Question 1

If a firm has a positive tax rate,a positive ROA,and the interest rate on debt is the same as ROA,then ROA will be ________.

Accepted Answer

A) greater than the ROE 
B) equal to the ROE 
C) less than the ROE 
D) greater than zero but it is impossible to determine how ROA will compare to ROE 
E) negative in all cases 
A) greater than the ROE 
B) equal to the ROE 
C) less than the ROE 
D) greater than zero but it is impossible to determine how ROA will compare to ROE 
E) negative in all cases A

Question 2

An example of a liquidity ratio is _______.

Accepted Answer

A) fixed asset turnover 
B) current ratio 
C) acid test or quick ratio 
D) A and C 
E) B and C 
A) fixed asset turnover 
B) current ratio 
C) acid test or quick ratio 
D) A and C 
E) B and C E

Question 3

Many different debt,or financial leverage,ratios are reported.Explain the relationship between total assets/equity and debt/equity.

Accepted Answer

Total assets/equity is the ratio used in computing the ROE in the "duPont breakout formula". Assets may be purchased with either debt or equity or some combination thereof. Thus, the sum of debt and equity financing equals total assets. If one is given the debt/equity ratio and needs the total assets/equity ratio (for example, for the above cited calculation), one merely adds the amounts of debt and equity in the capital structure in order to obtain the amount of total assets. For example:
Debt = $50,000;
Equity = $50,000;
Debt/equity = 1;
$50,000 + $50,000 = $100,000 (total assets);
Total assets/Equity = $100,000/$50,000 = 2; or 1 + 1 = 2.

Question 4

__________ is a true statement.

Accepted Answer

A) During periods of inflation, LIFO makes the balance sheet less representative of the actual inventory values than if FIFO were used 
B) During periods of inflation, FIFO makes the balance sheet less representative of actual inventory values than if LIFO were used 
C) After inflation ends, distortion due to LIFO will disappear as inventory is sold 
D) During periods of inflation, LIFO overstates earnings relative to FIFO 
E) None of the above 
A) During periods of inflation, LIFO makes the balance sheet less representative of the actual inventory values than if FIFO were used 
B) During periods of inflation, FIFO makes the balance sheet less representative of actual inventory values than if LIFO were used 
C) After inflation ends, distortion due to LIFO will disappear as inventory is sold 
D) During periods of inflation, LIFO overstates earnings relative to FIFO 
E) None of the above

Question 5

Which of the following are issues when dealing with the financial statements of international firms?
I.Many countries allow firms to set aside larger contingency reserves than the amounts allowed for U.S.firms.
II.Many firms outside the U.S.use accelerated depreciation methods for reporting purposes,whereas most U.S.firms use straight-line depreciation for reporting purposes.
III.Intangibles such as goodwill may be amortized over different periods or may be expensed rather than capitalized.
IV.There is no way to reconcile the financial statements of non-U.S.firms to GAAP.

Accepted Answer

A) I and II 
B) II and IV 
C) I, II, and III 
D) I, III, and IV 
E) I,II,III,and IV 
A) I and II 
B) II and IV 
C) I, II, and III 
D) I, III, and IV 
E) I,II,III,and IV

Question 6

Over a period of thirty-odd years in managing investment funds,Benjamin Graham used the approach of investing in the stocks of companies where the stocks were trading at less than their working capital value.The average return from using this strategy was approximately ______.

Accepted Answer

A) 5% 
B) 10% 
C) 15% 
D) 20% 
E) none of the above 
A) 5% 
B) 10% 
C) 15% 
D) 20% 
E) none of the above

Question 7

A measure of asset utilization is ________.

Accepted Answer

A) sales divided by working capital 
B) return on total assets 
C) return on equity capital 
D) operating profit divided by sales 
E) none of the above 
A) sales divided by working capital 
B) return on total assets 
C) return on equity capital 
D) operating profit divided by sales 
E) none of the above

Question 8

__________ best explains a ratio of (sales/average net fixed assets)that exceeds the industry average.

Accepted Answer

A) The firm expanded plant and equipment in the past few years 
B) The firm makes less efficient use of assets than competing firms 
C) The firm has a substantial amount of old plant and equipment 
D) The firm uses straight-line depreciation 
E) None of the above 
A) The firm expanded plant and equipment in the past few years 
B) The firm makes less efficient use of assets than competing firms 
C) The firm has a substantial amount of old plant and equipment 
D) The firm uses straight-line depreciation 
E) None of the above

Question 9

The financial statements of Black Barn Company are given below  
-Refer to the financial statements of Black Barn Company.The firm's return on sales ratio for 2009 is _____ percent.

Accepted Answer

A) 15.5 
B) 14.6 
C) 14.0 
D) 15.0 
E) 16.5 
A) 15.5 
B) 14.6 
C) 14.0 
D) 15.0 
E) 16.5

Question 10

The financial statements of Midwest Tours are given below.  
-Refer to the financial statements of Midwest Tours.The firm's P/E ratio for 2009 is __________.

Accepted Answer

A) 4.74 
B) 6.63 
C) 5.21 
D) 5.00 
E) none of the above 
A) 4.74 
B) 6.63 
C) 5.21 
D) 5.00 
E) none of the above

Question 11

A firm has a P/E ratio of 12 and a ROE of 13% and a market to book value of __________.

Accepted Answer

A) 0.64 
B) 0.92 
C) 1.08 
D) 1.56 
E) none of the above 
A) 0.64 
B) 0.92 
C) 1.08 
D) 1.56 
E) none of the above

Question 12

What best explains why a firm's ratio of (long-term debt/total capital)is lower than the industry average,while the ratio of (income before interest and taxes/debt interest charges)is lower than the industry average?

Accepted Answer

A) The firm pays lower interest on long-term debt than the average firm 
B) The firm has more short-term debt than average 
C) The firm has a high ratio of (current assets/current liabilities) 
D) The firm has a high ratio of (total cash flow/long term debt) 
E) none of the above 
A) The firm pays lower interest on long-term debt than the average firm 
B) The firm has more short-term debt than average 
C) The firm has a high ratio of (current assets/current liabilities) 
D) The firm has a high ratio of (total cash flow/long term debt) 
E) none of the above

Question 13

The financial statements of Midwest Tours are given below.  
-Refer to the financial statements of Midwest Tours.The firm's leverage ratio for 2009 is __________.

Accepted Answer

A) 1.62 
B) 1.56 
C) 2.00 
D) 2.42 
E) 2.17 
A) 1.62 
B) 1.56 
C) 2.00 
D) 2.42 
E) 2.17

Question 14

Ferris Corp.wants to increase its current ratio from the present level of 1.5 when it closes the books next week.The action of __________ will have the desired effect.

Accepted Answer

A) payment of current payables from cash 
B) sales of current marketable securities for cash 
C) write down of impaired assets 
D) delay of next payroll 
E) none of the above 
A) payment of current payables from cash 
B) sales of current marketable securities for cash 
C) write down of impaired assets 
D) delay of next payroll 
E) none of the above

Question 15

The financial statements of Snapit Company are given below.  
-Refer to the financial statements of Snapit Company.The firm's quick ratio for 2009 is _______.

Accepted Answer

A) 1.68 
B) 1.12 
C) 0.72 
D) 1.92 
E) none of the above 
A) 1.68 
B) 1.12 
C) 0.72 
D) 1.92 
E) none of the above

Question 16

The financial statements of Snapit Company are given below.  
-Refer to the financial statements of Snapit Company.The firm's market to book value for 2009 is _____.

Accepted Answer

A) 0.7256 
B) 1.5294 
C) 2.9400 
D) 3.6142 
E) none of the above 
A) 0.7256 
B) 1.5294 
C) 2.9400 
D) 3.6142 
E) none of the above

Question 17

The financial statements of Black Barn Company are given below  
-Refer to the financial statements of Black Barn Company.The firm's leverage ratio for 2009 is _____.

Accepted Answer

A) 1.65 
B) 1.89 
C) 2.64 
D) 1.31 
E) 1.56 
A) 1.65 
B) 1.89 
C) 2.64 
D) 1.31 
E) 1.56

Question 18

Assuming continued inflation,a firm that uses LIFO will tend to have a(n)________current ratio than a firm using FIFO,and the difference will tend to __________ as time passes.

Accepted Answer

A) higher, increase 
B) higher, decrease 
C) lower, decrease 
D) lower, increase 
E) identical,remain the same 
A) higher, increase 
B) higher, decrease 
C) lower, decrease 
D) lower, increase 
E) identical,remain the same

Question 19

If the interest rate on debt is lower than ROA,then a firm will __________ by increasing the use of debt in the capital structure.

Accepted Answer

A) increase the ROE 
B) not change the ROE 
C) decrease the ROE 
D) change the ROE in an indeterminable manner 
E) none of the above 
A) increase the ROE 
B) not change the ROE 
C) decrease the ROE 
D) change the ROE in an indeterminable manner 
E) none of the above

Question 20

The dollar value of a firm's return in excess of its opportunity costs is called its

Accepted Answer

A) profitability measure. 
B) excess return. 
C) economic value added. 
D) prospective capacity. 
E) return margin. 
A) profitability measure. 
B) excess return. 
C) economic value added. 
D) prospective capacity. 
E) return margin.

Exam 19: Futures Markets

If a firm has a positive tax rate,a positive ROA,and the interest rate on debt is the same as ROA,then ROA will be ________.

An example of a liquidity ratio is _______.

Many different debt,or financial leverage,ratios are reported.Explain the relationship between total assets/equity and debt/equity.

__________ is a true statement.

Over a period of thirty-odd years in managing investment funds,Benjamin Graham used the approach of investing in the stocks of companies where the stocks were trading at less than their working capital value.The average return from using this strategy was approximately ______.

A measure of asset utilization is ________.

__________ best explains a ratio of (sales/average net fixed assets)that exceeds the industry average.

The financial statements of Black Barn Company are given below -Refer to the financial statements of Black Barn Company.The firm's return on sales ratio for 2009 is _____ percent.

The financial statements of Midwest Tours are given below. -Refer to the financial statements of Midwest Tours.The firm's P/E ratio for 2009 is __________.

A firm has a P/E ratio of 12 and a ROE of 13% and a market to book value of __________.

What best explains why a firm's ratio of (long-term debt/total capital)is lower than the industry average,while the ratio of (income before interest and taxes/debt interest charges)is lower than the industry average?

The financial statements of Midwest Tours are given below. -Refer to the financial statements of Midwest Tours.The firm's leverage ratio for 2009 is __________.

Ferris Corp.wants to increase its current ratio from the present level of 1.5 when it closes the books next week.The action of __________ will have the desired effect.

The financial statements of Snapit Company are given below. -Refer to the financial statements of Snapit Company.The firm's quick ratio for 2009 is _______.

The financial statements of Snapit Company are given below. -Refer to the financial statements of Snapit Company.The firm's market to book value for 2009 is _____.

The financial statements of Black Barn Company are given below -Refer to the financial statements of Black Barn Company.The firm's leverage ratio for 2009 is _____.

Assuming continued inflation,a firm that uses LIFO will tend to have a(n)________current ratio than a firm using FIFO,and the difference will tend to __________ as time passes.

If the interest rate on debt is lower than ROA,then a firm will __________ by increasing the use of debt in the capital structure.

The dollar value of a firm's return in excess of its opportunity costs is called its

The Investment Environment

Asset Classes and Financial Instruments

How Securities are Traded

Mutual Funds and Other Investment Companies

Introduction to Risk,return,and the Historical Record

Risk Aversion and Capital Allocation to Risky Assets

Optimal Risky Portfolios

Index Models

The Capital Asset Pricing Model

Arbitrage Pricing Theory and Multifactor Models of Risk and Return

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Empirical Evidence on Security Returns

Bond Prices and Yields

The Term Structure of Interest Rates

Managing Bond Portfolios

Options Markets: Introduction

Option Valuation

Futures, swaps, and Risk Management

Macroeconomic and Industry Analysis

Equity Valuation Models

Financial Statement Analysis

Portfolio Performance Evaluation

International Diversification

Hedge Funds

The Theory of Active Portfolio Management

Investment Policy and the Framework of the CFA Institute Appendices

Filters

Assuming continued inflation,a firm that uses LIFO will tend to have a(n)current ratio than a firm using FIFO,and the difference will tend to __ as time passes.