Question 1

Economic value added (EVA) is a measure of operating performance that indicates how successful a firm has been at:

Accepted Answer

A) increasing the growth in earnings 
B) increasing the MVA of the enterprise in any given year 
C) increasing the rate of return on investment 
D) all of these

Question 2

What is the market price of a share of stock for a firm that pays dividends of $1.20 per share, has a P/E of 14, and a dividend payout ratio of 0.4?

Accepted Answer

A) $16.80 
B) $42 
C) $3 
D) $28

Question 3

Which of the following financial ratios are market-based ratios?

Accepted Answer

A) debt-to-equity 
B) price-to-earnings 
C) return on investment 
D) gross profit margin

Question 4

A firm with a debt ratio of 0.75, will have an equity multiplier of

Accepted Answer

A) 0.25 
B) 1.00 
C) 0.75 
D) 4.00

Question 5

If a firm's return on investment, i.e., earnings after taxes divided by total assets, is 7%, and the firm has no preferred stock financing, it is

Accepted Answer

A) possible that its return on stockholders' equity is 10%. 
B) possible that its return on stockholders' equity is 5%. 
C) not possible for its debt-to-equity ratio to be 1.0. 
D) not possible for its net profit margin to be 7%.

Question 6

The data from is especially useful when analyzing small firms.

Accepted Answer

A) Prentice-Hall 
B) Robert Morris Associates 
C) Dan Bradbury Ltd. 
D) Securities and Exchange Commission

Question 7

There are numerous sources which provide financial analysis via the internet.List some of those resources.

Accepted Answer

The answer of There are numerous sources which provide financial...

Question 8

Deferred taxes may occur due to the use of

Accepted Answer

A) different tax schedules 
B) different depreciation methods for taxes and financial reporting 
C) long-term equipment 
D) different cash flow methods

Question 9

When using financial ratios to analyze a company's ability to maximize shareholders' wealth, all of the following cautions should be considered EXCEPT:

Accepted Answer

A) financial ratios are flags indicating potential areas of strength or weakness. 
B) a financial ratio must be dissected to discover its true meaning. 
C) a financial ratio must be compared to some standard 
D) although there may be accounting differences between companies, these differences do not impact financial ratios.

Question 10

The ratio is a more severe measure of a firm's ability to meet fixed financial obligations than is the times interest earned ratio.

Accepted Answer

A) acid test 
B) debt 
C) fixed charge coverage 
D) debt to equity

Question 11

To increase the return on stockholders' equity, management could increase the .

Accepted Answer

A) current ratio 
B) price-to-earnings ratio 
C) dividend yield 
D) equity multiplier

Question 12

Christy would like to improve the current ratio of her firm, which is now 0.5, so that she will have a better chance of obtaining a working capital loan.Which of the following options would improve her current ratio?

Accepted Answer

A) use cash to pay off notes payable 
B) collect some of her accounts receivables 
C) purchase additional inventory on credit 
D) borrow short-term funds to pay off some payables

Question 13

The quick ratio is the same as current ratio except it does not consider

Accepted Answer

A) cash 
B) accounts receivable 
C) prepaid items 
D) inventories

Question 14

Wall Mart Pictures and Decor Company has a net profit margin of 10% and its inventory turnover is 9, what is its annual cost of sales? You also know that Wall Mart's average inventory is $96,700 and its annual sales are $1,000,000.

Accepted Answer

A) $870,000 
B) $850,000 
C) $870,300 
D) $790,000

Question 15

What are the main purposes of financial analysis and what does it identify?

Accepted Answer

The answer of What are the main purposes of financial...

Question 16

A firm's price to earnings ratio is 8 and its market to book ratio is 2.If its earnings per share are $4.00, what is the book value per share?

Accepted Answer

A) $ 8.00 
B) $32.00 
C) $64.00 
D) $16.00

Question 17

What would be the times interest earned of a company, if its total interest charges are $20,000, sales are $220,000, and its net profit margin is 6 percent? Assume a tax rate of 40 percent.

Accepted Answer

A) 2.65 
B) 1.1 
C) 2.1 
D) 1.2

Question 18

The major types of financial ratios include all of the following except

Accepted Answer

A) market-based 
B) liquidity 
C) financial leverage 
D) equity

Question 19

Given the following information, determine Taylor Company's cash balance.
Sales = $10,000,000 (all on credit) Current ratio = 3.0
Current liabilities = $800,000
Average collection period = 36.5 days (Assume 365 days/year) Quick ratio = 1.50
Current assets = cash + accounts receivable + inventory

Accepted Answer

A) $200,000 
B) $1,400,000 
C) $2,400,000 
D) $500,000

Question 20

AK, Inc.is considering issuing additional long-term debt to finance an expansion.The company currently has $20 million in 5% debt outstanding.Its earnings after-tax (EAT) are $3.0 million, and its marginal and average tax rate is 40 percent.The company is required by the debt holders to maintain its times interest earned ratio at 3.0 or greater.How much additional 10 percent debt can the company issue now and maintain its times interest earned ratio at 3.0? Assume for this calculation that earnings before interest and taxes remains at its present level.

Accepted Answer

A) $10 million 
B) $ 6 million 
C) $ 1 million 
D) $5 million

Exam 3: Evaluation of Financial Performance