earnings was generated this year.The firm has no preferred stock.What caused the decrease?

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

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