Question 1

The inventory turnover ratio compares:

Accepted Answer

A)  current assets to inventory. 
B)  cost of goods sold to inventory. 
C)  average receivables to inventory. 
D)  average assets to inventory. 
A)  current assets to inventory. 
B)  cost of goods sold to inventory. 
C)  average receivables to inventory. 
D)  average assets to inventory.

Question 2

The net working capital of a firm will decrease when unpaid bills from suppliers are later paid with cash.

Accepted Answer

A) True 
 B)False

Question 3

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 0.75,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 4

What is the residual income for a firm that is entirely equity-financed with $1 million in 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 5

Market value added is the same as economic value added.

Accepted Answer

A) True 
 B)False

Question 6

If a company has a healthy current ratio but a significantly lower quick ratio,then you can assume that:

Accepted Answer

A)  the cost of goods sold represents more than half of sales. 
B)  current liabilities exceed current assets. 
C)  the firm sells only on a cash basis. 
D)  inventory represents a large portion of the firm's current assets. 
A)  the cost of goods sold represents more than half of sales. 
B)  current liabilities exceed current assets. 
C)  the firm sells only on a cash basis. 
D)  inventory represents a large portion of the firm's current assets.

Question 7

Which of the following will allow your firm to achieve its targeted 16% ROA with an asset turnover of 2.5?

Accepted Answer

A)  A leverage ratio of .0667 
B)  A P/E ratio of 14 
C)  A return on equity of 25% 
D)  An operating profit margin of 6.4% 
A)  A leverage ratio of .0667 
B)  A P/E ratio of 14 
C)  A return on equity of 25% 
D)  An operating profit margin of 6.4%

Question 8

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

Accepted Answer

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

Question 9

If the ratio of total liabilities to total assets is 0.5,long-term liabilities are $3,000,and equity is $5,000,then::

Accepted Answer

A)  you know that current liabilities must be $ 2,000. 
B)  you know that current assets must be $400. 
C)  you know that retained earnings must be $800. 
D)  you know that preferred stock must be $400. 
A)  you know that current liabilities must be $ 2,000. 
B)  you know that current assets must be $400. 
C)  you know that retained earnings must be $800. 
D)  you know that preferred stock must be $400.

Question 10

If a firm starts the year with receivables of $80,000 and produces sales for the year of $300,000,what is its average collection period?

Accepted Answer

A)  3.75 days. 
B)  97.3 days. 
C)  52 days. 
D)  77.9 days 
A)  3.75 days. 
B)  97.3 days. 
C)  52 days. 
D)  77.9 days

Question 11

If the cash coverage ratio exceeds the times interest earned ratio,then the firm has:

Accepted Answer

A)  a positive cash flow. 
B)  depreciable assets. 
C)  no long-term debt. 
D)  short-term debts. 
A)  a positive cash flow. 
B)  depreciable assets. 
C)  no long-term debt. 
D)  short-term debts.

Question 12

A firm has average daily expenses of $2.13 million and average accounts payable of $112.7 million.On average,how many days does it take the firm to pay its bills?

Accepted Answer

A)  63.47 days 
B)  52.91 days 
C)  48.19 days 
D)  59.03 days 
A)  63.47 days 
B)  52.91 days 
C)  48.19 days 
D)  59.03 days

Question 13

What is the ROA of a firm with $150,000 in receivables,which represents 60 days sales,assets of $750,000,and an operating 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 14

Residual income is another term for economic value added.

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

The inventory turnover ratio times the average days in inventory equals 365.

Accepted Answer

A) True 
 B)False

Question 17

XYZ Corp.has an operating profit margin of 7%,a debt burden of .8,and has financed two-thirds of its assets through equity.What asset turnover ratio is necessary to achieve an ROE of 18%?

Accepted Answer

A)  1.26 
B)  1.61 
C)  2.14 
D)  4.02 
A)  1.26 
B)  1.61 
C)  2.14 
D)  4.02

Question 18

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 19

To calculate which of these measures do you need to know the cost of capital?

Accepted Answer

A)  ROC. 
B)  ROA. 
C)  ROE. 
D)  EVA. 
A)  ROC. 
B)  ROA. 
C)  ROE. 
D)  EVA.

Question 20

Which one of the following would be most detrimental to a firm's current ratio if that ratio is currently 2?

Accepted Answer

A)  Collecting payment on an accounts receivable 
B)  Selling marketable securities at cost 
C)  Paying off accounts payable with cash 
D)  Purchasing inventory on credit 
A)  Collecting payment on an accounts receivable 
B)  Selling marketable securities at cost 
C)  Paying off accounts payable with cash 
D)  Purchasing inventory on credit

Exam 4: Measuring Corporate Performance

The inventory turnover ratio compares:

The net working capital of a firm will decrease when unpaid bills from suppliers are later paid with cash.

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 0.75,and a dividend-payout ratio of 50%?

What is the residual income for a firm that is entirely equity-financed with $1 million in capital,$300,000 in net income,and a 20% cost of capital?

Market value added is the same as economic value added.

If a company has a healthy current ratio but a significantly lower quick ratio,then you can assume that:

Which of the following will allow your firm to achieve its targeted 16% ROA with an asset turnover of 2.5?

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

If the ratio of total liabilities to total assets is 0.5,long-term liabilities are $3,000,and equity is $5,000,then::

If a firm starts the year with receivables of $80,000 and produces sales for the year of $300,000,what is its average collection period?

If the cash coverage ratio exceeds the times interest earned ratio,then the firm has:

A firm has average daily expenses of $2.13 million and average accounts payable of $112.7 million.On average,how many days does it take the firm to pay its bills?

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

Residual income is another term for economic value added.

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

The inventory turnover ratio times the average days in inventory equals 365.

XYZ Corp.has an operating profit margin of 7%,a debt burden of .8,and has financed two-thirds of its assets through equity.What asset turnover ratio is necessary to achieve an ROE of 18%?

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

To calculate which of these measures do you need to know the cost of capital?

Which one of the following would be most detrimental to a firm's current ratio if that ratio is currently 2?

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

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