Question 1

For a dividend paying firm,how is the projected addition to retained earnings calculated using the percentage of sales approach?

Accepted Answer

A) Net income × (1 - Retention ratio) 
B) Net income × (1 - Dividend payout ratio) 
C) (Cash dividends / Net income)× (New sales / Old sales) 
D) (Retained earnings / Sales)× (New Sales / Old Sales) 
E) Net income × (New Sales / Old Sales)

Question 2

Which one of these combinations will provide sufficient information to determine the sustainable growth rate of a firm?

Accepted Answer

A) Profit margin,total asset turnover,and the price-earnings ratio 
B) Profit margin,dividend payout ratio,debt-equity ratio,and total asset turnover 
C) Return on assets and the retention ratio 
D) Return on assets,capital intensity ratio,and the retention ratio 
E) Profit margin,total asset turnover,return on assets,and debt-equity ratio

Question 3

All of the following are financial leverage ratios except the

Accepted Answer

A) current ratio. 
B) cash coverage ratio. 
C) total debt ratio. 
D) times interest earned ratio. 
E) equity multiplier.

Question 4

Financial ratios that measure a firm's ability to pay its bills over the short run without undue stress are often referred to as

Accepted Answer

A) asset management ratios. 
B) liquidity measures. 
C) leverage ratios. 
D) profitability ratios. 
E) utilization ratios.

Question 5

Which one of these is calculated as: 365 / (Cost of goods sold / Inventory)?

Accepted Answer

A) Total asset turnover 
B) Inventory turnover 
C) Days sales in receivables 
D) Days sales in inventory 
E) Capital intensity ratio

Question 6

Which ratio computes the amount of net income generated by each $1 of sales?

Accepted Answer

A) EV multiple 
B) Return on assets 
C) Return on equity 
D) Profit margin 
E) Price-earnings ratio

Question 7

Jams and Jellies has net fixed assets of $879,000,long-term debt of $368,000,current liabilities of $136,000,and net working capital of $13,400.The retention ratio is 50 percent and the profit margin is 5.8 percent.Assume all assets and current liabilities change spontaneously with sales and the firm is currently operating at full capacity.What is the external financing need if the current sales of $748,000 are projected to increase by 3 percent?

Accepted Answer

A) $8,212.12 
B) $11,506.60 
C) $6,390.18 
D) $1,387.58 
E) $4,429.24

Question 8

Which one of the following statements is correct concerning ratio analysis?

Accepted Answer

A) Ratios cannot be used for comparison purposes over extended periods of time. 
B) Ratios do not address the problem of size differences among firms. 
C) Only a very limited number of ratios can be used for analytical purposes. 
D) Each ratio has a specific formula that is used consistently by all analysts. 
E) A single ratio is often computed differently by different individuals.

Question 9

The quick ratio is calculated as

Accepted Answer

A) current assets divided by current liabilities. 
B) current assets minus inventory,divided by current liabilities. 
C) net working capital divided by current liabilities. 
D) cash on hand divided by current liabilities. 
E) current liabilities divided by current assets.

Question 10

The sustainable rate of growth can be increased by

Accepted Answer

A) decreasing the equity multiplier. 
B) increasing the profit margin. 
C) decreasing the debt-equity ratio. 
D) increasing the dividend payout ratio. 
E) increasing the capital intensity ratio.

Question 11

You have obtained the following information for Blue Bell Farms.The tax rate is 34 percent.  What is the profit margin?

Accepted Answer

A) 20.11% 
B) 4)58% 
C) 9)78% 
D) 7)30% 
E) 14.29%

Question 12

Nails and More has net income of $13,100,total equity of $86,000,a dividend payout ratio of 25 percent,and an equity multiplier of 1.4.What is the internal rate of growth?

Accepted Answer

A) 4)03% 
B) 4)63% 
C) 8)01% 
D) 3)54% 
E) 8)89%

Question 13

Rossiter's currently has total assets of $203,000,long-term debt of $78,400,and current liabilities of $36,700.The dividend payout ratio is 25 percent and the profit margin is 5.8 percent.Assume all assets and current liabilities change spontaneously with sales and the firm is currently operating at full capacity.What is the external financing need if the current sales of $185,000 are projected to increase by 5 percent?

Accepted Answer

A) $182.40 
B) -$54.82 
C) $162.09 
D) $387.40 
E) -$134.88

Question 14

A firm has sales of $3,900,net income of $1,304,total assets of $4,200,and total equity of $2,850.Interest expense is $80.What is the common-size statement value of the interest expense?

Accepted Answer

A) 1)90% 
B) 5)10% 
C) 2)05% 
D) 8)18% 
E) 6)13%

Question 15

The internal rate of growth is based on the assumption that

Accepted Answer

A) no dividends are paid. 
B) no external funding of any type is obtained. 
C) the return on equity is held constant. 
D) the only additional outside capital obtained is long-term debt. 
E) the debt-equity ratio is held constant.

Question 16

A total asset turnover measure of 0.84 means that a firm has $0.84 in

Accepted Answer

A) sales for every $1 in total assets. 
B) total assets for every $1 in sales. 
C) total assets for every $1 in total equity. 
D) total assets for every $1 in cash. 
E) long-term assets for every $1 in total assets.

Question 17

Tree Top Furniture has current sales of $287,600 and fixed assets of $314,000.The firm is currently operating at 96 percent of capacity.What is the maximum percentage increase the firm can have in sales without investing in additional fixed assets?

Accepted Answer

A) 4)17% 
B) 4)00% 
C) 6)72% 
D) 3)92% 
E) 6)33%

Question 18

You have obtained the following information for Blue Bell Farms.The tax rate is 34 percent.  What is the total asset turnover?

Accepted Answer

A) 0)86 times 
B) 1)17 times 
C) 1)39 times 
D) 0)92 times 
E) 1)05 times

Question 19

Burnside's has accounts receivable of $42,600,inventory of $97,200,sales of $614,200,and cost of goods sold of $298,400.How long does it take the firm to sell its inventory and collect payment on the sale?

Accepted Answer

A) 107.14 days 
B) 136.06 days 
C) 127.78 days 
D) 144.21 days 
E) 115.52 days

Question 20

When creating pro forma statements,the external financing need will increase if you

Accepted Answer

A) increase the corporate tax rate. 
B) decrease the dividend payout ratio. 
C) increase the plowback ratio. 
D) decrease the rate of sales growth. 
E) decrease the projected level of sales.

Exam 3: Financial Statements Analysis Amcq Financial Models