Question 1

Which of the following statements is CORRECT?

Accepted Answer

A)  If Firms X and Y have the same P/E ratios, then their market-to-book ratios must also be the same.
B)  If Firms X and Y have the same net income, number of shares outstanding, and price per share, then their P/E ratios must also be the same.
C)  If Firms X and Y have the same earnings per share and market-to-book ratio, they must have the same price earnings ratio.
D)  If Firm X's P/E ratio exceeds that of Firm Y, then Y is likely to be less risky and also to be expected to grow at a faster rate.
E)  If Firms X and Y have the same net income, number of shares outstanding, and price per share, then their market-to-book ratios must also be the same.F) A) and E)
G) A) and D)

Question 2

Branch Corp.'s total assets at the end of last year were $315,000 and its net income after taxes was $22,750.What was its return on total assets?

Accepted Answer

A)  7.22%
B)  7.58%
C)  7.96%
D)  8.36%
E)  8.78%F) A) and E)
G) A) and D)

Question 3

Northwest Lumber had a profit margin of 5.25%, a total assets turnover of 1.5, and an equity multiplier of 1.8.What was the firm's ROE?

Accepted Answer

A)  12.79%
B)  13.47%
C)  14.18%
D)  14.88%
E)  15.63%F) A) and C)
G) C) and D)

Question 4

Safeco's current assets total to $20 million versus $10 million of current liabilities, while Risco's current assets are $10 million versus $20 million of current liabilities.Both firms would like to "window dress" their end-of-year financial statements, and to do so they tentatively plan to borrow $10 million on a short-term basis and to then hold the borrowed funds in their cash accounts.Which of the statements below best describes the results of these transactions?

Accepted Answer

A)  The transactions would raise Safeco's financial strength as measured by its current ratio but lower Risco's current ratio.
B)  The transactions would lower Safeco's financial strength as measured by its current ratio but raise Risco's current ratio.
C)  The transaction would have no effect on the firm' financial strength as measured by their current ratios.
D)  The transaction would lower both firm' financial strength as measured by their current ratios.
E)  The transaction would improve both firms' financial strength as measured by their current ratios.F) B) and C)
G) All of the above

Question 5

year Swensen Corp.had sales of $303,225, operating costs of $267,500, and year-end assets of $195,000.The debt-to-total-assets ratio was 27%, the interest rate on the debt was 8.2%, and the firm's tax rate was 37%.The new CFO wants to see how the ROE would have been affected if the firm had used a 45% debt ratio.Assume that sales and total assets would not be affected, and that the interest rate and tax rate would both remain constant.By how much would the ROE change in response to the change in the capital structure?

Accepted Answer

A)  2.08%
B)  2.32%
C)  2.57%
D)  2.86%
E)  3.14%F) B) and C)
G) B) and D)

Question 6

is the firm's equity multiplier?

Accepted Answer

A)  3.33
B)  3.50
C)  3.68
D)  3.86
E)  4.05F) A) and C)
G) A) and B)

Question 7

Chambliss Corp.'s total assets at the end of last year were $305,000 and its EBIT was 62,500.What was its basic earning power (BEP) ?

Accepted Answer

A)  18.49%
B)  19.47%
C)  20.49%
D)  21.52%
E)  22.59%F) All of the above
G) C) and E)

Question 8

Which of the following statements is CORRECT?

Accepted Answer

A)  If one firm has a higher debt ratio than another, we can be certain that the firm with the higher debt ratio will have the lower TIE ratio, as that ratio depends entirely on the amount of debt a firm uses.
B)  A firm's use of debt will have no effect on its profit margin on sales.
C)  If two firms differ only in their use of debt-i.e., they have identical assets, sales, operating costs, interest rates on their debt, and tax rates-but one firm has a higher debt ratio, the firm that uses more debt will have a lower profit margin on sales.
D)  The debt ratio as it is generally calculated makes an adjustment for the use of assets leased under operating leases, so the debt ratios of firms that lease different percentages of their assets are still comparable.
E)  If two firms differ only in their use of debt-i.e., they have identical assets, sales, operating costs, and tax rates-but one firm has a higher debt ratio, the firm that uses more debt will have a higher profit margin on sales.F) B) and D)
G) B) and E)

Question 9

Determining whether a firm's financial position is improving or deteriorating requires analyzing more than the ratios for a given year.Trend analysis is one method of measuring changes in a firm's performance over time.

Accepted Answer

A) True 
 B)False

Question 10

Suppose Firms A and B have the same amount of assets, pay the same interest rate on their debt, have the same basic earning power (BEP), and have the same tax rate.However, Firm A has a higher debt ratio.If BEP is greater than the interest rate on debt, Firm A will have a higher ROE as a result of its higher debt ratio.

Accepted Answer

A) True 
 B)False

Question 11

is the firm's days sales outstanding? Assume a 360-day year for this calculation.

Accepted Answer

A)  48.17
B)  50.71
C)  53.38
D)  56.19
E)  59.14F) A) and D)
G) D) and E)

Question 12

is the firm's BEP?

Accepted Answer

A)  6.00%
B)  6.32%
C)  6.65%
D)  6.98%
E)  7.33%F) All of the above
G) B) and E)

Question 13

Firms A and B have the same current ratio, 0.75, the same amount of sales, and the same amount of current liabilities.However, Firm A has a higher inventory turnover ratio than B.Therefore, we can conclude that A's quick ratio must be smaller than B's.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following statements is CORRECT?

Accepted Answer

A)  The use of debt financing will tend to lower the basic earning power ratio, other things held constant.
B)  A firm that employs financial leverage will have a higher equity multiplier than an otherwise identical firm that has no debt in its capital structure.
C)  If two firms have identical sales, interest rates paid, operating costs, and assets, but differ in the way they are financed, the firm with less debt will generally have the higher expected ROE.
D)  Holding bonds is better than holding stock for investors because income from bonds is taxed on a more favorable basis than income from stock.
E)  All else equal, increasing the debt ratio will increase the ROA.F) None of the above
G) A) and C)

Question 15

Which of the following statements is CORRECT?

Accepted Answer

A)  A reduction in inventories held would have no effect on the current ratio.
B)  An increase in inventories would have no effect on the current ratio.
C)  If a firm increases its sales while holding its inventories constant, then, other things held constant, its inventory turnover ratio will increase.
D)  A reduction in the inventory turnover ratio will generally lead to an increase in the ROE.
E)  If a firm increases its sales while holding its inventories constant, then, other things held constant, its inventory turnover ratio will decrease.F) C) and D)
G) B) and E)

Question 16

a bank loan officer were considering a company's request for a loan, which of the following statements would you consider to be CORRECT?

Accepted Answer

A)  The lower the company's EBITDA coverage ratio, other things held constant, the lower the interest rate the bank would charge the firm.
B)  Other things held constant, the higher the debt ratio, the lower the interest rate the bank would charge the firm.
C)  Other things held constant, the lower the debt ratio, the lower the interest rate the bank would charge the firm.
D)  The lower the company's TIE ratio, other things held constant, the lower the interest rate the bank would charge the firm.
E)  Other things held constant, the lower the current ratio, the lower the interest rate the bank would charge the firm.F) All of the above
G) C) and D)

Question 17

is the firm's book value per share?

Accepted Answer

A)  $61.73
B)  $64.98
C)  $68.40
D)  $72.00
E)  $75.60F) C) and D)
G) B) and D)

Question 18

Heaton Corp.sells on terms that allow customers 45 days to pay for merchandise.Its sales last year were $425,000, and its year-end receivables were $60,000.If its DSO is less than the 45-day credit period, then customers are paying on time.Otherwise, they are paying late.By how much are customers paying early or late? Base your answer on this equation: DSO - Credit period = days early or late, and use a 365-day year when calculating the DSO.A positive answer indicates late payments, while a negative answer indicates early payments.

Accepted Answer

A)  6.20
B)  6.53
C)  6.86
D)  7.20
E)  7.56F) A) and B)
G) All of the above

Question 19

Bonner Corp.'s sales last year were $415,000, and its year-end total assets were $355,000.The average firm in the industry has a total assets turnover ratio (TATO)  of 2.4.Bonner's new CFO believes the firm has excess assets that can be sold so as to bring the TATO down to the industry average without affecting sales.By how much must the assets be reduced to bring the TATO to the industry average, holding sales constant?

Accepted Answer

A)  $164,330
B)  $172,979
C)  $182,083
D)  $191,188
E)  $200,747F) D) and E)
G) None of the above

Question 20

year Central Chemicals had sales of $205,000, assets of $127,500, a profit margin of 5.3%, and an equity multiplier of 1.2.The CFO believes that the company could reduce its assets by $21,000 without affecting either sales or costs.Had it reduced its assets in this amount, and had the debt ratio, sales, and costs remained constant, by how much would the ROE have changed?

Accepted Answer

A)  1.81%
B)  2.02%
C)  2.22%
D)  2.44%
E)  2.68%F) A) and E)
G) D) and E)

Exam 3: Financial Analysis

Firms A and B have the same current ratio, 0.75, the same amount of sales, and the same amount of current liabilities.However, Firm A has a higher inventory turnover ratio than B.Therefore, we can conclude that A's quick ratio must be smaller than B's.

Correct Answer
verified

Correct Answer
verified

Northwest Lumber had a profit margin of 5.25%, a total assets turnover of 1.5, and an equity multiplier of 1.8.What was the firm's ROE?

Correct Answer
verified

Which of the following statements is CORRECT?

Correct Answer
verified

Which of the following statements is CORRECT?

Correct Answer
verified

Correct Answer
verified

Chambliss Corp.'s total assets at the end of last year were $305,000 and its EBIT was 62,500.What was its basic earning power (BEP) ?

Correct Answer
verified

is the firm's BEP?

Correct Answer
verified

Correct Answer
verified

Branch Corp.'s total assets at the end of last year were $315,000 and its net income after taxes was $22,750.What was its return on total assets?

Correct Answer
verified

Which of the following statements is CORRECT?

Correct Answer
verified

is the firm's days sales outstanding? Assume a 360-day year for this calculation.

Correct Answer
verified

Correct Answer
verified

Determining whether a firm's financial position is improving or deteriorating requires analyzing more than the ratios for a given year.Trend analysis is one method of measuring changes in a firm's performance over time.

Correct Answer
verified

Correct Answer
verified

a bank loan officer were considering a company's request for a loan, which of the following statements would you consider to be CORRECT?

Correct Answer
verified

is the firm's book value per share?

Correct Answer
verified

Which of the following statements is CORRECT?

Correct Answer
verified

Correct Answer
verified

is the firm's equity multiplier?

Correct Answer
verified

Exam 3: Financial Analysis

Firms A and B have the same current ratio, 0.75, the same amount of sales, and the same amount of current liabilities.However, Firm A has a higher inventory turnover ratio than B.Therefore, we can conclude that A's quick ratio must be smaller than B's.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Northwest Lumber had a profit margin of 5.25%, a total assets turnover of 1.5, and an equity multiplier of 1.8.What was the firm's ROE?

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Chambliss Corp.'s total assets at the end of last year were $305,000 and its EBIT was 62,500.What was its basic earning power (BEP) ?

Correct AnswerverifiedShow Answer

is the firm's BEP?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Branch Corp.'s total assets at the end of last year were $315,000 and its net income after taxes was $22,750.What was its return on total assets?

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

is the firm's days sales outstanding? Assume a 360-day year for this calculation.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Determining whether a firm's financial position is improving or deteriorating requires analyzing more than the ratios for a given year.Trend analysis is one method of measuring changes in a firm's performance over time.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

a bank loan officer were considering a company's request for a loan, which of the following statements would you consider to be CORRECT?

Correct AnswerverifiedShow Answer

is the firm's book value per share?

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

is the firm's equity multiplier?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified