Question 1

A firm has a compound leverage factor greater than 1; this indicates that ________.

Accepted Answer

A)  the firm has no interest payments 
B)  the firm uses less debt as a percentage of financing 
C)  the firm's interest payments are equal to the firm's pretax profits 
D)  the firm's debt has a positive contribution to the firm's ROA 
A)  the firm has no interest payments 
B)  the firm uses less debt as a percentage of financing 
C)  the firm's interest payments are equal to the firm's pretax profits 
D)  the firm's debt has a positive contribution to the firm's ROA

Question 2

If the interest rate on debt is higher than the ROA, then by using debt a firm's ROE will ________.

Accepted Answer

A)  decrease 
B)  increase 
C)  not change 
D)  change but in an indeterminable manner 
A)  decrease 
B)  increase 
C)  not change 
D)  change but in an indeterminable manner

Question 3

If a firm's borrowing rate exceeds its ROA, then ROE will ________.

Accepted Answer

A)  increase by an amount that depends on the equity/debt ratio. 
B)  increase by an amount that depends on the debt/equity ratio. 
C)  decline by an amount that depends on the equity/debt ratio. 
D)  decline by an amount that depends on the debt/equity ratio. 
A)  increase by an amount that depends on the equity/debt ratio. 
B)  increase by an amount that depends on the debt/equity ratio. 
C)  decline by an amount that depends on the equity/debt ratio. 
D)  decline by an amount that depends on the debt/equity ratio.

Question 4

Common-size balance sheets are prepared by dividing all quantities by ________.

Accepted Answer

A)  total assets 
B)  total liabilities 
C)  shareholders' equity 
D)  fixed assets 
A)  total assets 
B)  total liabilities 
C)  shareholders' equity 
D)  fixed assets

Question 5

The level of real income of a firm can be distorted by the reporting of depreciation and interest expense. During periods of low inflation, the level of reported depreciation tends to ________ income, and the level of interest expense reported tends to ________ income.

Accepted Answer

A)  understate; overstate 
B)  understate; understate 
C)  overstate; understate 
D)  overstate; overstate 
A)  understate; overstate 
B)  understate; understate 
C)  overstate; understate 
D)  overstate; overstate

Question 6

In 2017 Huge-Packing repurchased shares of common stock worth $5,241 million and made dividend payments of $894 million. Other financing activities raised $196 million, and Huge-Packing's total cash flow from financing was -$6,077 million. How much did the long-term debt accounts of Huge-Packing change?

Accepted Answer

A)  increased $138 million 
B)  decreased $138 million 
C)  increased $836 million 
D)  decreased $836 million 
A)  increased $138 million 
B)  decreased $138 million 
C)  increased $836 million 
D)  decreased $836 million

Question 7

The financial statements of Burnaby Mountain Trading Company are shown below.

Note: The common shares are trading in the stock market for $27 each.
Refer to the financial statements of Burnaby Mountain Trading Company. The firm's current ratio for 2017 is ________.

Accepted Answer

A)  1.3 
B)  1.5 
C)  1.69 
D)  2.83 
A)  1.3 
B)  1.5 
C)  1.69 
D)  2.83

Question 8

A firm increases its financial leverage when its ROA is greater than the cost of debt. Everything else equal, this change will probably increase the firm's:
I. Beta
II. Earnings variability over the business cycle
III. ROE
IV. Stock price

Accepted Answer

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

Question 9

The financial statements of Flathead Lake Manufacturing Company are shown below.

Note: The common shares are trading in the stock market for $15 per share.
Refer to the financial statements of Flathead Lake Manufacturing Company. The firm's inventory turnover ratio is ________. (Please keep in mind that when a ratio involves both income statement and balance sheet numbers, the balance sheet numbers for the beginning and end of the year must be averaged.)

Accepted Answer

A)  11.6 
B)  10.2 
C)  9.5 
D)  7.7 
A)  11.6 
B)  10.2 
C)  9.5 
D)  7.7

Question 10

Which of the following is not one of the three key financial statements available to investors in publicly traded firms?

Accepted Answer

A)  income statement 
B)  balance sheet 
C)  statement of operating earnings 
D)  statement of cash flows 
A)  income statement 
B)  balance sheet 
C)  statement of operating earnings 
D)  statement of cash flows

Question 11

The financial statements of Burnaby Mountain Trading Company are shown below.

Note: The common shares are trading in the stock market for $27 each.
Refer to the financial statements of Burnaby Mountain Trading Company. The firm's quick ratio for 2017 is ________.

Accepted Answer

A)  1.3 
B)  1.5 
C)  1.69 
D)  2.83 
A)  1.3 
B)  1.5 
C)  1.69 
D)  2.83

Question 12

A firm has an ROA of 8% and a debt/equity ratio of 0.5; its ROE is ________.

Accepted Answer

A)  4% 
B)  6% 
C)  8% 
D)  12% 
A)  4% 
B)  6% 
C)  8% 
D)  12%

Question 13

The practice of "selling" large quantities of goods to customers in order to get quarterly sales up while allowing these customers to return the goods next quarter is termed ________.

Accepted Answer

A)  channel stuffing 
B)  clogging the network 
C)  spamming the johns 
D)  artificial sales 
A)  channel stuffing 
B)  clogging the network 
C)  spamming the johns 
D)  artificial sales

Question 14

Which of the following will result in an increase in cash to the firm?

Accepted Answer

A)  dividends paid 
B)  a delay in collecting on accounts receivable 
C)  net new investments 
D)  an increase in accounts payable 
A)  dividends paid 
B)  a delay in collecting on accounts receivable 
C)  net new investments 
D)  an increase in accounts payable

Question 15

The financial statements of Burnaby Mountain Trading Company are shown below.

Note: The common shares are trading in the stock market for $27 each.
Refer to the financial statements of Burnaby Mountain Trading Company. The firm's leverage ratio for 2017 is ________.

Accepted Answer

A)  1.3 
B)  1.5 
C)  1.69 
D)  2.83 
A)  1.3 
B)  1.5 
C)  1.69 
D)  2.83

Question 16

The tax burden of the firm is 0.4, the interest burden is 0.65, the return on sales is 0.05, the asset turnover is 0.90, and the leverage ratio is 1.35. What is the ROE of the firm?

Accepted Answer

A)  1.58% 
B)  5.68% 
C)  12.2% 
D)  13.33% 
A)  1.58% 
B)  5.68% 
C)  12.2% 
D)  13.33%

Question 17

A firm purchases goods on credit worth $150. The same firm pays off $100 in old credit purchases. An investment is made via the purchase of a new facility, and equity is issued in the amount of $300 to pay for the purchase. What is the change in net cash provided by operations?

Accepted Answer

A)  $50 increase 
B)  $100 increase 
C)  $150 increase 
D)  $250 increase 
A)  $50 increase 
B)  $100 increase 
C)  $150 increase 
D)  $250 increase

Question 18

A firm has an ROA of 19%, a debt/equity ratio of 1.8, and a tax rate of 30%, and the interest rate on its debt is 7%. Its ROE is ________.

Accepted Answer

A)  15.12% 
B)  28.42% 
C)  37.24% 
D)  40.6% 
A)  15.12% 
B)  28.42% 
C)  37.24% 
D)  40.6%

Question 19

A firm has a P/E ratio of 24 and an ROE of 12%. Its market-to-book-value ratio is ________.

Accepted Answer

A)  2.88 
B)  2 
C)  1.75 
D)  0.69 
A)  2.88 
B)  2 
C)  1.75 
D)  0.69

Question 20

The highest possible value for the interest-burden ratio is ________, and this occurs when the firm ________.

Accepted Answer

A)  0; uses as much debt as possible 
B)  1; uses debt to the point where ROA = interest cost of debt 
C)  1; uses no interest-bearing debt 
D)  -1; pays down its existing debts 
A)  0; uses as much debt as possible 
B)  1; uses debt to the point where ROA = interest cost of debt 
C)  1; uses no interest-bearing debt 
D)  -1; pays down its existing debts

A firm has a compound leverage factor greater than 1; this indicates that ________.

If the interest rate on debt is higher than the ROA, then by using debt a firm's ROE will ________.

If a firm's borrowing rate exceeds its ROA, then ROE will ________.

Common-size balance sheets are prepared by dividing all quantities by ________.

The level of real income of a firm can be distorted by the reporting of depreciation and interest expense. During periods of low inflation, the level of reported depreciation tends to income, and the level of interest expense reported tends to income.

The financial statements of Burnaby Mountain Trading Company are shown below. Note: The common shares are trading in the stock market for $27 each. Refer to the financial statements of Burnaby Mountain Trading Company. The firm's current ratio for 2017 is ________.

A firm increases its financial leverage when its ROA is greater than the cost of debt. Everything else equal, this change will probably increase the firm's: I. Beta II. Earnings variability over the business cycle III. ROE IV. Stock price

Which of the following is not one of the three key financial statements available to investors in publicly traded firms?

The financial statements of Burnaby Mountain Trading Company are shown below. Note: The common shares are trading in the stock market for $27 each. Refer to the financial statements of Burnaby Mountain Trading Company. The firm's quick ratio for 2017 is ________.

A firm has an ROA of 8% and a debt/equity ratio of 0.5; its ROE is ________.

The practice of "selling" large quantities of goods to customers in order to get quarterly sales up while allowing these customers to return the goods next quarter is termed ________.

Which of the following will result in an increase in cash to the firm?

The financial statements of Burnaby Mountain Trading Company are shown below. Note: The common shares are trading in the stock market for $27 each. Refer to the financial statements of Burnaby Mountain Trading Company. The firm's leverage ratio for 2017 is ________.

The tax burden of the firm is 0.4, the interest burden is 0.65, the return on sales is 0.05, the asset turnover is 0.90, and the leverage ratio is 1.35. What is the ROE of the firm?

A firm purchases goods on credit worth $150. The same firm pays off $100 in old credit purchases. An investment is made via the purchase of a new facility, and equity is issued in the amount of $300 to pay for the purchase. What is the change in net cash provided by operations?

A firm has an ROA of 19%, a debt/equity ratio of 1.8, and a tax rate of 30%, and the interest rate on its debt is 7%. Its ROE is ________.

A firm has a P/E ratio of 24 and an ROE of 12%. Its market-to-book-value ratio is ________.

The highest possible value for the interest-burden ratio is , and this occurs when the firm .

Investments: Background and Issues

Asset Classes and Financial Instruments

Securities Markets

Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

Efficient Diversification

Capital Asset Pricing and Arbitrage Pricing Theory

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Bond Prices and Yields

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation

Options Markets

Option Valuation

Futures Markets and Risk Management

Evaluating Investment Performance

International Diversification

Hedge Funds

Taxes, Inflation, and Investment Strategy

Investors and the Investment Process

Filters

Exam 14: Financial Statement Analysis

A firm has a compound leverage factor greater than 1; this indicates that ________.

If the interest rate on debt is higher than the ROA, then by using debt a firm's ROE will ________.

If a firm's borrowing rate exceeds its ROA, then ROE will ________.

Common-size balance sheets are prepared by dividing all quantities by ________.

The level of real income of a firm can be distorted by the reporting of depreciation and interest expense. During periods of low inflation, the level of reported depreciation tends to ________ income, and the level of interest expense reported tends to ________ income.

The financial statements of Burnaby Mountain Trading Company are shown below. Note: The common shares are trading in the stock market for $27 each. Refer to the financial statements of Burnaby Mountain Trading Company. The firm's current ratio for 2017 is ________.

A firm increases its financial leverage when its ROA is greater than the cost of debt. Everything else equal, this change will probably increase the firm's: I. Beta II. Earnings variability over the business cycle III. ROE IV. Stock price

Which of the following is not one of the three key financial statements available to investors in publicly traded firms?

The financial statements of Burnaby Mountain Trading Company are shown below. Note: The common shares are trading in the stock market for $27 each. Refer to the financial statements of Burnaby Mountain Trading Company. The firm's quick ratio for 2017 is ________.

A firm has an ROA of 8% and a debt/equity ratio of 0.5; its ROE is ________.

The practice of "selling" large quantities of goods to customers in order to get quarterly sales up while allowing these customers to return the goods next quarter is termed ________.

Which of the following will result in an increase in cash to the firm?

The financial statements of Burnaby Mountain Trading Company are shown below. Note: The common shares are trading in the stock market for $27 each. Refer to the financial statements of Burnaby Mountain Trading Company. The firm's leverage ratio for 2017 is ________.

The tax burden of the firm is 0.4, the interest burden is 0.65, the return on sales is 0.05, the asset turnover is 0.90, and the leverage ratio is 1.35. What is the ROE of the firm?

A firm purchases goods on credit worth $150. The same firm pays off $100 in old credit purchases. An investment is made via the purchase of a new facility, and equity is issued in the amount of $300 to pay for the purchase. What is the change in net cash provided by operations?

A firm has an ROA of 19%, a debt/equity ratio of 1.8, and a tax rate of 30%, and the interest rate on its debt is 7%. Its ROE is ________.

A firm has a P/E ratio of 24 and an ROE of 12%. Its market-to-book-value ratio is ________.

The highest possible value for the interest-burden ratio is ________, and this occurs when the firm ________.

Investments: Background and Issues

Asset Classes and Financial Instruments

Securities Markets

Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

Efficient Diversification

Capital Asset Pricing and Arbitrage Pricing Theory

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Bond Prices and Yields

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation

Options Markets

Option Valuation

Futures Markets and Risk Management

Evaluating Investment Performance

International Diversification

Hedge Funds

Taxes, Inflation, and Investment Strategy

Investors and the Investment Process

Filters

The level of real income of a firm can be distorted by the reporting of depreciation and interest expense. During periods of low inflation, the level of reported depreciation tends to income, and the level of interest expense reported tends to income.

The highest possible value for the interest-burden ratio is , and this occurs when the firm .