Question 1

Which of the following refers to the amount of debt versus equity a firm has on its balance sheet?

Accepted Answer

A) capital coverage 
B) capital structure 
C) debt structure 
D) financial structure 
A) capital coverage 
B) capital structure 
C) debt structure 
D) financial structure B

Question 2

Which of these can be used by interested parties to identify changes in corporate performance?

Accepted Answer

A) common-size financial statements 
B) industrialized financial statements 
C) sanitized financial statements 
A) common-size financial statements 
B) industrialized financial statements 
C) sanitized financial statements A

Question 3

Which of the following statements is not correct regarding accounts payable management and average payment period (APP)?

Accepted Answer

A) A firm wants to pay for its purchases as slowly as possible. 
B) The faster the firm pays for its supply purchases, the longer it can avoid financing such as notes payable or long-term debt. 
C) A high APP is generally a sign of good management. 
D) An extremely high APP could be a sign of bad firm management. 
A) A firm wants to pay for its purchases as slowly as possible. 
B) The faster the firm pays for its supply purchases, the longer it can avoid financing such as notes payable or long-term debt. 
C) A high APP is generally a sign of good management. 
D) An extremely high APP could be a sign of bad firm management. B

Question 4

A firm has EBIT of $400,000 and depreciation expense of $20,000. Fixed charges total $50,000. Interest expense totals $7,000. What is the firm's cash coverage ratio?

Accepted Answer

A) 7.60 times 
B) 8.00 times 
C) 8.40 times 
D) 8.54 times 
A) 7.60 times 
B) 8.00 times 
C) 8.40 times 
D) 8.54 times

Question 5

Which of the following is NOT one of the cautions in using ratios to evaluate firm performance?

Accepted Answer

A) The firm has seasonal cash flow differences. 
B) The firm has different accounting procedures. 
C) The firm has a different capital structure. 
D) The firm had a one-time event. 
A) The firm has seasonal cash flow differences. 
B) The firm has different accounting procedures. 
C) The firm has a different capital structure. 
D) The firm had a one-time event.

Question 6

You are evaluating the balance sheet for Blue Jays Corporation. From the balance sheet you find the following balances: cash and marketable securities = $200,000, accounts receivable = $800,000, inventory = $1,000,000, accrued wages and taxes = $250,000, accounts payable = $400,000, and notes payable = $300,000. What are Blue Jays' current ratio, quick ratio, and cash ratio, respectively?

Accepted Answer

A) 1.05263, 1.05263, 0.21053 
B) 2.10526, 1.05263, 0.21053 
C) 3.07692, 1.53846, 0.30769 
D) 3.07692, 1.05263, 0.30769 
A) 1.05263, 1.05263, 0.21053 
B) 2.10526, 1.05263, 0.21053 
C) 3.07692, 1.53846, 0.30769 
D) 3.07692, 1.05263, 0.30769

Question 7

A firm has EBIT of $400,000 and depreciation expense of $20,000. Fixed charges total $50,000. Interest expense totals $7,000. What is the firm's fixed-charge coverage ratio?

Accepted Answer

A) 7.60 times 
B) 8.00 times 
C) 8.40 times 
D) 8.54 times 
A) 7.60 times 
B) 8.00 times 
C) 8.40 times 
D) 8.54 times

Question 8

Oasis Products, Inc. has current liabilities = $10 million, current ratio = 1.5 times, inventory turnover ratio = 12 times, average collection period = 20 days, and sales = $100 million. What is the value of their cash and marketable securities?

Accepted Answer

A) $1,187,215 
B) $8,333,333 
C) $15,000,000 
D) $17,146,188 
A) $1,187,215 
B) $8,333,333 
C) $15,000,000 
D) $17,146,188

Question 9

Which of the following statements is true about return on equity (ROE)?

Accepted Answer

A) It measures the return on common stockholders' investment in the assets of the firm. 
B) The value of the firm's ROE is affected by net income. 
C) The value of the firm's ROE is affected by the amount of financial leverage or debt that the firm uses. 
D) All of these choices are correct. 
A) It measures the return on common stockholders' investment in the assets of the firm. 
B) The value of the firm's ROE is affected by net income. 
C) The value of the firm's ROE is affected by the amount of financial leverage or debt that the firm uses. 
D) All of these choices are correct.

Question 10

The maximum growth rate that can be achieved by financing asset growth with internal financing or retained earnings is called the

Accepted Answer

A) internal growth rate. 
B) retention rate. 
C) sustainable growth rate. 
D) operating expansion rate. 
A) internal growth rate. 
B) retention rate. 
C) sustainable growth rate. 
D) operating expansion rate.

Question 11

A firm has EBIT of $300,000 and depreciation expense of $12,000. Fixed charges total $44,000. Interest expense totals $7,000. What is the firm's cash coverage ratio?

Accepted Answer

A) 3.76 times 
B) 4.91 times 
C) 7.25 times 
D) 7.09 times 
A) 3.76 times 
B) 4.91 times 
C) 7.25 times 
D) 7.09 times

Question 12

Which of the following activities will increase a firm's current ratio?

Accepted Answer

A) purchase inventory using cash 
B) buy equipment with a short-term bank loan 
C) accrued wages and taxes increase 
D) none of these statements will increase a firm's current ratio 
A) purchase inventory using cash 
B) buy equipment with a short-term bank loan 
C) accrued wages and taxes increase 
D) none of these statements will increase a firm's current ratio

Question 13

A firm reported year-end sales of $20 million. It listed $7 million of inventory on its balance sheet. Using a 365-day year, how many days did the firm's inventory stay on the premises?

Accepted Answer

A) 127.75 days 
B) 157.75 days 
C) 97.75 days 
D) 87.75 days 
A) 127.75 days 
B) 157.75 days 
C) 97.75 days 
D) 87.75 days

Question 14

Last year Rain Repel Corporation had an ROE of 10 percent and a dividend payout ratio of 80 percent. What is the sustainable growth rate?

Accepted Answer

A) 1.11 percent 
B) 2.04 percent 
C) 44.44 percent 
D) 50.00 percent 
A) 1.11 percent 
B) 2.04 percent 
C) 44.44 percent 
D) 50.00 percent

Question 15

A firm ended the year with an average collection period of 50 days. The firm's credit sales were $11 million. What is the firm's year-end balance in accounts receivable?

Accepted Answer

A) $1.27 million 
B) $0.85 million 
C) $1.51 million 
D) $2.05 million 
A) $1.27 million 
B) $0.85 million 
C) $1.51 million 
D) $2.05 million

Question 16

Which of the following statements is false regarding inventory management?

Accepted Answer

A) In general, a firm wants to produce a low level of sales per dollar of inventory. 
B) In general, a firm wants to produce a high level of sales per dollar of inventory. 
C) A high inventory turnover ratio or a low days' sales in inventory is generally a sign of good management. 
D) Extremely high levels for inventory turnover ratio and low levels for days' sales in inventory ratio may actually be a sign of bad firm or production management. 
A) In general, a firm wants to produce a low level of sales per dollar of inventory. 
B) In general, a firm wants to produce a high level of sales per dollar of inventory. 
C) A high inventory turnover ratio or a low days' sales in inventory is generally a sign of good management. 
D) Extremely high levels for inventory turnover ratio and low levels for days' sales in inventory ratio may actually be a sign of bad firm or production management.

Question 17

Which of these statements is true?

Accepted Answer

A) A low inventory turnover ratio or a low days' sales in inventory is a sign of good inventory management. 
B) A high inventory turnover ratio or a low days' sales in inventory is a sign of good inventory management. 
C) A low inventory turnover ratio or a high days' sales in inventory is a sign of good inventory management. 
D) A high inventory turnover ratio or a high days' sales in inventory is a sign of good inventory management. 
A) A low inventory turnover ratio or a low days' sales in inventory is a sign of good inventory management. 
B) A high inventory turnover ratio or a low days' sales in inventory is a sign of good inventory management. 
C) A low inventory turnover ratio or a high days' sales in inventory is a sign of good inventory management. 
D) A high inventory turnover ratio or a high days' sales in inventory is a sign of good inventory management.

Question 18

Which of these ratios show the combined effects of liquidity, asset management, and debt management on the overall operation results of the firm?

Accepted Answer

A) liquidity 
B) coverage 
C) financial 
D) profitability 
A) liquidity 
B) coverage 
C) financial 
D) profitability

Question 19

You are considering investing in Lenny's Lube, Inc. You have been able to locate the following information on the firm: total assets = $20 million, accounts receivable = $6 million, ACP = 20 days, net income = $5 million, and debt-to-equity ratio = 2.5 times. What is the ROE for the firm?

Accepted Answer

A) 2.5000 percent 
B) 13.9882 percent 
C) 35.0000 percent 
D) 87.50 percent 
A) 2.5000 percent 
B) 13.9882 percent 
C) 35.0000 percent 
D) 87.50 percent

Question 20

Which company has the most risk from an investor's standpoint? Firm A has a PE of 92 times and Firm B has a PE of 16 times. Assume both firms operate in the same industry. Firm A has fewer shares outstanding than Firm

Accepted Answer

A) Firm A because it has the higher PE ratio. 
B) Firm B because it has a lower PE ratio. 
C) Firm A because it has fewer shares outstanding. 
D) Firm B because it has more shares outstanding. 
A) Firm A because it has the higher PE ratio. 
B) Firm B because it has a lower PE ratio. 
C) Firm A because it has fewer shares outstanding. 
D) Firm B because it has more shares outstanding.

Which of the following refers to the amount of debt versus equity a firm has on its balance sheet?

Which of these can be used by interested parties to identify changes in corporate performance?

Which of the following statements is not correct regarding accounts payable management and average payment period (APP)?

A firm has EBIT of $400,000 and depreciation expense of $20,000. Fixed charges total $50,000. Interest expense totals $7,000. What is the firm's cash coverage ratio?

Which of the following is NOT one of the cautions in using ratios to evaluate firm performance?

A firm has EBIT of $400,000 and depreciation expense of $20,000. Fixed charges total $50,000. Interest expense totals $7,000. What is the firm's fixed-charge coverage ratio?

Oasis Products, Inc. has current liabilities = $10 million, current ratio = 1.5 times, inventory turnover ratio = 12 times, average collection period = 20 days, and sales = $100 million. What is the value of their cash and marketable securities?

Which of the following statements is true about return on equity (ROE)?

The maximum growth rate that can be achieved by financing asset growth with internal financing or retained earnings is called the

A firm has EBIT of $300,000 and depreciation expense of $12,000. Fixed charges total $44,000. Interest expense totals $7,000. What is the firm's cash coverage ratio?

Which of the following activities will increase a firm's current ratio?

A firm reported year-end sales of $20 million. It listed $7 million of inventory on its balance sheet. Using a 365-day year, how many days did the firm's inventory stay on the premises?

Last year Rain Repel Corporation had an ROE of 10 percent and a dividend payout ratio of 80 percent. What is the sustainable growth rate?

A firm ended the year with an average collection period of 50 days. The firm's credit sales were $11 million. What is the firm's year-end balance in accounts receivable?

Which of the following statements is false regarding inventory management?

Which of these statements is true?

Which of these ratios show the combined effects of liquidity, asset management, and debt management on the overall operation results of the firm?

You are considering investing in Lenny's Lube, Inc. You have been able to locate the following information on the firm: total assets = $20 million, accounts receivable = $6 million, ACP = 20 days, net income = $5 million, and debt-to-equity ratio = 2.5 times. What is the ROE for the firm?

Which company has the most risk from an investor's standpoint? Firm A has a PE of 92 times and Firm B has a PE of 16 times. Assume both firms operate in the same industry. Firm A has fewer shares outstanding than Firm

Introduction to Financial Management

Reviewing Financial Statements

Time Value of Money 1: Analyzing Single Cash Flows

Time Value of Money 2: Analyzing Annuity Cash Flows

Understanding Financial Markets and Institutions

Valuing Bonds

Valuing Stocks

Characterizing Risk and Return

Estimating Risk and Return

Calculating the Cost of Capital

Estimating Cash Flows on Capital Budgeting Projects

Weighing Net Present Value and Other Capital Budgeting Criteria

Working Capital Management and Policies

Financial Planning and Forecasting

Assessing Long-Term Debt, Equity, and Capital Structure

Sharing Firm Wealth: Dividends, Share Repurchases, and Other Payouts

Issuing Capital and the Investment Banking Process

International Corporate Finance

Mergers and Acquisitions and Financial Distress

Filters

Exam 3: Analyzing Financial Statements

Which of the following refers to the amount of debt versus equity a firm has on its balance sheet?

Which of these can be used by interested parties to identify changes in corporate performance?

Which of the following statements is not correct regarding accounts payable management and average payment period (APP)?

A firm has EBIT of $400,000 and depreciation expense of $20,000. Fixed charges total $50,000. Interest expense totals $7,000. What is the firm's cash coverage ratio?

Which of the following is NOT one of the cautions in using ratios to evaluate firm performance?

A firm has EBIT of $400,000 and depreciation expense of $20,000. Fixed charges total $50,000. Interest expense totals $7,000. What is the firm's fixed-charge coverage ratio?

Oasis Products, Inc. has current liabilities = $10 million, current ratio = 1.5 times, inventory turnover ratio = 12 times, average collection period = 20 days, and sales = $100 million. What is the value of their cash and marketable securities?

Which of the following statements is true about return on equity (ROE)?

The maximum growth rate that can be achieved by financing asset growth with internal financing or retained earnings is called the

A firm has EBIT of $300,000 and depreciation expense of $12,000. Fixed charges total $44,000. Interest expense totals $7,000. What is the firm's cash coverage ratio?

Which of the following activities will increase a firm's current ratio?

A firm reported year-end sales of $20 million. It listed $7 million of inventory on its balance sheet. Using a 365-day year, how many days did the firm's inventory stay on the premises?

Last year Rain Repel Corporation had an ROE of 10 percent and a dividend payout ratio of 80 percent. What is the sustainable growth rate?

A firm ended the year with an average collection period of 50 days. The firm's credit sales were $11 million. What is the firm's year-end balance in accounts receivable?

Which of the following statements is false regarding inventory management?

Which of these statements is true?

Which of these ratios show the combined effects of liquidity, asset management, and debt management on the overall operation results of the firm?

You are considering investing in Lenny's Lube, Inc. You have been able to locate the following information on the firm: total assets = $20 million, accounts receivable = $6 million, ACP = 20 days, net income = $5 million, and debt-to-equity ratio = 2.5 times. What is the ROE for the firm?

Which company has the most risk from an investor's standpoint? Firm A has a PE of 92 times and Firm B has a PE of 16 times. Assume both firms operate in the same industry. Firm A has fewer shares outstanding than Firm

Introduction to Financial Management

Reviewing Financial Statements

Time Value of Money 1: Analyzing Single Cash Flows

Time Value of Money 2: Analyzing Annuity Cash Flows

Understanding Financial Markets and Institutions

Valuing Bonds

Valuing Stocks

Characterizing Risk and Return

Estimating Risk and Return

Calculating the Cost of Capital

Estimating Cash Flows on Capital Budgeting Projects

Weighing Net Present Value and Other Capital Budgeting Criteria

Working Capital Management and Policies

Financial Planning and Forecasting

Assessing Long-Term Debt, Equity, and Capital Structure

Sharing Firm Wealth: Dividends, Share Repurchases, and Other Payouts

Issuing Capital and the Investment Banking Process

International Corporate Finance

Mergers and Acquisitions and Financial Distress

Filters