Question 1

If a firm's debt ratio is greater than 0.5,then:

Accepted Answer

A)  its current liabilities are quite high. 
B)  its debt-equity ratio exceeds 1.0. 
C)  it has too few total assets. 
D)  it has more long-term debt than equity. 
A)  its current liabilities are quite high. 
B)  its debt-equity ratio exceeds 1.0. 
C)  it has too few total assets. 
D)  it has more long-term debt than equity. B

Question 2

What will be Gamma Inc.'s return on equity if total asset turnover is 0.85,operating profit margin is 0.15,two-thirds of its assets are financed through equity,and debt burden is 0.6?

Accepted Answer

A)  9.56% 
B)  11.48% 
C)  16.96% 
D)  38.25% 
A)  9.56% 
B)  11.48% 
C)  16.96% 
D)  38.25% B

Question 3

Last year's return on equity was 30%.This year the ROE has decreased to 20% even though the firm's earnings equaled last year's earnings.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%. D

Question 4

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-to-book ratio of 3?

Accepted Answer

A)  $10 
B)  $30 
C)  $90 
D)  $105 
A)  $10 
B)  $30 
C)  $90 
D)  $105

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

In the past year,TVG had revenues of $3 million,cost of goods sold of $2.5 million,and depreciation expense of $200,000.The firm has a single issue of debt outstanding with a face value of $1million,market value of $.92 million,and a coupon rate of 8%.What is the firm's times interest earned ratio?

Accepted Answer

A)  3.75 
B)  2.98 
C)  2.80 
D)  3.40 
A)  3.75 
B)  2.98 
C)  2.80 
D)  3.40

Question 7

Last year's asset turnover ratio was 2.0.Sales have increased by 25% and 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 8

A total debt ratio of 0.35:

Accepted Answer

A)  indicates that the firm is financed with 35% long-term debt. 
B)  would exist if a firm had liabilities of $700 and assets of $2,000. 
C)  indicates that 35 cents of every dollar of capital is in the form of short-term debt. 
D)  indicates that 35 cents of every dollar of capital is in the form of long-term debt. 
A)  indicates that the firm is financed with 35% long-term debt. 
B)  would exist if a firm had liabilities of $700 and assets of $2,000. 
C)  indicates that 35 cents of every dollar of capital is in the form of short-term debt. 
D)  indicates that 35 cents of every dollar of capital is in the form of long-term debt.

Question 9

What is the inventory turnover ratio for ABC Corp.if cost of goods sold equals $5,000,current ratio equals 3,quick ratio equals 1.5,and the firm has $1,800 in current assets?

Accepted Answer

A)  2.78 times 
B)  4.17 times 
C)  5.56 times 
D)  8.33 times 
A)  2.78 times 
B)  4.17 times 
C)  5.56 times 
D)  8.33 times

Question 10

How would you interpret an inventory turnover ratio of 10.7?

Accepted Answer

A)  It takes 50 days on average to collect receivables. 
B)  Inventory is converted into sales every 50 days. 
C)  The firm has sufficient inventories to maintain sales for 34.1 days. 
D)  Assets are converted into sales every 50 days. 
A)  It takes 50 days on average to collect receivables. 
B)  Inventory is converted into sales every 50 days. 
C)  The firm has sufficient inventories to maintain sales for 34.1 days. 
D)  Assets are converted into sales every 50 days.

Question 11

A times interest earned ratio of 5 indicates the firm:

Accepted Answer

A)  pays 5 times its earnings in interest expense. 
B)  earns significantly more than its interest obligations. 
C)  has interest expense equal to 5% of EBIT. 
D)  has a low tax liability. 
A)  pays 5 times its earnings in interest expense. 
B)  earns significantly more than its interest obligations. 
C)  has interest expense equal to 5% of EBIT. 
D)  has a low tax liability.

Question 12

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

Accepted Answer

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

Question 13

Which of the following is the least effective measure of operating performance?

Accepted Answer

A)  ROC 
B)  ROA 
C)  ROE 
D)  All of the options are equally ineffective measures of operating performance. 
A)  ROC 
B)  ROA 
C)  ROE 
D)  All of the options are equally ineffective measures of operating performance.

Question 14

A retail store with zero net working capital has:

Accepted Answer

A)  no cash or marketable securities. 
B)  insufficient inventory. 
C)  no current debt. 
D)  a quick ratio that is less than 1. 
A)  no cash or marketable securities. 
B)  insufficient inventory. 
C)  no current debt. 
D)  a quick ratio that is less than 1.

Question 15

An asset turnover ratio of 1.75 can be interpreted as:

Accepted Answer

A)  $1.75 in sales are generated by every $1 of assets. 
B)  $1.75 in additional assets are generated by every $1 of sales. 
C)  $1.75 in assets are used to generate $1 of sales. 
D)  $1 in sales are used to generate $1.75 in assets. 
A)  $1.75 in sales are generated by every $1 of assets. 
B)  $1.75 in additional assets are generated by every $1 of sales. 
C)  $1.75 in assets are used to generate $1 of sales. 
D)  $1 in sales are used to generate $1.75 in assets.

Question 16

Which one of the following statements is most likely correct for a firm with an average collection period of 90 days?

Accepted Answer

A)  Its average daily sales are low. 
B)  Its average daily sales are high. 
C)  Its current ratio will be high. 
D)  It is providing financing for approximately 25% of its annual sales. 
A)  Its average daily sales are low. 
B)  Its average daily sales are high. 
C)  Its current ratio will be high. 
D)  It is providing financing for approximately 25% of its annual sales.

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

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?

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 19

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 20

TSI Inc.has liquid assets of $1,000,enough to finance its operations for 67 days.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.

Exam 4: Measuring Corporate Performance

If a firm's debt ratio is greater than 0.5,then:

What will be Gamma Inc.'s return on equity if total asset turnover is 0.85,operating profit margin is 0.15,two-thirds of its assets are financed through equity,and debt burden is 0.6?

Last year's return on equity was 30%.This year the ROE has decreased to 20% even though the firm's earnings equaled last year's earnings.The firm has no preferred stock.What caused the decrease?

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-to-book ratio of 3?

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

In the past year,TVG had revenues of $3 million,cost of goods sold of $2.5 million,and depreciation expense of $200,000.The firm has a single issue of debt outstanding with a face value of $1million,market value of $.92 million,and a coupon rate of 8%.What is the firm's times interest earned ratio?

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

A total debt ratio of 0.35:

What is the inventory turnover ratio for ABC Corp.if cost of goods sold equals $5,000,current ratio equals 3,quick ratio equals 1.5,and the firm has $1,800 in current assets?

How would you interpret an inventory turnover ratio of 10.7?

A times interest earned ratio of 5 indicates the firm:

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

Which of the following is the least effective measure of operating performance?

A retail store with zero net working capital has:

An asset turnover ratio of 1.75 can be interpreted as:

Which one of the following statements is most likely correct for a firm with an average collection period of 90 days?

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

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?

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

TSI Inc.has liquid assets of $1,000,enough to finance its operations for 67 days.TSI's average daily expenditures from operations are:

Goals and Governance of the Firm

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 and Governance

Venture Capital, IPOs, and Seasoned Offerings

Debt Policy

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Working Capital Management

Mergers,Acquisitions,and Corporate Control

International Financial Management

Options

Risk Management

Filters