Question 1

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.

Question 2

The financial statements of Midwest Tours are given below. 
$\begin{array}{c}
Midwest ~Tours  \
\text {  Income Statement (2009) }\
\begin{array}{lrr} 
\hline \text { Sales } & \$  2,500,000 \
\text { Cost of goods sold } &   \underline {1,260,000} \
\text { Gross profit } & 1,240,000 \
\text { Selling \& administrative expenses } &  \underline { 700,000} \
\text { Operating profit } & 540,000 \
\text { Interest expense } &  \underline {160,000 }\
\text { Income before tax } & 380,000 \
\text { Tax expense } &  \underline {152,000} \
 \text { Net income } &  \underline {\$ 228,000} \
\end{array} 
\end{array}$
 \(\begin{array}{c}
\begin{array}{lll}
 \text { Balance Sheet } &2009\
\
 \text {  Cash } &\$ 60,000 \
 \text {  Accounts receivable } &  500,000  \
 \text {   Inventory } &  \underline {300,000} \
 \text {Total current assets  } &\$ 860,000  \
 \text {Fixed assets  } &  \underline {2,180,000} \
 \text { Total assets } &  \underline {\$  3,040,000} \
\
 \text { Accounts Payable } &\$ 200,000 \
 \text { Bank loan } & \underline {460,000} \
 \text { Total current liabilities } & \$ 660,000 \
 \text {Bond payable  } & \underline { 860,000} \
 \text {  Total liabilities } & \underline {\$  1,520,000  }\
 \text { Common stock ( 130,000 shares) } & \$ 120,000 \
 \text {Retained earnings  } & \underline {1,400,000}\
 \text { Total liabilities \& equity } &  \underline {\$  3,040,000} \
\end{array}
\begin{array}{lll}
2008\
\
\$50,000 \
450,000 \
\underline { 270,000} \
\$ 770,000 \
\underline { 2,000,000} \
\underline { \$ 2,770,000} \
\
\$170,000 \
\underline { 440,000} \
\$ 610,000 \
\underline { 860,000} \
\$ 1,470,000 \
\$ 120,000 \
\underline { 1,300,000 }\
\underline { \$ 2,890,000} \
\end{array}
\end{array}\)
 Note: The common shares are trading in the stock market for $36 each. 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. 
A)  4.74. 
B)  6.63. 
C)  5.21. 
D)  5.00.

Question 3

Suppose that Chicken Express, InC. has an ROA of 7% and pays a 6% coupon on its debt. Chicken Express has a capital structure that is 70% equity and 30% debt. Relative to a firm that is 100% equity-financed, Chicken Express's net profit will be ________, and its ROE will be ________.

Accepted Answer

A)  lower; lower 
B)  higher; higher 
C)  higher; lower 
D)  lower; higher 
E)  It is impossible to predict. 
A)  lower; lower 
B)  higher; higher 
C)  higher; lower 
D)  lower; higher 
E)  It is impossible to predict.

Question 4

__________ provides a snapshot of the financial condition of the firm at a particular time.

Accepted Answer

A)  The balance sheet 
B)  The income statement 
C)  The statement of cash flows 
D)  All of the options are correct. 
E)  None of the options are correct. 
A)  The balance sheet 
B)  The income statement 
C)  The statement of cash flows 
D)  All of the options are correct. 
E)  None of the options are correct.

Question 5

Fundamental analysis uses

Accepted Answer

A)  earnings and dividends prospects. 
B)  relative strength. 
C)  price momentum. 
D)  earnings, dividend prospects, and relative strength. 
E)  earnings, dividend prospects, and price momentum. 
A)  earnings and dividends prospects. 
B)  relative strength. 
C)  price momentum. 
D)  earnings, dividend prospects, and relative strength. 
E)  earnings, dividend prospects, and price momentum.

Question 6

The financial statements of Midwest Tours are given below. $\begin{array}{c}
 
\text {  Midwest Tours } \
\text { Income Statement (2009) }\
\begin{array}{lrr} 
\hline \text { Sales } & \$  2,500,000 \
\text { Cost of goods sold } &   \underline {1,260,000} \
\text { Gross profit } & 1,240,000  \
\text { Selling \& administrative expenses } &  \underline { 700,000} \
\text { Operating profit } & 540,000 \
\text { Interest expense } &  \underline {160,000 }\
\text { Income before tax } & 380,000 \
\text { Tax expense } &  \underline {152,000} \
 \text { Net income } &  \underline {\$ 228,000} \
\end{array} 
\end{array}$ \(\begin{array}{c}
\begin{array}{lll}
 \text { Balance Sheet } &2009\
\
 \text {  Cash } &\$ 60,000 \
 \text {  Accounts receivable } &  500,000  \
 \text {   Inventory } &  \underline {300,000} \
 \text {Total current assets  } &\$ 860,000  \
 \text {Fixed assets  } &  \underline {2,180,000} \
 \text { Total assets } &  \underline {\$  3,040,000} \
\
 \text { Accounts Payable } &\$ 200,000 \
 \text { Bank loan } & \underline {460,000} \
 \text { Total current liabilities } & \$ 660,000 \
 \text {Bond payable  } & \underline { 860,000} \
 \text {  Total liabilities } & \underline {\$  1,520,000  }\
 \text { Common stock ( 130,000 shares) } & \$ 120,000 \
 \text {Retained earnings  } & \underline {1,400,000}\
 \text { Total liabilities \& equity } &  \underline {\$  3,040,000} \
\end{array}
\begin{array}{lll}
2008\
\
\$ 50,000 \
450,000 \
 \underline { 270,000  }\
 \$  770,000 \
 \underline { 2,000,000} \
 \underline { \$ 2,770,000 }\
\

\$ 170,000 \
 \underline { 440,000} \
 \$  610,000  \
 \underline {860,000} \
 \underline {\$  1,470,000 }\
\$  120,000\
 \underline {1,300,000} \
 \underline { \$ 2,890,000 } \
\end{array}
\end{array}\) Note: The common shares are trading in the stock market for $36 each. 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.

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

Suppose that Chicken Express, InC. has an ROA of 7% and pays a 6% coupon on its debt. Chicken Express has a capital structure that is 70% equity and 30% debt. Relative to a firm that is 100% equity-financed, Chicken Express's net profit will be , and its ROE will be .

__________ provides a snapshot of the financial condition of the firm at a particular time.

Fundamental analysis uses

The Investment Environment

Asset Classes and Financial Instruments

How Securities Are Traded

Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

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

Macroeconomic and Industry Analysis

Equity Valuation Models

Options Markets: Introduction

Option Valuation

Futures Markets

Futures, Swaps, and Risk Management

Portfolio Performance Evaluation

International Diversification

Hedge Funds

The Theory of Active Portfolio Management

Investment Policy and the Framework of the Cfa Institute

Filters

Exam 19: Financial Statement Analysis

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

Suppose that Chicken Express, InC. has an ROA of 7% and pays a 6% coupon on its debt. Chicken Express has a capital structure that is 70% equity and 30% debt. Relative to a firm that is 100% equity-financed, Chicken Express's net profit will be ________, and its ROE will be ________.

__________ provides a snapshot of the financial condition of the firm at a particular time.

Fundamental analysis uses

The Investment Environment

Asset Classes and Financial Instruments

How Securities Are Traded

Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

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

Macroeconomic and Industry Analysis

Equity Valuation Models

Options Markets: Introduction

Option Valuation

Futures Markets

Futures, Swaps, and Risk Management

Portfolio Performance Evaluation

International Diversification

Hedge Funds

The Theory of Active Portfolio Management

Investment Policy and the Framework of the Cfa Institute

Filters

Suppose that Chicken Express, InC. has an ROA of 7% and pays a 6% coupon on its debt. Chicken Express has a capital structure that is 70% equity and 30% debt. Relative to a firm that is 100% equity-financed, Chicken Express's net profit will be , and its ROE will be .