Question 1

Which of the following would result in a cash inflow under the heading "Cash flow from investing" in the statement of cash flows?

Accepted Answer

A)  purchase of capital equipment 
B)  payments to suppliers for inventory 
C)  collections on receivables 
D)  sale of production machinery 
A)  purchase of capital equipment 
B)  payments to suppliers for inventory 
C)  collections on receivables 
D)  sale of production machinery

Question 2

A high price-to-book ratio may indicate which one of the following?

Accepted Answer

A)  The firm expanded its plant and equipment in the past few years. 
B)  The firm is doing a poorer job controlling its inventory expense than other related firms. 
C)  Investors may believe that this firm has opportunities for earning a rate of return in excess of the market capitalization rate. 
D)  All of these options. 
A)  The firm expanded its plant and equipment in the past few years. 
B)  The firm is doing a poorer job controlling its inventory expense than other related firms. 
C)  Investors may believe that this firm has opportunities for earning a rate of return in excess of the market capitalization rate. 
D)  All of these options.

Question 3

All of the following ratios are related to efficiency except ________.

Accepted Answer

A)  total asset turnover 
B)  fixed-asset turnover 
C)  average collection period 
D)  cash ratio 
A)  total asset turnover 
B)  fixed-asset turnover 
C)  average collection period 
D)  cash ratio

Question 4

The impact of using LIFO over FIFO is to ________.

Accepted Answer

A)  bias ROE downward since investments are undervalued 
B)  bias ROE downward since investments are overvalued 
C)  bias ROE upward since investments are undervalued 
D)  bias ROE upward since investments are overvalued 
A)  bias ROE downward since investments are undervalued 
B)  bias ROE downward since investments are overvalued 
C)  bias ROE upward since investments are undervalued 
D)  bias ROE upward since investments are overvalued

Question 5

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 current ratio for 2017 indicates that Flathead's liquidity has ________ since 2016.

Accepted Answer

A)  risen 
B)  fallen 
C)  stayed the same 
D)  The answer cannot be determined from the information given. 
A)  risen 
B)  fallen 
C)  stayed the same 
D)  The answer cannot be determined from the information given.

Question 6

A firm purchases goods on credit worth $90. 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 $180 to pay for the purchase. What is the change in net cash provided by investments?

Accepted Answer

A)  $10 decrease 
B)  $90 decrease 
C)  $180 decrease 
D)  $190 decrease 
A)  $10 decrease 
B)  $90 decrease 
C)  $180 decrease 
D)  $190 decrease

Question 7

The ABS company has a capital base of $100 million, an opportunity cost of capital (k) of 15%, a return on assets (ROA) of 9%, and a return on equity (ROE) of 18%. What is the economic value added (EVA) for ABS?

Accepted Answer

A)  $8 million 
B)  -$6 million 
C)  $3 million 
D)  -$4 million 
A)  $8 million 
B)  -$6 million 
C)  $3 million 
D)  -$4 million

Question 8

Firm A acquires firm B when firm B has a book value of assets of $155 million and a book value of liabilities of $35 million. Firm A actually pays $175 million for firm B. This purchase would result in goodwill for firm A equal to ________.

Accepted Answer

A)  $175 million 
B)  $155 million 
C)  $120 million 
D)  $55 million 
A)  $175 million 
B)  $155 million 
C)  $120 million 
D)  $55 million

Question 9

A firm has a lower inventory turnover, a longer ACP, and a lower fixed-asset turnover than the industry averages. You should not be surprised to find that this firm has:
I. Lower ATO than the industry average
II. Lower ROA than the industry average
III. Lower ROE than the industry average

Accepted Answer

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

Question 10

A firm has a net profit/pretax profit ratio of 0.6, a leverage ratio of 1.5, a pretax profit/EBIT of 0.7, an asset turnover ratio of 4, a current ratio of 2, and a return-on-sales ratio of 6%. Its ROE is ________.

Accepted Answer

A)  7.56% 
B)  15.12% 
C)  20.16% 
D)  30.24% 
A)  7.56% 
B)  15.12% 
C)  20.16% 
D)  30.24%

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 return-on-sales ratio for 2017 is ________.

Accepted Answer

A)  0.0409 
B)  0.0429 
C)  0.0475 
D)  0.0753 
A)  0.0409 
B)  0.0429 
C)  0.0475 
D)  0.0753

Question 12

When assessing the sustainability of a firm's cash flows, analysts will prefer to see cash growth generated from which of the following sources?

Accepted Answer

A)  cash flow from investment activities 
B)  cash flow from operating activities 
C)  cash flow from financing 
D)  cash flow from extraordinary events 
A)  cash flow from investment activities 
B)  cash flow from operating activities 
C)  cash flow from financing 
D)  cash flow from extraordinary events

Question 13

Operating ROA can be found as the product of ________.

Accepted Answer

A)  return on sales × ATO 
B)  tax burden × interest burden 
C)  interest burden × leverage ratio 
D)  ROE × dividend payout ratio 
A)  return on sales × ATO 
B)  tax burden × interest burden 
C)  interest burden × leverage ratio 
D)  ROE × dividend payout ratio

Question 14

A firm has an ROE equal to the industry average, but its price-to-book ratio is below the industry average. You know that the firm's ________.

Accepted Answer

A)  earnings yield is above the industry average 
B)  P/E ratio is above the industry average 
C)  dividend payout ratio is too high 
D)  interest burden must be below the industry average 
A)  earnings yield is above the industry average 
B)  P/E ratio is above the industry average 
C)  dividend payout ratio is too high 
D)  interest burden must be below the industry average

Question 15

Which of the following is NOT a liquidity ratio?

Accepted Answer

A)  Inventory turnover ratio 
B)  Current ratio 
C)  Quick ratio 
D)  Cash ratio 
A)  Inventory turnover ratio 
B)  Current ratio 
C)  Quick ratio 
D)  Cash ratio

Question 16

Which one of the following ratios is used to calculate the times-interest-earned ratio?

Accepted Answer

A)  Net profit/Interest expense 
B)  Pretax profit/EBIT 
C)  EBIT/Sales 
D)  EBIT/Interest expense 
A)  Net profit/Interest expense 
B)  Pretax profit/EBIT 
C)  EBIT/Sales 
D)  EBIT/Interest expense

Question 17

Use the following cash flow data of Haven Hardware for the year ended December 31, 2017.
 
What is the cash at the end of 2017 for Haven Hardware?

Accepted Answer

A)  $6,000 
B)  $94,000 
C)  $736,000 
D)  $188,000 
A)  $6,000 
B)  $94,000 
C)  $736,000 
D)  $188,000

Question 18

What ratio will definitely increase when a firm increases its annual sales with no corresponding increase in assets?

Accepted Answer

A)  asset turnover 
B)  current ratio 
C)  liquidity ratio 
D)  quick ratio 
A)  asset turnover 
B)  current ratio 
C)  liquidity ratio 
D)  quick ratio

Question 19

A firm purchases goods on credit worth $100. The same firm pays off $80 in old credit purchases. An investment is made via the purchase of a new facility, and equity is issued in the amount of $200 to pay for the purchase. What is the change in net cash provided by financing?

Accepted Answer

A)  $20 increase 
B)  $80 increase 
C)  $100 increase 
D)  $200 increase 
A)  $20 increase 
B)  $80 increase 
C)  $100 increase 
D)  $200 increase

Question 20

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 compound leverage 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)  1.5 
B)  2 
C)  2.5 
D)  3 
A)  1.5 
B)  2 
C)  2.5 
D)  3

Which of the following would result in a cash inflow under the heading "Cash flow from investing" in the statement of cash flows?

A high price-to-book ratio may indicate which one of the following?

All of the following ratios are related to efficiency except ________.

The impact of using LIFO over FIFO is to ________.

A firm purchases goods on credit worth $90. 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 $180 to pay for the purchase. What is the change in net cash provided by investments?

The ABS company has a capital base of $100 million, an opportunity cost of capital (k) of 15%, a return on assets (ROA) of 9%, and a return on equity (ROE) of 18%. What is the economic value added (EVA) for ABS?

Firm A acquires firm B when firm B has a book value of assets of $155 million and a book value of liabilities of $35 million. Firm A actually pays $175 million for firm B. This purchase would result in goodwill for firm A equal to ________.

A firm has a lower inventory turnover, a longer ACP, and a lower fixed-asset turnover than the industry averages. You should not be surprised to find that this firm has: I. Lower ATO than the industry average II. Lower ROA than the industry average III. Lower ROE than the industry average

A firm has a net profit/pretax profit ratio of 0.6, a leverage ratio of 1.5, a pretax profit/EBIT of 0.7, an asset turnover ratio of 4, a current ratio of 2, and a return-on-sales ratio of 6%. Its ROE is ________.

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 return-on-sales ratio for 2017 is ________.

When assessing the sustainability of a firm's cash flows, analysts will prefer to see cash growth generated from which of the following sources?

Operating ROA can be found as the product of ________.

A firm has an ROE equal to the industry average, but its price-to-book ratio is below the industry average. You know that the firm's ________.

Which of the following is NOT a liquidity ratio?

Which one of the following ratios is used to calculate the times-interest-earned ratio?

Use the following cash flow data of Haven Hardware for the year ended December 31, 2017. What is the cash at the end of 2017 for Haven Hardware?

What ratio will definitely increase when a firm increases its annual sales with no corresponding increase in assets?

A firm purchases goods on credit worth $100. The same firm pays off $80 in old credit purchases. An investment is made via the purchase of a new facility, and equity is issued in the amount of $200 to pay for the purchase. What is the change in net cash provided by financing?

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

Which of the following would result in a cash inflow under the heading "Cash flow from investing" in the statement of cash flows?

A high price-to-book ratio may indicate which one of the following?

All of the following ratios are related to efficiency except ________.

The impact of using LIFO over FIFO is to ________.

A firm purchases goods on credit worth $90. 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 $180 to pay for the purchase. What is the change in net cash provided by investments?

The ABS company has a capital base of $100 million, an opportunity cost of capital (k) of 15%, a return on assets (ROA) of 9%, and a return on equity (ROE) of 18%. What is the economic value added (EVA) for ABS?

Firm A acquires firm B when firm B has a book value of assets of $155 million and a book value of liabilities of $35 million. Firm A actually pays $175 million for firm B. This purchase would result in goodwill for firm A equal to ________.

A firm has a lower inventory turnover, a longer ACP, and a lower fixed-asset turnover than the industry averages. You should not be surprised to find that this firm has: I. Lower ATO than the industry average II. Lower ROA than the industry average III. Lower ROE than the industry average

A firm has a net profit/pretax profit ratio of 0.6, a leverage ratio of 1.5, a pretax profit/EBIT of 0.7, an asset turnover ratio of 4, a current ratio of 2, and a return-on-sales ratio of 6%. Its ROE is ________.

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 return-on-sales ratio for 2017 is ________.

When assessing the sustainability of a firm's cash flows, analysts will prefer to see cash growth generated from which of the following sources?

Operating ROA can be found as the product of ________.

A firm has an ROE equal to the industry average, but its price-to-book ratio is below the industry average. You know that the firm's ________.

Which of the following is NOT a liquidity ratio?

Which one of the following ratios is used to calculate the times-interest-earned ratio?

Use the following cash flow data of Haven Hardware for the year ended December 31, 2017. What is the cash at the end of 2017 for Haven Hardware?

What ratio will definitely increase when a firm increases its annual sales with no corresponding increase in assets?

A firm purchases goods on credit worth $100. The same firm pays off $80 in old credit purchases. An investment is made via the purchase of a new facility, and equity is issued in the amount of $200 to pay for the purchase. What is the change in net cash provided by financing?

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