Question 1

Which of the following statements is CORRECT?

Accepted Answer

A)  All else equal, increasing the debt ratio will increase the ROA. 
B)  The use of debt financing will tend to lower the basic earning power ratio, other things held constant. 
C)  A firm that employs financial leverage will have a higher equity multiplier than an otherwise identical firm that has no debt in its capital structure. 
D)  If two firms have identical sales, interest rates paid, operating costs, and assets, but differ in the way they are financed, the firm with less debt will generally have the higher expected ROE. 
E)  Holding bonds is better than holding stock for investors because income from bonds is taxed on a more favorable basis than income from stock. 
A)  All else equal, increasing the debt ratio will increase the ROA. 
B)  The use of debt financing will tend to lower the basic earning power ratio, other things held constant. 
C)  A firm that employs financial leverage will have a higher equity multiplier than an otherwise identical firm that has no debt in its capital structure. 
D)  If two firms have identical sales, interest rates paid, operating costs, and assets, but differ in the way they are financed, the firm with less debt will generally have the higher expected ROE. 
E)  Holding bonds is better than holding stock for investors because income from bonds is taxed on a more favorable basis than income from stock.

Question 2

Exhibit 3.1
The balance sheet and income statement shown below are for Pettijohn Inc.Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over.
  
-Refer to Exhibit 3.1.What is the firm's TIE?

Accepted Answer

A)  1.94 
B)  2.15 
C)  2.39 
D)  2.66 
E)  2.93 
A)  1.94 
B)  2.15 
C)  2.39 
D)  2.66 
E)  2.93

Question 3

Exhibit 3.1
The balance sheet and income statement shown below are for Pettijohn Inc.Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over.
  
-Refer to Exhibit 3.1.What is the firm's BEP?

Accepted Answer

A)  6.00% 
B)  6.32% 
C)  6.65% 
D)  6.98% 
E)  7.33% 
A)  6.00% 
B)  6.32% 
C)  6.65% 
D)  6.98% 
E)  7.33%

Question 4

Which of the following statements is CORRECT?

Accepted Answer

A)  Suppose a firm's total assets turnover ratio falls from 1.0 to 0.9, but at the same time its profit margin rises from 9% to 10%, and its debt increases from 40% of total assets to 60%.Under these conditions, the ROE will decrease. 
B)  Suppose a firm's total assets turnover ratio falls from 1.0 to 0.9, but at the same time its profit margin rises from 9% to 10% and its debt increases from 40% of total assets to 60%.Under these conditions, the ROE will increase. 
C)  Suppose a firm's total assets turnover ratio falls from 1.0 to 0.9, but at the same time its profit margin rises from 9% to 10% and its debt increases from 40% of total assets to 60%.Without additional information, we cannot tell what will happen to the ROE. 
D)  The modified DuPont equation provides information about how operations affect the ROE, but the equation does not include the effects of debt on the ROE. 
E)  Other things held constant, an increase in the debt ratio will result in an increase in the profit margin on sales. 
A)  Suppose a firm's total assets turnover ratio falls from 1.0 to 0.9, but at the same time its profit margin rises from 9% to 10%, and its debt increases from 40% of total assets to 60%.Under these conditions, the ROE will decrease. 
B)  Suppose a firm's total assets turnover ratio falls from 1.0 to 0.9, but at the same time its profit margin rises from 9% to 10% and its debt increases from 40% of total assets to 60%.Under these conditions, the ROE will increase. 
C)  Suppose a firm's total assets turnover ratio falls from 1.0 to 0.9, but at the same time its profit margin rises from 9% to 10% and its debt increases from 40% of total assets to 60%.Without additional information, we cannot tell what will happen to the ROE. 
D)  The modified DuPont equation provides information about how operations affect the ROE, but the equation does not include the effects of debt on the ROE. 
E)  Other things held constant, an increase in the debt ratio will result in an increase in the profit margin on sales.

Question 5

Rappaport Corp.'s sales last year were $320, 000, and its net income after taxes was $23, 000.What was its profit margin on sales?

Accepted Answer

A)  6.49% 
B)  6.83% 
C)  7.19% 
D)  7.55% 
E)  7.92% 
A)  6.49% 
B)  6.83% 
C)  7.19% 
D)  7.55% 
E)  7.92%

Question 6

A firm wants to strengthen its financial position.Which of the following actions would increase its quick ratio?

Accepted Answer

A)  Issue new common stock and use the proceeds to acquire additional fixed assets. 
B)  Offer price reductions along with generous credit terms that would (1)enable the firm to sell some of its excess inventory and (2)lead to an increase in accounts receivable. 
C)  Issue new common stock and use the proceeds to increase inventories. 
D)  Speed up the collection of receivables and use the cash generated to increase inventories. 
E)  Use some of its cash to purchase additional inventories. 
A)  Issue new common stock and use the proceeds to acquire additional fixed assets. 
B)  Offer price reductions along with generous credit terms that would (1)enable the firm to sell some of its excess inventory and (2)lead to an increase in accounts receivable. 
C)  Issue new common stock and use the proceeds to increase inventories. 
D)  Speed up the collection of receivables and use the cash generated to increase inventories. 
E)  Use some of its cash to purchase additional inventories.

Question 7

If the CEO of a large, diversified, firm were filling out a fitness report on a division manager (i.e., "grading" the manager), which of the following situations would be likely to cause the manager to receive a better grade? In all cases, assume that other things are held constant.

Accepted Answer

A)  The division's DSO (days' sales outstanding)is 40, whereas the average for its competitors is 30. 
B)  The division's basic earning power ratio is above the average of other firms in its industry. 
C)  The division's total assets turnover ratio is below the average for other firms in its industry. 
D)  The division's debt ratio is above the average for other firms in the industry. 
E)  The division's inventory turnover is 6, whereas the average for its competitors is 8. 
A)  The division's DSO (days' sales outstanding)is 40, whereas the average for its competitors is 30. 
B)  The division's basic earning power ratio is above the average of other firms in its industry. 
C)  The division's total assets turnover ratio is below the average for other firms in its industry. 
D)  The division's debt ratio is above the average for other firms in the industry. 
E)  The division's inventory turnover is 6, whereas the average for its competitors is 8.

Question 8

Emerson Inc.'s would like to undertake a policy of paying out 45% of its income.Its latest net income was $1, 250, 000, and it had 225, 000 shares outstanding.What dividend per share should it declare?

Accepted Answer

A)  $2.14 
B)  $2.26 
C)  $2.38 
D)  $2.50 
E)  $2.63 
A)  $2.14 
B)  $2.26 
C)  $2.38 
D)  $2.50 
E)  $2.63

Question 9

It is appropriate to use the fixed assets turnover ratio to appraise firms' effectiveness in managing their fixed assets if and only if all the firms being compared have the same proportion of fixed assets to total assets.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following statements is CORRECT?

Accepted Answer

A)  If a firm has the highest price/earnings ratio of any firm in its industry, then, other things held constant, this suggests that the board of directors should fire the president. 
B)  If a firm has the highest market/book ratio of any firm in its industry, then, other things held constant, this suggests that the board of directors should fire the president. 
C)  Other things held constant, the higher a firm's expected future growth rate, the lower its P/E ratio is likely to be. 
D)  The higher the market/book ratio, then, other things held constant, the higher one would expect to find the Market Value Added (MV
A) . 
E)  If a firm has a history of high Economic Value Added (EV
A) numbers each year, and if investors expect this situation to continue, then its market/book ratio and MVA are both likely to be below average. 
A)  If a firm has the highest price/earnings ratio of any firm in its industry, then, other things held constant, this suggests that the board of directors should fire the president. 
B)  If a firm has the highest market/book ratio of any firm in its industry, then, other things held constant, this suggests that the board of directors should fire the president. 
C)  Other things held constant, the higher a firm's expected future growth rate, the lower its P/E ratio is likely to be. 
D)  The higher the market/book ratio, then, other things held constant, the higher one would expect to find the Market Value Added (MV
A) . 
E)  If a firm has a history of high Economic Value Added (EV
A) numbers each year, and if investors expect this situation to continue, then its market/book ratio and MVA are both likely to be below average.

Question 11

Lincoln Industries' current ratio is 0.5.Considered alone, which of the following actions would increase the company's current ratio?

Accepted Answer

A)  Use cash to reduce long-term bonds outstanding. 
B)  Borrow using short-term notes payable and use the cash to increase inventories. 
C)  Use cash to reduce accruals. 
D)  Use cash to reduce accounts payable. 
E)  Use cash to reduce short-term notes payable. 
A)  Use cash to reduce long-term bonds outstanding. 
B)  Borrow using short-term notes payable and use the cash to increase inventories. 
C)  Use cash to reduce accruals. 
D)  Use cash to reduce accounts payable. 
E)  Use cash to reduce short-term notes payable.

Question 12

Which of the following statements is CORRECT?

Accepted Answer

A)  If a firm increases its sales and cost of goods sold while holding its inventories constant, then, other things held constant, its inventory turnover ratio will decrease. 
B)  A reduction in inventories held would have no effect on the current ratio. 
C)  An increase in inventories would have no effect on the current ratio. 
D)  If a firm increases its sales and cost of goods sold while holding its inventories constant, then, other things held constant, its inventory turnover ratio will increase. 
E)  A reduction in the inventory turnover ratio will generally lead to an increase in the ROE. 
A)  If a firm increases its sales and cost of goods sold while holding its inventories constant, then, other things held constant, its inventory turnover ratio will decrease. 
B)  A reduction in inventories held would have no effect on the current ratio. 
C)  An increase in inventories would have no effect on the current ratio. 
D)  If a firm increases its sales and cost of goods sold while holding its inventories constant, then, other things held constant, its inventory turnover ratio will increase. 
E)  A reduction in the inventory turnover ratio will generally lead to an increase in the ROE.

Question 13

Which of the following statements is CORRECT?

Accepted Answer

A)  If a firm increases its sales while holding its accounts receivable constant, then, other things held constant, its days' sales outstanding will decline. 
B)  If a security analyst saw that a firm's days' sales outstanding (DSO)was higher than the industry average and was also increasing and trending still higher, this would be interpreted as a sign of strength. 
C)  If a firm increases its sales while holding its accounts receivable constant, then, other things held constant, its days' sales outstanding (DSO)will increase. 
D)  There is no relationship between the days' sales outstanding (DSO)and the average collection period (ACP).These ratios measure entirely different things. 
E)  A reduction in accounts receivable would have no effect on the current ratio, but it would lead to an increase in the quick ratio. 
A)  If a firm increases its sales while holding its accounts receivable constant, then, other things held constant, its days' sales outstanding will decline. 
B)  If a security analyst saw that a firm's days' sales outstanding (DSO)was higher than the industry average and was also increasing and trending still higher, this would be interpreted as a sign of strength. 
C)  If a firm increases its sales while holding its accounts receivable constant, then, other things held constant, its days' sales outstanding (DSO)will increase. 
D)  There is no relationship between the days' sales outstanding (DSO)and the average collection period (ACP).These ratios measure entirely different things. 
E)  A reduction in accounts receivable would have no effect on the current ratio, but it would lead to an increase in the quick ratio.

Question 14

Exhibit 3.1
The balance sheet and income statement shown below are for Pettijohn Inc.Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over.
  
-Refer to Exhibit 3.1.What is the firm's quick ratio?

Accepted Answer

A)  0.49 
B)  0.61 
C)  0.73 
D)  0.87 
E)  1.05 
A)  0.49 
B)  0.61 
C)  0.73 
D)  0.87 
E)  1.05

Question 15

Companies Heidee and Leaudy are virtually identical in that they are both profitable, and they have the same total assets (TA), Sales (S), return on assets (ROA), and profit margin (PM).However, Company Heidee has the higher debt ratio.Which of the following statements is CORRECT?

Accepted Answer

A)  Company Heidee has a lower operating income (EBIT)than Company LD. 
B)  Company Heidee has a lower total assets turnover than Company Leaudy. 
C)  Company Heidee has a lower equity multiplier than Company Leaudy. 
D)  Company Heidee has a higher fixed assets turnover than Company Leaudy. 
E)  Company Heidee has a higher ROE than Company Leaudy. 
A)  Company Heidee has a lower operating income (EBIT)than Company LD. 
B)  Company Heidee has a lower total assets turnover than Company Leaudy. 
C)  Company Heidee has a lower equity multiplier than Company Leaudy. 
D)  Company Heidee has a higher fixed assets turnover than Company Leaudy. 
E)  Company Heidee has a higher ROE than Company Leaudy.

Question 16

Lindley Corp.'s stock price at the end of last year was $33.50, and its book value per share was $25.00.What was its market/book ratio?

Accepted Answer

A)  1.34 
B)  1.41 
C)  1.48 
D)  1.55 
E)  1.63 
A)  1.34 
B)  1.41 
C)  1.48 
D)  1.55 
E)  1.63

Question 17

A firm's new president wants to strengthen the company's financial position.Which of the following actions would make it financially stronger?

Accepted Answer

A)  Increase inventories while holding sales and cost of goods sold constant. 
B)  Increase accounts receivable while holding sales constant. 
C)  Increase EBIT while holding sales constant. 
D)  Increase accounts payable while holding sales constant. 
E)  Increase notes payable while holding sales constant. 
A)  Increase inventories while holding sales and cost of goods sold constant. 
B)  Increase accounts receivable while holding sales constant. 
C)  Increase EBIT while holding sales constant. 
D)  Increase accounts payable while holding sales constant. 
E)  Increase notes payable while holding sales constant.

Question 18

You observe that a firm's ROE is above the industry average, but its profit margin and debt ratio are both below the industry average.Which of the following statements is CORRECT?

Accepted Answer

A)  Its total assets turnover must equal the industry average. 
B)  Its total assets turnover must be above the industry average. 
C)  Its return on assets must equal the industry average. 
D)  Its TIE ratio must be below the industry average. 
E)  Its total assets turnover must be below the industry average. 
A)  Its total assets turnover must equal the industry average. 
B)  Its total assets turnover must be above the industry average. 
C)  Its return on assets must equal the industry average. 
D)  Its TIE ratio must be below the industry average. 
E)  Its total assets turnover must be below the industry average.

Question 19

Arshadi Corp.'s sales last year were $52, 000, and its total assets were $22, 000.What was its total assets turnover ratio (TATO)?

Accepted Answer

A)  2.03 
B)  2.13 
C)  2.25 
D)  2.36 
E)  2.48 
A)  2.03 
B)  2.13 
C)  2.25 
D)  2.36 
E)  2.48

Question 20

Heidee Corp.and Leaudy Corp.have identical assets, sales, interest rates paid on their debt, tax rates, and EBIT.However, Heidee uses more debt than Leaudy.Which of the following statements is CORRECT?

Accepted Answer

A)  Heidee would have the higher net income as shown on the income statement. 
B)  Without more information, we cannot tell if Heidee or Leaudy would have a higher or lower net income. 
C)  Heidee would have the lower equity multiplier for use in the DuPont equation. 
D)  Heidee would have to pay more in income taxes. 
E)  Heidee would have the lower net income as shown on the income statement. 
A)  Heidee would have the higher net income as shown on the income statement. 
B)  Without more information, we cannot tell if Heidee or Leaudy would have a higher or lower net income. 
C)  Heidee would have the lower equity multiplier for use in the DuPont equation. 
D)  Heidee would have to pay more in income taxes. 
E)  Heidee would have the lower net income as shown on the income statement.

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Rappaport Corp.'s sales last year were $320, 000, and its net income after taxes was $23, 000.What was its profit margin on sales?

A firm wants to strengthen its financial position.Which of the following actions would increase its quick ratio?

If the CEO of a large, diversified, firm were filling out a fitness report on a division manager (i.e., "grading" the manager), which of the following situations would be likely to cause the manager to receive a better grade? In all cases, assume that other things are held constant.

Emerson Inc.'s would like to undertake a policy of paying out 45% of its income.Its latest net income was $1, 250, 000, and it had 225, 000 shares outstanding.What dividend per share should it declare?

It is appropriate to use the fixed assets turnover ratio to appraise firms' effectiveness in managing their fixed assets if and only if all the firms being compared have the same proportion of fixed assets to total assets.

Which of the following statements is CORRECT?

Lincoln Industries' current ratio is 0.5.Considered alone, which of the following actions would increase the company's current ratio?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Companies Heidee and Leaudy are virtually identical in that they are both profitable, and they have the same total assets (TA), Sales (S), return on assets (ROA), and profit margin (PM).However, Company Heidee has the higher debt ratio.Which of the following statements is CORRECT?

Lindley Corp.'s stock price at the end of last year was $33.50, and its book value per share was $25.00.What was its market/book ratio?

A firm's new president wants to strengthen the company's financial position.Which of the following actions would make it financially stronger?

You observe that a firm's ROE is above the industry average, but its profit margin and debt ratio are both below the industry average.Which of the following statements is CORRECT?

Arshadi Corp.'s sales last year were $52, 000, and its total assets were $22, 000.What was its total assets turnover ratio (TATO)?

Heidee Corp.and Leaudy Corp.have identical assets, sales, interest rates paid on their debt, tax rates, and EBIT.However, Heidee uses more debt than Leaudy.Which of the following statements is CORRECT?

An overview of financial management and the financial environment

Financial statements, cash flow, and taxes

Time value of money

Bonds, bond valuation, and interest rates

Risk and return

Valuation of stocks and corporations

Financial options and applications in corporate finance

The cost of capital

The basics of capital budgeting: evaluating cash flows

Cash flow estimation and risk analysis

Corporate valuation and financial planning

Agency conflicts and corporate governance

Distributions to shareholders: dividends and repurchases

Capital structure decisions

Supply chains and working capital management

Multinational financial management

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Exam 3: Analysis of financial statements

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Rappaport Corp.'s sales last year were $320, 000, and its net income after taxes was $23, 000.What was its profit margin on sales?

A firm wants to strengthen its financial position.Which of the following actions would increase its quick ratio?

If the CEO of a large, diversified, firm were filling out a fitness report on a division manager (i.e., "grading" the manager), which of the following situations would be likely to cause the manager to receive a better grade? In all cases, assume that other things are held constant.

Emerson Inc.'s would like to undertake a policy of paying out 45% of its income.Its latest net income was $1, 250, 000, and it had 225, 000 shares outstanding.What dividend per share should it declare?

It is appropriate to use the fixed assets turnover ratio to appraise firms' effectiveness in managing their fixed assets if and only if all the firms being compared have the same proportion of fixed assets to total assets.

Which of the following statements is CORRECT?

Lincoln Industries' current ratio is 0.5.Considered alone, which of the following actions would increase the company's current ratio?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Companies Heidee and Leaudy are virtually identical in that they are both profitable, and they have the same total assets (TA), Sales (S), return on assets (ROA), and profit margin (PM).However, Company Heidee has the higher debt ratio.Which of the following statements is CORRECT?

Lindley Corp.'s stock price at the end of last year was $33.50, and its book value per share was $25.00.What was its market/book ratio?

A firm's new president wants to strengthen the company's financial position.Which of the following actions would make it financially stronger?

You observe that a firm's ROE is above the industry average, but its profit margin and debt ratio are both below the industry average.Which of the following statements is CORRECT?

Arshadi Corp.'s sales last year were $52, 000, and its total assets were $22, 000.What was its total assets turnover ratio (TATO)?

Heidee Corp.and Leaudy Corp.have identical assets, sales, interest rates paid on their debt, tax rates, and EBIT.However, Heidee uses more debt than Leaudy.Which of the following statements is CORRECT?

An overview of financial management and the financial environment

Financial statements, cash flow, and taxes

Time value of money

Bonds, bond valuation, and interest rates

Risk and return

Valuation of stocks and corporations

Financial options and applications in corporate finance

The cost of capital

The basics of capital budgeting: evaluating cash flows

Cash flow estimation and risk analysis

Corporate valuation and financial planning

Agency conflicts and corporate governance

Distributions to shareholders: dividends and repurchases

Capital structure decisions

Supply chains and working capital management

Multinational financial management

Filters