Question 1

You are considering a stock investment in one of two firms (A and B), both of which operate in the same industry. A finances its $20 million in assets with $18 million in debt and $2 million in equity. B finances its $20 million in assets with $2 million in debt and $18 million in equity. Calculate the debt-to-equity ratio for the two firms.

Accepted Answer

A)  Firm A: 9 times; Firm B: 1.11 times 
B)  Firm A: 19 times; Firm B: .11 times 
C)  Firm A: 9 times; Firm B: .11 times 
D)  Firm A: 19 times; Firm B: 1.11 times

Question 2

Debt Management Ratios Tierre's Ts, Inc. reported a debt to equity ratio of 3 times at the end of 2011. If the firm's total assets at year-end are $15 million, how much of their assets is financed with equity?

Accepted Answer

A)  $3.75m 
B)  $5m 
C)  $11.25m 
D)  $45m

Question 3

Market Value Ratios Fancy Paws' year-end price on its common stock is $20. The firm has total assets of $40 million, the debt ratio is 40%, there is no preferred stock, and there are 2 million shares of common stock outstanding. Calculate the market-to-book ratio for Fancy Paws.

Accepted Answer

A)  0.47 
B)  1.67 
C)  8.00 
D)  10.00

Question 4

DuPont Analysis Last year Café Creations, Inc. had an ROA of 25%, a profit margin of 12%, and sales of $4 million. What is Café Creations' total assets?

Accepted Answer

A)  $0.12 m 
B)  $0.48 m 
C)  $1.00 m 
D)  $1.92 m

Question 5

A firm reported working capital of $5.5 million and fixed assets of $20 million. Its fixed asset turnover was 1.2 times. What was the firm's sales to working capital ratio?

Accepted Answer

A)  2.21 times 
B)  4.36 times 
C)  5.19 times 
D)  6.03 times

Question 6

Debt Management Ratios Will's Wheels, Inc. reported a debt-to-equity ratio of .65 times at the end of 2011. If the firm's total debt at year-end was $5 million, how much equity does Will's Wheels have?

Accepted Answer

A)  $.65 million 
B)  $3.25 million 
C)  $5 million 
D)  $7.69 million

Question 7

Market Value Ratios Lab R Doors' year-end price on its common stock is $40. The firm has total assets of $75 million, the debt ratio is 60%, there is no preferred stock, and there are 4 million shares of common stock outstanding. Calculate the market-to-book ratio for Lab R Doors.

Accepted Answer

A)  2.13 
B)  3.20 
C)  5.33 
D)  10.00

Question 8

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 9

Asset Management and Debt Management Ratios Use the following information to calculate current assets: Sales = $100 million, capital intensity ratio = .5 times, debt ratio = 30%, and fixed asset turnover ratio = 5 times.

Accepted Answer

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

Question 10

The term "capital structure" refers to

Accepted Answer

A)  the amount of current versus long-term debt on the balance sheet. 
B)  the amount of current versus fixed assets on the balance sheet. 
C)  the amount of debt versus equity on the balance sheet. 
D)  None of these.

Question 11

The maximum growth rate that can be achieved by financing asset growth with internal financing or retained earnings is called the ____________.

Accepted Answer

A)  internal growth rate 
B)  retention rate 
C)  sustainable growth rate 
D)  operating expansion rate

Question 12

Which of the following statements is correct?

Accepted Answer

A)  A low average payment period and a high accounts payable turnover are a sign of good management. 
B)  A high average payment period and a low accounts payable turnover are a sign of good management. 
C)  A high average payment period and a high accounts payable turnover are a sign of good management. 
D)  A low average payment period and a low accounts payable turnover are a sign of good management.

Question 13

Which of these statements is true?

Accepted Answer

A)  The age of a firm's cash will affect the current ratio level. 
B)  The age of a firm's accounts receivable will affect the current ratio level. 
C)  The age of a firm's fixed assets will affect the fixed asset turnover ratio level. 
D)  The age of a firm's fixed assets will affect the current ratio level.

Question 14

Market Value Ratios You are considering an investment in Taylor's Hot Rods, Corp. During the last year the firm's income statement listed addition to retained earnings = $2.5 million and common stock dividends = $1.2 million. Taylor's year-end balance sheet shows common stockholders' equity = $10 million with 2 million shares of common stock outstanding. The common stock's market price per share = $45.00. What is Taylor's Hot Rods' book value per share and earnings per share? Calculate the market-to-book ratio and PE ratio.

Accepted Answer

The answer of Market Value Ratios You are considering an...

Question 15

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

Accepted Answer

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

Question 16

Internal Growth Rate Last year Poncho Villa Corporation had an ROA of 16% and a dividend payout ratio of 25%. What is the internal growth rate?

Accepted Answer

A)  1.19% 
B)  13.64% 
C)  25.40% 
D)  33.33%

Question 17

Firm A and Firm B have the same total assets, ROA and profit margin. However, Firm B has a higher debt ratio and interest expense than Firm A. Which of the following statements is correct?

Accepted Answer

A)  Firm B must have a higher ROE than firm A. 
B)  Firm B must have a higher capital intensity ratio than Firm A. 
C)  Firm B must have a higher fixed asset turnover than Firm A. 
D)  Firm B must have a lower ACP than Firm A.

Question 18

Debt Management Ratios Zoe's Dog Toys, Inc. reported a debt to equity ratio of .5 times at the end of 2011. If the firm's total assets at year-end are $50 million, how much of their assets is financed with equity?

Accepted Answer

A)  $16.67m 
B)  $25 m 
C)  $33.33 m 
D)  $50 m

Question 19

A firm has a profit margin of 12%; total asset turnover of .55 and an equity multiplier of 2.2. What is the firm's ROA and ROE?

Accepted Answer

A)  ROA = 6.6%; ROE = 14.52% 
B)  ROA = 7.2%; ROE = 15.84% 
C)  ROA = 9.5%; ROE = 20.9% 
D)  ROA = 8.1%; ROE = 17.82%

Question 20

This ratio measures the dollars of current assets available to pay each dollar of current liabilities.

Accepted Answer

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

Exam 3: Analyzing Financial Statements