Question 1

What will be the effect on the income statement if a firm buys a new processing plant through a new loan?

Accepted Answer

The effect on the income state

Question 2

MTS has 83 million shares outstanding with a current share price of $19.25.The firm has a market-to-book ratio of 4.17 and a book debt-equity ratio of 1.59.If MTS currently has $24 million in cash,what is its enterprise value?

Accepted Answer

A) $0.968 billion 
B) $4.115 billion 
C) $1.598 billion 
D) $2.183 billion 
E) $1.013 billion 
A) $0.968 billion 
B) $4.115 billion 
C) $1.598 billion 
D) $2.183 billion 
E) $1.013 billion

Question 3

A firm's net profit margin increased from 3.2% to 3.8% from 2014 to 2015.If total sales increased from $312 million in 2014 to $345 million in 2015,what was the increase in net income?

Accepted Answer

A) $19 million 
B) $21 million 
C) $3 million 
D) $2 million 
E) $13 million 
A) $19 million 
B) $21 million 
C) $3 million 
D) $2 million 
E) $13 million

Question 4

Use the table for the question(s)below.
Statement of Financial Position
  
-If the above statement of financial position is for a retail company,what indications about this company would best be drawn from the changes in shareholders' equity between 2014 and 2015?

Accepted Answer

A) The company is very profitable because it is obviously collecting receivables faster. 
B) The company is selling its property,plant,and equipment,which may result in a long-term deficiency in production capacity. 
C) The company's net income in 2015 was negative. 
D) The company's enterprise value declined. 
E) The company has experienced a significant rise in its market value. 
A) The company is very profitable because it is obviously collecting receivables faster. 
B) The company is selling its property,plant,and equipment,which may result in a long-term deficiency in production capacity. 
C) The company's net income in 2015 was negative. 
D) The company's enterprise value declined. 
E) The company has experienced a significant rise in its market value.

Question 5

Use the table for the question(s)below.
Statement of Financial Position
  
-If the above statement of financial position is for a retail company,what indications about this company would best be drawn from the changes in the statement of financial position between 2014 and 2015?

Accepted Answer

A) The company is having difficulties selling its product. 
B) The company has reduced its debt. 
C) The company has added a major new asset in terms of plant and equipment. 
D) The company has experienced a significant rise in its market value. 
E) The company has reduced its net working capital. 
A) The company is having difficulties selling its product. 
B) The company has reduced its debt. 
C) The company has added a major new asset in terms of plant and equipment. 
D) The company has experienced a significant rise in its market value. 
E) The company has reduced its net working capital.

Question 6

Above are portions of the balance sheet and income statement for two companies in 2015.Based upon this information,which of the following statements is most likely to be TRUE?

Accepted Answer

A) Asset turnover ratios indicate that firm A is generating greater revenue per dollar of assets than firm B. 
B) Fixed asset turnover ratios indicate that firm A generating fewer sales for the assets they employ than firm B. 
C) Both asset turnover ratios and fixed asset turnover ratios indicate that firm A is generating greater revenue per dollar of assets than firm B. 
D) Fixed asset turnover ratios indicate that firm A generating more sales for the assets they employ than firm B. 
E) Asset turnover ratios indicate that firm A is generating less revenue per dollar of assets than firm B. 
A) Asset turnover ratios indicate that firm A is generating greater revenue per dollar of assets than firm B. 
B) Fixed asset turnover ratios indicate that firm A generating fewer sales for the assets they employ than firm B. 
C) Both asset turnover ratios and fixed asset turnover ratios indicate that firm A is generating greater revenue per dollar of assets than firm B. 
D) Fixed asset turnover ratios indicate that firm A generating more sales for the assets they employ than firm B. 
E) Asset turnover ratios indicate that firm A is generating less revenue per dollar of assets than firm B.

Question 7

One way Enron manipulated its financial statements was to sell assets at inflated prices to other firms,while giving a promise to buy back those assets at a later date.The incoming cash was recorded as revenue,but the promise to buy back the assets was not disclosed.Which of the following is one of the ways that such a transaction is deceptive?

Accepted Answer

A) The assets should have been listed on the balance sheet as long-term assets. 
B) Cash raised by selling assets should not be recorded as revenue. 
C) The cash raised should have been recorded as short-term loans. 
D) The off balance sheet promises to repurchase assets should have been disclosed in management discussion and analysis (MD&
A) or notes to the financial statement. 
E) The promise to buy back the assets should have been listed under accounts payable. 
A) The assets should have been listed on the balance sheet as long-term assets. 
B) Cash raised by selling assets should not be recorded as revenue. 
C) The cash raised should have been recorded as short-term loans. 
D) The off balance sheet promises to repurchase assets should have been disclosed in management discussion and analysis (MD&
A) or notes to the financial statement. 
E) The promise to buy back the assets should have been listed under accounts payable.

Question 8

Use the table for the question(s)below.
    
-Refer to the statement of financial position above.Luther's current ratio for 2015 is closest to:

Accepted Answer

A) 0.84 
B) 0.87 
C) 1.15 
D) 1.19 
E) 0.77 
A) 0.84 
B) 0.87 
C) 1.15 
D) 1.19 
E) 0.77

Question 9

Use the table for the question(s)below.
    
-Refer to the statement of financial position above.If on December 31,2014 Luther has 8 million shares outstanding trading at $15 per share,then what is Luther's market-to-book ratio?

Accepted Answer

market-to-book = market value

Question 10

A firm has total sales of $53 million.It has gross profit of $12 million,operating income of $8.5 million,and net income of $4 million.What is the firm's net profit margin?

Accepted Answer

A) 7.5% 
B) 16% 
C) 22.6% 
D) 33.3% 
E) 47% 
A) 7.5% 
B) 16% 
C) 22.6% 
D) 33.3% 
E) 47%

Question 11

A stock has 94 million shares outstanding,with a current share price of $3.53 per share.If the firm's book value of equity is $120 million,what is its market-to-book ratio?

Accepted Answer

A) 2.77 
B) 0.38 
C) 1.28 
D) 0.78 
E) 3.53 
A) 2.77 
B) 0.38 
C) 1.28 
D) 0.78 
E) 3.53

Question 12

Use the table for the question(s)below.
    
-Refer to the statement of financial position above.If in 2015 Luther has 10.2 million shares outstanding and these shares are trading at $16 per share,then using the market value of equity,the debt-equity ratio for Luther in 2015 is closest to:

Accepted Answer

A) 1.71 
B) 1.78 
C) 2.31 
D) 2.35 
E) 2.29 
A) 1.71 
B) 1.78 
C) 2.31 
D) 2.35 
E) 2.29

Question 13

Use the table for the question(s)below.
    
-Refer to the statement of financial position above.If in 2015 Luther has 10.2 million shares outstanding and these shares are trading at $16 per share,then Luther's market-to-book ratio would be closest to:

Accepted Answer

A) 0.39 
B) 0.76 
C) 1.29 
D) 2.57 
E) 0.31 
A) 0.39 
B) 0.76 
C) 1.29 
D) 2.57 
E) 0.31

Question 14

How does a firm select the date for preparation of its statement of financial position?

Accepted Answer

The statement of financial pos

Question 15

Farhan's Fences has retained earnings of $2.5 million,after paying dividends of $1.5 million.What was the firm's payout ratio?

Accepted Answer

A) 0.38 
B) 0.60 
C) 0.63 
D) 1.50 
E) 1.67 
A) 0.38 
B) 0.60 
C) 0.63 
D) 1.50 
E) 1.67

Question 16

Use the table for the question(s)below.
Income Statement for Xenon Manufacturing:
  
-Consider the above Income Statement for Xenon Manufacturing.All values are in millions of dollars.Calculate the gross margin for 2014 and 2015.What does the change in the net profit margin between these two years imply about the company?

Accepted Answer

A) The efficiency of Xenon Manufacturing has significantly risen between 2014 and 2015. 
B) The ability of Xenon Manufacturing to sell its goods and services for more than the costs of producing them rose between 2014 and 2015. 
C) The ability of Xenon Manufacturing to sell its goods and services for more than the costs of producing them fell between 2014 and 2015. 
D) The leverage of Xenon Manufacturing fell slightly between 2014 and 2015. 
E) The revenues available to equity holders fell slightly between 2014 and 2015. 
A) The efficiency of Xenon Manufacturing has significantly risen between 2014 and 2015. 
B) The ability of Xenon Manufacturing to sell its goods and services for more than the costs of producing them rose between 2014 and 2015. 
C) The ability of Xenon Manufacturing to sell its goods and services for more than the costs of producing them fell between 2014 and 2015. 
D) The leverage of Xenon Manufacturing fell slightly between 2014 and 2015. 
E) The revenues available to equity holders fell slightly between 2014 and 2015.

Question 17

Use the table for the question(s)below.
  
-Refer to the income statement above.Luther's earnings before interest,taxes,depreciation,and amortization (EBITDA)for the year ending December 31,2015 is closest to:

Accepted Answer

A) $10.6 million 
B) $19.7 million 
C) $37.6 million 
D) $41.2 million 
E) $44.8 million 
A) $10.6 million 
B) $19.7 million 
C) $37.6 million 
D) $41.2 million 
E) $44.8 million

Question 18

In 2015,an agricultural company introduced a new cropping process which reduced the cost of growing some of its crops.If sales in 2014 and 2015 were steady at $25 million,but the gross margin increased from 2.3% to 3.4% between those years,by what amount was the cost of sales reduced?

Accepted Answer

A) $275,000 
B) $325,000 
C) $425,000 
D) $575,000 
E) $850,000 
A) $275,000 
B) $325,000 
C) $425,000 
D) $575,000 
E) $850,000

Question 19

Use the table for the question(s)below.
AOS Industries Statement of Cash Flows for 2015
  
-Consider the above statement of cash flows.In 2015,AOS Industries had contemplated buying a new warehouse for $2 million,the cost of which would be depreciated over 10 years.If AOS Industries has a tax rate of 25%,what would be the impact on the amount of cash held by AOS at the the end of the 2015?

Accepted Answer

A) It would have $2,00,000 less cash at the end of 2015. 
B) It would have $1,950,000 less cash at the end of 2015. 
C) It would have $150,000 less cash at the end of 2015. 
D) It would have an additional $50,000 in cash at the end of 2015. 
E) It would have $1,800,000 less cash at the end of 2015. 
A) It would have $2,00,000 less cash at the end of 2015. 
B) It would have $1,950,000 less cash at the end of 2015. 
C) It would have $150,000 less cash at the end of 2015. 
D) It would have an additional $50,000 in cash at the end of 2015. 
E) It would have $1,800,000 less cash at the end of 2015.

Question 20

Which ratio would you use to measure the financial health of a firm by assessing that firm's leverage?

Accepted Answer

A) debt-equity or equity multiplier ratio 
B) market-to-book ratio 
C) market debt-equity ratio 
D) current or quick ratio 
E) price-to-book ratio 
A) debt-equity or equity multiplier ratio 
B) market-to-book ratio 
C) market debt-equity ratio 
D) current or quick ratio 
E) price-to-book ratio

Exam 2: Introduction to Financial Statement Analysis

What will be the effect on the income statement if a firm buys a new processing plant through a new loan?

MTS has 83 million shares outstanding with a current share price of $19.25.The firm has a market-to-book ratio of 4.17 and a book debt-equity ratio of 1.59.If MTS currently has $24 million in cash,what is its enterprise value?

A firm's net profit margin increased from 3.2% to 3.8% from 2014 to 2015.If total sales increased from $312 million in 2014 to $345 million in 2015,what was the increase in net income?

Use the table for the question(s)below. Statement of Financial Position -If the above statement of financial position is for a retail company,what indications about this company would best be drawn from the changes in shareholders' equity between 2014 and 2015?

Use the table for the question(s)below. Statement of Financial Position -If the above statement of financial position is for a retail company,what indications about this company would best be drawn from the changes in the statement of financial position between 2014 and 2015?

Above are portions of the balance sheet and income statement for two companies in 2015.Based upon this information,which of the following statements is most likely to be TRUE?

Use the table for the question(s)below. -Refer to the statement of financial position above.Luther's current ratio for 2015 is closest to:

Use the table for the question(s)below. -Refer to the statement of financial position above.If on December 31,2014 Luther has 8 million shares outstanding trading at $15 per share,then what is Luther's market-to-book ratio?

A firm has total sales of $53 million.It has gross profit of $12 million,operating income of $8.5 million,and net income of $4 million.What is the firm's net profit margin?

A stock has 94 million shares outstanding,with a current share price of $3.53 per share.If the firm's book value of equity is $120 million,what is its market-to-book ratio?

Use the table for the question(s)below. -Refer to the statement of financial position above.If in 2015 Luther has 10.2 million shares outstanding and these shares are trading at $16 per share,then using the market value of equity,the debt-equity ratio for Luther in 2015 is closest to:

Use the table for the question(s)below. -Refer to the statement of financial position above.If in 2015 Luther has 10.2 million shares outstanding and these shares are trading at $16 per share,then Luther's market-to-book ratio would be closest to:

How does a firm select the date for preparation of its statement of financial position?

Farhan's Fences has retained earnings of $2.5 million,after paying dividends of $1.5 million.What was the firm's payout ratio?

Use the table for the question(s)below. -Refer to the income statement above.Luther's earnings before interest,taxes,depreciation,and amortization (EBITDA)for the year ending December 31,2015 is closest to:

In 2015,an agricultural company introduced a new cropping process which reduced the cost of growing some of its crops.If sales in 2014 and 2015 were steady at $25 million,but the gross margin increased from 2.3% to 3.4% between those years,by what amount was the cost of sales reduced?

Which ratio would you use to measure the financial health of a firm by assessing that firm's leverage?

Corporate Finance and the Financial Manager

The Valuation Principle: the Foundation of Financial Decision Making

The Time Value of Money

Interest Rates

Bonds

Valuing Stocks

Investment Decision Rules

Fundamentals of Capital Budgeting

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

Determining the Cost of Capital

Risk and the Pricing of Options

Raising Equity Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modelling and Pro Forma Analysis

Working Capital Management

Short-Term Financial Planning

Risk Management

International Corporate Finance

Leasing

Mergers and Acquisitions

Corporate Governance

Filters