Question 1

The inventory turnover ratio and days sales outstanding (DSO)are two ratios that are used to assess how effectively a firm is managing its assets.

Accepted Answer

A) True 
 B)False

Question 2

Lincoln Industries' current ratio is 0.5.Considered alone,which of the following actions would increase the company's current ratio?

Accepted Answer

A)   Use cash to reduce long-term bonds outstanding.
B)   Borrow using short-term notes payable and use the cash to increase inventories.
C)   Use cash to reduce accruals.
D)   Use cash to reduce accounts payable.
E)   Use cash to reduce short-term notes payable.F) A) and E)
G) A) and D)

Question 3

Arshadi Corp.'s sales last year were $52,000,and its total assets were $22,000.What was its total assets turnover ratio (TATO) ?

Accepted Answer

A)   2.03
B)   2.13
C)   2.25
D)   2.36
E)   2.48F) A) and B)
G) A) and C)

Question 4

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) A) and D)
G) C) and E)

Question 5

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) B) and C)
G) None of the above C

Question 6

A firm wants to strengthen its financial position.Which of the following actions would increase its quick ratio?

Accepted Answer

A)   Issue new common stock and use the proceeds to acquire additional fixed assets.
B)   Offer price reductions along with generous credit terms that would (1)  enable the firm to sell some of its excess inventory and (2)  lead to an increase in accounts receivable.
C)   Issue new common stock and use the proceeds to increase inventories.
D)   Speed up the collection of receivables and use the cash generated to increase inventories.
E)   Use some of its cash to purchase additional inventories.F) C) and D)
G) A) and D)

Question 7

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 8

Exhibit 3.1
The balance sheet and income statement shown below are for Pettijohn Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over.
 
-Refer to Exhibit 3.1.What is the firm's market-to-book ratio?

Accepted Answer

A)   0.56
B)   0.66
C)   0.78
D)   0.92
E)   1.08F) All of the above
G) None of the above

Question 9

Exhibit 3.1
The balance sheet and income statement shown below are for Pettijohn Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over.
 
-Refer to Exhibit 3.1.What 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) A) and C)
G) A) and D)

Question 10

Exhibit 3.1
The balance sheet and income statement shown below are for Pettijohn Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over.
 
-Refer to Exhibit 3.1.What is the firm's EPS?

Accepted Answer

A)   $5.84
B)   $6.15
C)   $6.47
D)   $6.80
E)   $7.14F) B) and C)
G) B) and E)

Question 11

If the CEO of a large,diversified,firm were filling out a fitness report on a division manager (i.e.,"grading" the manager) ,which of the following situations would be likely to cause the manager to receive a better grade? In all cases,assume that other things are held constant.

Accepted Answer

A)   The division's DSO (days' sales outstanding)  is 40, whereas the average for its competitors is 30.
B)   The division's basic earning power ratio is above the average of other firms in its industry.
C)   The division's total assets turnover ratio is below the average for other firms in its industry.
D)   The division's debt ratio is above the average for other firms in the industry.
E)   The division's inventory turnover is 6, whereas the average for its competitors is 8.F) All of the above
G) A) and E)

Question 12

Companies Heidee and Leaudy have the same total assets,sales,operating costs,and tax rates,and they pay the same interest rate on their debt.However,company Heidee has a higher debt ratio.Which of the following statements is CORRECT?

Accepted Answer

A)   If the interest rate the companies pay on their debt is less than their basic earning power (BEP) , then Company Heidee will have the higher ROE.
B)   Given this information, Leaudy must have the higher ROE.
C)   Company Leaudy has a higher basic earning power ratio (BEP) .
D)   Company Heidee has a higher basic earning power ratio (BEP) .
E)   If the interest rate the companies pay on their debt is more than their basic earning power (BEP) , then Company Heidee will have the higher ROE.F) C) and E)
G) D) and E)

Question 13

Which of the following statements is CORRECT?

Accepted Answer

A)   An increase in a firm's debt ratio, with no changes in its sales or operating costs, could be expected to lower the profit margin.
B)   The ratio of long-term debt to total capital is more likely to experience seasonal fluctuations than is either the DSO or the inventory turnover ratio.
C)   If two firms have the same ROA, the firm with the most debt can be expected to have the lower ROE.
D)   An increase in the DSO, other things held constant, could be expected to increase the total assets turnover ratio.
E)   An increase in the DSO, other things held constant, could be expected to increase the ROE.F) A) and E)
G) B) and E)

Question 14

Suppose a firm wants to maintain a specific TIE ratio.It knows the amount of its debt,the interest rate on that debt,the applicable tax rate,and its operating costs.With this information,the firm can calculate the amount of sales required to achieve its target TIE ratio.

Accepted Answer

A) True 
 B)False

Question 15

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) B) and D)
G) B) and C) C

Question 16

It is appropriate to use the fixed assets turnover ratio to appraise firms' effectiveness in managing their fixed assets if and only if all the firms being compared have the same proportion of fixed assets to total assets.

Accepted Answer

A) True 
 B)False

Question 17

Ratio analysis involves analyzing financial statements in order to appraise a firm's financial position and strength.

Accepted Answer

A) True 
 B)False

Question 18

Exhibit 3.1
The balance sheet and income statement shown below are for Pettijohn Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over.
 
-Refer to Exhibit 3.1.What is the firm's inventory turnover ratio?

Accepted Answer

A)   4.17
B)   4.38
C)   4.59
D)   5.82
E)   5.07F) A) and B)
G) A) and E)

Question 19

Which of the following would indicate an improvement in a company's financial position,holding other things constant?

Accepted Answer

A)   The current and quick ratios both increase.
B)   The inventory and total assets turnover ratios both decline.
C)   The debt ratio increases.
D)   The profit margin declines.
E)   The EBITDA coverage ratio declines.F) A) and D)
G) A) and E) A

Question 20

Companies Heidee and Leaudy have the same tax rate,sales,total assets,and basic earning power.Both companies have positive net incomes.Company Heidee has a higher debt ratio and,therefore,a higher interest expense.Which of the following statements is CORRECT?

Accepted Answer

A)   Company Heidee has a lower times interest earned (TI
E)   ratio.
B)   Company Heidee has a lower equity multiplier.
C)   Company Heidee has more net income.
D)   Company Heidee pays more in taxes.
E)   Company Heidee has a lower ROE.F) A) and E)
G) C) and E)

Exam 3: Analysis of Financial Statements

The inventory turnover ratio and days sales outstanding (DSO)are two ratios that are used to assess how effectively a firm is managing its assets.

Correct Answer
verified

Lincoln Industries' current ratio is 0.5.Considered alone,which of the following actions would increase the company's current ratio?

Correct Answer
verified

Arshadi Corp.'s sales last year were $52,000,and its total assets were $22,000.What was its total assets turnover ratio (TATO) ?

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
C

A firm wants to strengthen its financial position.Which of the following actions would increase its quick ratio?

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

If the CEO of a large,diversified,firm were filling out a fitness report on a division manager (i.e.,"grading" the manager) ,which of the following situations would be likely to cause the manager to receive a better grade? In all cases,assume that other things are held constant.

Correct Answer
verified

Companies Heidee and Leaudy have the same total assets,sales,operating costs,and tax rates,and they pay the same interest rate on their debt.However,company Heidee has a higher debt ratio.Which of the following statements is CORRECT?

Correct Answer
verified

Which of the following statements is CORRECT?

Correct Answer
verified

Suppose a firm wants to maintain a specific TIE ratio.It knows the amount of its debt,the interest rate on that debt,the applicable tax rate,and its operating costs.With this information,the firm can calculate the amount of sales required to achieve its target TIE ratio.

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
C

It is appropriate to use the fixed assets turnover ratio to appraise firms' effectiveness in managing their fixed assets if and only if all the firms being compared have the same proportion of fixed assets to total assets.

Correct Answer
verified

Ratio analysis involves analyzing financial statements in order to appraise a firm's financial position and strength.

Correct Answer
verified

Correct Answer
verified

Which of the following would indicate an improvement in a company's financial position,holding other things constant?

Correct Answer
verified
A

Companies Heidee and Leaudy have the same tax rate,sales,total assets,and basic earning power.Both companies have positive net incomes.Company Heidee has a higher debt ratio and,therefore,a higher interest expense.Which of the following statements is CORRECT?

Correct Answer
verified

Exam 3: Analysis of Financial Statements

The inventory turnover ratio and days sales outstanding (DSO)are two ratios that are used to assess how effectively a firm is managing its assets.

Correct AnswerverifiedShow Answer

Lincoln Industries' current ratio is 0.5.Considered alone,which of the following actions would increase the company's current ratio?

Correct AnswerverifiedShow Answer

Arshadi Corp.'s sales last year were $52,000,and its total assets were $22,000.What was its total assets turnover ratio (TATO) ?

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 AnswerverifiedC

A firm wants to strengthen its financial position.Which of the following actions would increase its quick ratio?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If the CEO of a large,diversified,firm were filling out a fitness report on a division manager (i.e.,"grading" the manager) ,which of the following situations would be likely to cause the manager to receive a better grade? In all cases,assume that other things are held constant.

Correct AnswerverifiedShow Answer

Companies Heidee and Leaudy have the same total assets,sales,operating costs,and tax rates,and they pay the same interest rate on their debt.However,company Heidee has a higher debt ratio.Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Suppose a firm wants to maintain a specific TIE ratio.It knows the amount of its debt,the interest rate on that debt,the applicable tax rate,and its operating costs.With this information,the firm can calculate the amount of sales required to achieve its target TIE ratio.

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 AnswerverifiedC

It is appropriate to use the fixed assets turnover ratio to appraise firms' effectiveness in managing their fixed assets if and only if all the firms being compared have the same proportion of fixed assets to total assets.

Correct AnswerverifiedShow Answer

Ratio analysis involves analyzing financial statements in order to appraise a firm's financial position and strength.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following would indicate an improvement in a company's financial position,holding other things constant?

Correct AnswerverifiedA

Companies Heidee and Leaudy have the same tax rate,sales,total assets,and basic earning power.Both companies have positive net incomes.Company Heidee has a higher debt ratio and,therefore,a higher interest expense.Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
C

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
C

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
A

Correct Answer
verified