Question 1

Which of the following measures the number of days that the firm holds accounts payable before it has to extend cash to buy raw materials?

Accepted Answer

A)  accounts receivable turnover 
B)  average collection period 
C)  average payment period 
D)  accounts payable turnover

Question 2

A firm that is efficient in inventory management will have

Accepted Answer

A)  a high inventory turnover ratio and a low days sales in inventory ratio. 
B)  a low inventory turnover ratio and a low days sales in inventory ratio. 
C)  a high inventory turnover ratio and a high days sales in inventory ratio. 
D)  a low inventory turnover ratio and a high days sales in inventory ratio.

Question 3

Last year Mocha Java, Inc. had an ROA of 10 percent, a profit margin of 5 percent, and sales of $25 million. What is Mocha Java's total assets?

Accepted Answer

A)  $0.125m. 
B)  $1.25m. 
C)  $12.5m. 
D)  $12m.

Question 4

Which of the following refer to ratios that measure the relationship between a firm's liquid (or current) assets and its current liabilities?

Accepted Answer

A)  cross-section 
B)  internal-growth 
C)  liquidity 
D)  market value

Question 5

Which ratio measures a firm's ability to pay short-term obligations with its available cash and market securities?

Accepted Answer

A)  cash 
B)  current 
C)  internal-growth 
D)  quick or acid-test

Question 6

Oasis Products, Inc. has current liabilities = $10 million, current ratio = 1.5 times, inventory turnover ratio = 12 times, average collection period = 20 days, and sales = $100 million. What is the value of their cash and marketable securities?

Accepted Answer

A)  $1,187,215 
B)  $8,333,333 
C)  $15,000,000 
D)  $17,146,188

Question 7

Use the following information to calculate current assets: sales = $100 million, capital intensity ratio = 0.5 times, debt ratio = 30 percent, and fixed asset turnover ratio = 5 times.

Accepted Answer

A)  $10m 
B)  $15m 
C)  $30m 
D)  $50m

Question 8

Which of the following activities will increase a firm's current ratio?

Accepted Answer

A)  purchase inventory using cash 
B)  buy equipment with a short-term bank loan 
C)  accrued wages and taxes increase 
D)  none of these statements will increase a firm's current ratio

Question 9

Which ratio measures the number of dollars of operating earnings available to meet the firm's interest dollars and other fixed charges?

Accepted Answer

A)  times interest earned 
B)  basic earning power 
C)  fixed-charge coverage ratio 
D)  ROA

Question 10

Last year Umbrellas Unlimited Corporation had an ROA of 10 percent and a dividend payout ratio of 50 percent. What is the internal growth rate?

Accepted Answer

A)  1.00 percent 
B)  2.25 percent 
C)  5.26 percent 
D)  100.00 percent

Question 11

A firm has an ACP of 38 days and its annual sales are $5.3 million. What is its account receivable balance?

Accepted Answer

A)  $551,781 
B)  $619,304 
C)  $692,098 
D)  $759,021

Question 12

Rachets R Us Corp. reported sales for 2013 of $200,000. Rachets R Us listed $25,000 of inventory on its balance sheet. Using a 365-day year, how many days did Rachets R Us's inventory stay on the premises? How many times per year did Rachets R Us's inventory turnover?

Accepted Answer

A)  0.125 days, 8 times, respectively 
B)  0.125 days, 5 times, respectively 
C)  45.625 days, 8 times, respectively 
D)  45.625 days, 5 times respectively

Question 13

Which company has the most risk from an investor's standpoint? Firm A has a PE of 92 times and Firm B has a PE of 16 times. Assume both firms operate in the same industry. Firm A has fewer shares outstanding than Firm B.

Accepted Answer

A)  Firm A because it has the higher PE ratio. 
B)  Firm B because it has a lower PE ratio. 
C)  Firm A because it has fewer shares outstanding. 
D)  Firm B because it has more shares outstanding.

Question 14

Calculate the times interest earned ratio for Paige's Purses, Inc. using the following information: sales = $50,000,000, cost of goods sold = $15,000,000, depreciation expense = $2,000,000, addition to retained earnings = $10,000,000, dividends per share = $1.10, tax rate = 30 percent, and number of shares of common stock outstanding = 10,000,000. Paige's Purses has no preferred stock outstanding.

Accepted Answer

A)  0.27 
B)  3.30 
C)  11.00 
D)  16.67

Question 15

Which of these can be used by interested parties to identify changes in corporate performance?

Accepted Answer

A)  common-size financial statements 
B)  industrialized financial statements 
C)  sanitized financial statements

Question 16

Common-size financial statements

Accepted Answer

A)  allow for an easy comparison of balance sheets and income statements across firms in the industry. 
B)  provide quantitative clues about the direction that the firm is moving. 
C)  are obtained by dividing all income statement accounts by net sales and all balance sheet accounts by total assets. 
D)  All of these choices are correct

Question 17

You have located the following information on Greenwich Company: debt ratio = 60 percent, capital intensity ratio = 0.75 times, profit margin = 13.5 percent, and dividend payout ratio = 80 percent. What is the sustainable growth rate for Greenwich?

Accepted Answer

A)  2.70 percent 
B)  10.80 percent 
C)  25.00 percent 
D)  9.89 percent

Question 18

The term "spreading the financial statements" refers to

Accepted Answer

A)  creating common-size financial statements. 
B)  comparing the statements to the industry average. 
C)  calculating the internal and sustainable growth rate. 
D)  evaluating the debt levels.

Question 19

A firm has an ROA of 12 percent and an ROE of 52 percent. What is the firm's equity multiplier?

Accepted Answer

A)  0.23 
B)  4.33 
C)  1.63 
D)  2.90

Question 20

Fancy Paws' year-end price on its common stock is $20. The firm has a profit margin of 12 percent, total assets of $20 million, a total asset turnover ratio of 0.5, no preferred stock, and there are 2 million shares of common stock outstanding. What is the PE ratio for Fancy Paws?

Accepted Answer

A)  3.33 
B)  8.33 
C)  10.00 
D)  33.33

Exam 3: Analyzing Financial Statements