Question 1

If ROC is less than a firm's cost of capital,which of the following must be true?

Accepted Answer

A)  The firm's EVA is positive. 
B)  The firm's EVA is negative. 
C)  The firm's ROE is equal to zero. 
D)  The firm's ROE is negative. 
A)  The firm's EVA is positive. 
B)  The firm's EVA is negative. 
C)  The firm's ROE is equal to zero. 
D)  The firm's ROE is negative.

Question 2

The use of debt in the firm's capital structure will increase ROE if the firm:

Accepted Answer

A)  has more debt than equity. 
B)  pays less in taxes than in interest. 
C)  earns a higher return than the rate paid on debt. 
D)  has a times interest earned ratio greater than 1.0. 
A)  has more debt than equity. 
B)  pays less in taxes than in interest. 
C)  earns a higher return than the rate paid on debt. 
D)  has a times interest earned ratio greater than 1.0.

Question 3

High levels of liquidity may indicate:

Accepted Answer

A)  low levels of net working capital. 
B)  low profit margins. 
C)  high levels of economic value added. 
D)  inefficient use of assets. 
A)  low levels of net working capital. 
B)  low profit margins. 
C)  high levels of economic value added. 
D)  inefficient use of assets.

Question 4

The asset turnover ratio and inventory turnover ratio are both efficiency ratios.

Accepted Answer

A) True 
 B)False

Question 5

When will ROE equal ROC?

Accepted Answer

A)  Whenever the firm has equal debt and equity financing 
B)  Whenever the firm has no debt 
C)  Whenever the value of the firm's assets exceeds the value of its equity 
D)  ROE will never equal ROC 
A)  Whenever the firm has equal debt and equity financing 
B)  Whenever the firm has no debt 
C)  Whenever the value of the firm's assets exceeds the value of its equity 
D)  ROE will never equal ROC

Question 6

Return on assets and return on equity are both profitability ratios.

Accepted Answer

A) True 
 B)False

Question 7

Other things equal,an increase in average accounts receivable will increase a firm's return on assets.

Accepted Answer

A) True 
 B)False

Question 8

Assume BDS acquired its main supplier,ABC.As a result of the acquisition,BDS finds that its profit margin increased but its ROA remained constant.A decrease in which one of these ratios is most apt to be the reason why the ROA did not increase with the increase in the profit margin?

Accepted Answer

A)  Leverage ratio 
B)  Market-to-book ratio 
C)  Asset turnover 
D)  Debt burden 
A)  Leverage ratio 
B)  Market-to-book ratio 
C)  Asset turnover 
D)  Debt burden

Question 9

Receivable turnover ratio and asset turnover ratio are both efficiency ratios.

Accepted Answer

A) True 
 B)False

Question 10

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 11

A deficiency of the standard measures of liquidity is that the measures:

Accepted Answer

A)  ignore a firm's reserve borrowing capacity. 
B)  fail to include accounts receivable as an asset. 
C)  give inventories equal weighting in the quick ratio. 
D)  do not include the current portions of long-term debt. 
A)  ignore a firm's reserve borrowing capacity. 
B)  fail to include accounts receivable as an asset. 
C)  give inventories equal weighting in the quick ratio. 
D)  do not include the current portions of long-term debt.

Question 12

Calculate the average collection period for Dots Inc.if its accounts receivables were $550 at the beginning of a year in which the firm generated $3,000 of sales?

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 13

Efficiency ratios:

Accepted Answer

A)  include the quick ratio, asset turnover ratio, and return on equity. 
B)  are used to measure how well the company uses its assets. 
C)  are used to measure how liquid the company is. 
D)  measure the profits generated by a firm's equity and assets. 
A)  include the quick ratio, asset turnover ratio, and return on equity. 
B)  are used to measure how well the company uses its assets. 
C)  are used to measure how liquid the company is. 
D)  measure the profits generated by a firm's equity and assets.

Question 14

What is the ROE for a firm with a 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)  26.67% 
B)  30.00% 
C)  33.33% 
D)  50.00% 
A)  26.67% 
B)  30.00% 
C)  33.33% 
D)  50.00%

Question 15

What are the annual sales for a firm with $400,000 in debt,a total debt ratio of 0.4,and an asset turnover of 3?

Accepted Answer

A)  $333,333 
B)  $1,200,000 
C)  $1,800,000 
D)  $3,000,000 
A)  $333,333 
B)  $1,200,000 
C)  $1,800,000 
D)  $3,000,000

Question 16

Net working capital to total assets and current ratio are both liquidity ratios.

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

A firm's operating profit margin is 20% with an EBIT of $1.5 million and sales of $5 million.If it has no debt,how much did the firm pay in taxes?

Accepted Answer

A)  $50,000 
B)  $300,000 
C)  $350,000 
D)  $500,000 
A)  $50,000 
B)  $300,000 
C)  $350,000 
D)  $500,000

Question 19

If a firm's quick ratio is equal to its current ratio:

Accepted Answer

A)  It has a low level of current liabilities. 
B)  It has no inventory. 
C)  It faces a potentially serious liquidity crisis. 
D)  It is in a loss-making position. 
A)  It has a low level of current liabilities. 
B)  It has no inventory. 
C)  It faces a potentially serious liquidity crisis. 
D)  It is in a loss-making position.

Question 20

An increase in which one of the following will have no effect on the cash coverage ratio?

Accepted Answer

A)  Depreciation 
B)  Interest 
C)  Sales 
D)  Cost of goods sold 
A)  Depreciation 
B)  Interest 
C)  Sales 
D)  Cost of goods sold

Exam 4: Measuring Corporate Performance

If ROC is less than a firm's cost of capital,which of the following must be true?

The use of debt in the firm's capital structure will increase ROE if the firm:

High levels of liquidity may indicate:

The asset turnover ratio and inventory turnover ratio are both efficiency ratios.

When will ROE equal ROC?

Return on assets and return on equity are both profitability ratios.

Other things equal,an increase in average accounts receivable will increase a firm's return on assets.

Assume BDS acquired its main supplier,ABC.As a result of the acquisition,BDS finds that its profit margin increased but its ROA remained constant.A decrease in which one of these ratios is most apt to be the reason why the ROA did not increase with the increase in the profit margin?

Receivable turnover ratio and asset turnover ratio are both efficiency ratios.

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 deficiency of the standard measures of liquidity is that the measures:

Calculate the average collection period for Dots Inc.if its accounts receivables were $550 at the beginning of a year in which the firm generated $3,000 of sales?

Efficiency ratios:

What is the ROE for a firm with a 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?

What are the annual sales for a firm with $400,000 in debt,a total debt ratio of 0.4,and an asset turnover of 3?

Net working capital to total assets and current ratio are both liquidity ratios.

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

A firm's operating profit margin is 20% with an EBIT of $1.5 million and sales of $5 million.If it has no debt,how much did the firm pay in taxes?

If a firm's quick ratio is equal to its current ratio:

An increase in which one of the following will have no effect on the cash coverage ratio?

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