Question 1

Below are various states of financial distress:
Defaulting on a principal payment on debt
Restructuring debt
Liquidating a firm
Filing for bankruptcy
Failing to make a required interest payment on time
What is the order of increasing gravity that analysts typically consider when assessing credit risk and bankruptcy risk according to a continuum of financial distress?

Accepted Answer

A)  5, 1, 2, 3, 4 
B)  5, 2, 1, 4, 3 
C)  1, 5, 2, 4, 3 
D)  1, 5, 2, 3, 4

Question 2

Here are several ratios calculated from Midas Company's financial statements:
Days in Receivables = 45
Days in Payables = 36
Days in Inventory = 30
How many days of working capital financing does Midas need to obtain from other sources?

Accepted Answer

A)   39 days 
B)  36 days 
C)  56 days 
D)  26 days

Question 3

All of the following are common industry risks faced by companies except :

Accepted Answer

A)  litigation 
B)  technology 
C)  regulation 
D)  competition

Question 4

Refer to the information for Mobile Company . Mobile's days receivables outstanding at the end of 2010 was:

Accepted Answer

A)  43.20 days 
B)  40.50 days 
C)  45.25 days 
D)  8.50 days

Question 5

Which of the following ratios is not a measure of long-term solvency risk?

Accepted Answer

A)  Debt /Equity Ratio 
B)  Interest Coverage Ratio 
C)  Operating Cash Flows to Current Liabilities Ratio 
D)  Liabilities to Assets Ratio

Question 6

Below is selected information from Marker's 2012 financial statements:

Accepted Answer

A)  105.1% 
B)  63.1% 
C)  78.3% 
D)  100.0%

Question 7

When a company wants to calculate the current ratio they would divide the current assets by the ___________

Accepted Answer

The answer of When a company wants to calculate the...

Question 8

Which of the following properly links the factors affecting a firm's ability to generate cash with its need to use cash in operations?

Accepted Answer

The answer of Which of the following properly links the...

Question 9

The beta coefficient measures the ____________________ of a firm's returns with those of all shares traded in the market (in excess of the risk-free interest rate).

Accepted Answer

The answer of The beta coefficient measures the ____________________ of...

Question 10

Refer to the information for Mobile Company . Days of other financing required by Mobile at the end of 2010 would be:

Accepted Answer

A)  54.36 days 
B)  75.36 days 
C)  102.94 days 
D)  5.27 days

Question 11

Which of the following states of financial distress would be considered the most troubling for an investor or creditor?

Accepted Answer

A)  failing to make a required interest payment on time 
B)  paying an accounts payable after the billing date 
C)  restructuring debt 
D)  defaulting on a principal payment on debt

Question 12

Univariate bankruptcy prediction models help identify factors related to bankruptcy, but they do not provide information about:

Accepted Answer

A)  specific ratios that are important. 
B)  the amount of Type I and Type II errors. 
C)  which specific company will go bankrupt. 
D)  the relative importance of individual financial statement ratios.

Question 13

The source of risk related to technology, regulation and availability of raw materials is ____________________.

Accepted Answer

The answer of The source of risk related to technology,...

Question 14

If a customer wanted to obtain bank financing which of the following will the bank inquire about before granting a loan?

Accepted Answer

A)  Firms credit history 
B)  financial position of the firms creditors 
C)  firms cash flow 
D)  a and c

Question 15

Which of the following is not one of the three explanatory variables that determine a firm's market beta?

Accepted Answer

A)  Degree of investing leverage. 
B)  Degree of operating leverage. 
C)  Degree of financial leverage. 
D)  Variability of sales.

Question 16

The quick acid test ratio contains all of the following except :

Accepted Answer

A)  cash 
B)  accounts receivable 
C)  marketable securities 
D)  prepaid assets

Question 17

Which of the following can companies use as collateral for a loan?

Accepted Answer

A)  prepaid insurance 
B)  prepaid rent 
C)  property, plant, and equipment 
D)  retained earnings

Question 18

Marker's 2012 Long-term Debt to Long-Term Capital ratio is:

Accepted Answer

A)  31.4% 
B)  29.4% 
C)  34.0% 
D)  25.4%

Question 19

Economic theory teaches that differences in market returns must relate to differences in:

Accepted Answer

A)  book value 
B)  perceived risk 
C)  price-earnings ratio 
D)  bankruptcy risk

Question 20

A. What are the three measures that are used to analyze long-term solvency risk?
B. describe each measure briefly

Accepted Answer

The answer of A. What are the three measures that...

Exam 5: Risk Analysis

Here are several ratios calculated from Midas Company's financial statements: Days in Receivables = 45 Days in Payables = 36 Days in Inventory = 30 How many days of working capital financing does Midas need to obtain from other sources?