Question 1

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) A) and E)

Question 2

Last year Rosenberg Corp. had $195,000 of assets, $18,775 of net income, and a debt-to-total-assets ratio of 32%. Now suppose the new CFO convinces the president to increase the debt ratio to 48%. Sales and total assets will not be affected, but interest expenses would increase. However, the CFO believes that better cost controls would be sufficient to offset the higher interest expense and thus keep net income unchanged. By how much would the change in the capital structure improve the ROE?

Accepted Answer

A)   4.36%
B)   4.57%
C)   4.80%
D)   5.04%
E)   5.30%F) A) and E)
G) A) and B)

Question 3

Market value ratios provide management with an indication of how investors view the firm's past performance and especially its future prospects.

Accepted Answer

A) True 
 B)False

Question 4

An investor is considering starting a new business. The company would require $475,000 of assets, and it would be financed entirely with common stock. The investor will go forward only if she thinks the firm can provide a 13.5% return on the invested capital, which means that the firm must have an ROE of 13.5%. How much net income must be expected to warrant starting the business?

Accepted Answer

A)   $52,230
B)   $54,979
C)   $57,873
D)   $60,919
E)   $64,125F) A) and B)
G) B) and D)

Question 5

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 B)
G) B) and D)

Question 6

If a firm finances with only debt and common equity, and if its equity multiplier is 3.0, then its debt ratio must be 0.667.

Accepted Answer

A) True 
 B)False

Question 7

What is the firm's current ratio?

Accepted Answer

A)   0.97
B)   1.08
C)   1.20
D)   1.33
E)   1.47F) A) and D)
G) B) and D)

Question 8

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.
 
-What is the firm's debt ratio?

Accepted Answer

A)   45.93%
B)   51.03%
C)   56.70%
D)   63.00%
E)   70.00%F) A) and C)
G) None of the above

Question 9

Pace Corp.'s assets are $625,000, and its total debt outstanding is
$185,000. The new CFO wants to employ a debt ratio of 55%. How much debt must the company add or subtract to achieve the target debt ratio?

Accepted Answer

A)   $158,750
B)   $166,688
C)   $175,022
D)   $183,773
E)   $192,962F) C) and D)
G) All of the above

Question 10

One problem with ratio analysis is that relationships can be manipulated. For example, if our current ratio is greater than 1.5, then borrowing on a short-term basis and using the funds to build up our cash account would cause the current ratio to increase.

Accepted Answer

A) True 
 B)False

Question 11

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 currentRatio.
C)   If a firm increases its sales while holding its inventories constant, then, other things held constant, its inventory turnoverRatio will increase.
D)   A reduction in the inventory turnover ratio will generally lead toAn 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) B) and D)
G) B) and C)

Question 12

Companies HD and LD are both profitable, and they have the same total assets (TA) , Sales (S) , return on assets (ROA) , and profit margin (PM) . However, Company HD has the higher debt ratio. Which of the following statements is CORRECT?

Accepted Answer

A)   Company HD has a lower total assets turnover than Company LD.
B)   Company HD has a lower equity multiplier than Company LD.
C)   Company HD has a higher fixed assets turnover than Company B.
D)   Company HD has a higher ROE than Company LD.
E)   Company HD has a lower operating income (EBIT)  than Company LD.F) A) and B)
G) B) and E)

Question 13

Harper Corp.'s sales last year were $395,000, and its year-end receivables were $42,500. Harper sells on terms that call for customers to pay 30 days after the purchase, but many delay payment beyond Day 30. On average, how many days late do customers pay? Base your answer on this equation: DSO - Allowed credit period = Average days late, and use a 365-day year when calculating the DSO.

Accepted Answer

A)   7.95
B)   8.37
C)   8.81
D)   9.27
E)   9.74F) B) and E)
G) A) and D)

Question 14

Helmuth Inc.'s latest net income was $1,250,000, and it had 225,000 shares outstanding. The company wants to pay out 45% of its income. What dividend per share should it declare?

Accepted Answer

A)   $2.14
B)   $2.26
C)   $2.38
D)   $2.50
E)   $2.63F) A) and B)
G) C) and D)

Question 15

Companies E and P each reported the same earnings per share (EPS) , but Company E's stock trades at a higher price. Which of the following statements is CORRECT?

Accepted Answer

A)   Company E probably has fewer growth opportunities.
B)   Company E is probably judged by investors to be riskier.
C)   Company E must have a higher market-to-book ratio.
D)   Company E must pay a lower dividend.
E)   Company E trades at a higher P/E ratio.F) A) and B)
G) C) and D)

Question 16

Since the ROA measures the firm's effective utilization of assets (without considering how these assets are financed), two firms with the same EBIT must have the same ROA.

Accepted Answer

A) True 
 B)False

Question 17

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

Question 18

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

Accepted Answer

A)   Company HD has a lower equity multiplier.
B)   Company HD has more net income.
C)   Company HD pays more in taxes.
D)   Company HD has a lower ROE.
E)   Company HD has a lower times interest earned (TI
E)   ratio.Medium/Hard:F) None of the above
G) A) and B)

Question 19

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.
 
-What is the firm's cash flow per share?

Accepted Answer

A)   $10.06
B)   $10.59
C)   $11.15
D)   $11.74
E)   $12.35F) B) and D)
G) A) and B)

Question 20

Which of the following statements is CORRECT?

Accepted Answer

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

Exam 3: Analysis of Financial Statements

One problem with ratio analysis is that relationships can be manipulated. For example, if our current ratio is greater than 1.5, then borrowing on a short-term basis and using the funds to build up our cash account would cause the current ratio to increase.

Correct Answer
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Market value ratios provide management with an indication of how investors view the firm's past performance and especially its future prospects.

Correct Answer
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Companies HD and LD are both profitable, and they have the same total assets (TA) , Sales (S) , return on assets (ROA) , and profit margin (PM) . However, Company HD has the higher debt ratio. Which of the following statements is CORRECT?

Correct Answer
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Helmuth Inc.'s latest net income was $1,250,000, and it had 225,000 shares outstanding. The company wants to pay out 45% of its income. What dividend per share should it declare?

Correct Answer
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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. -What is the firm's cash flow per share?

Correct Answer
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Correct Answer
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Since the ROA measures the firm's effective utilization of assets (without considering how these assets are financed), two firms with the same EBIT must have the same ROA.

Correct Answer
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Pace Corp.'s assets are $625,000, and its total debt outstanding is $185,000. The new CFO wants to employ a debt ratio of 55%. How much debt must the company add or subtract to achieve the target debt ratio?

Correct Answer
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Correct Answer
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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
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Companies E and P each reported the same earnings per share (EPS) , but Company E's stock trades at a higher price. Which of the following statements is CORRECT?

Correct Answer
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Correct Answer
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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
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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. -What is the firm's debt ratio?

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

Correct Answer
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If a firm finances with only debt and common equity, and if its equity multiplier is 3.0, then its debt ratio must be 0.667.

Correct Answer
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Correct Answer
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What is the firm's current ratio?

Correct Answer
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Which of the following statements is CORRECT?

Correct Answer
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Which of the following statements is CORRECT?

Correct Answer
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Exam 3: Analysis of Financial Statements

One problem with ratio analysis is that relationships can be manipulated. For example, if our current ratio is greater than 1.5, then borrowing on a short-term basis and using the funds to build up our cash account would cause the current ratio to increase.

Correct AnswerverifiedShow Answer

Market value ratios provide management with an indication of how investors view the firm's past performance and especially its future prospects.

Correct AnswerverifiedShow Answer

Companies HD and LD are both profitable, and they have the same total assets (TA) , Sales (S) , return on assets (ROA) , and profit margin (PM) . However, Company HD has the higher debt ratio. Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Helmuth Inc.'s latest net income was $1,250,000, and it had 225,000 shares outstanding. The company wants to pay out 45% of its income. What dividend per share should it declare?

Correct AnswerverifiedShow Answer

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. -What is the firm's cash flow per share?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Since the ROA measures the firm's effective utilization of assets (without considering how these assets are financed), two firms with the same EBIT must have the same ROA.

Correct AnswerverifiedShow Answer

Pace Corp.'s assets are $625,000, and its total debt outstanding is $185,000. The new CFO wants to employ a debt ratio of 55%. How much debt must the company add or subtract to achieve the target debt ratio?

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

Companies E and P each reported the same earnings per share (EPS) , but Company E's stock trades at a higher price. Which of the following statements is CORRECT?

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

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. -What is the firm's debt ratio?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If a firm finances with only debt and common equity, and if its equity multiplier is 3.0, then its debt ratio must be 0.667.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

What is the firm's current ratio?

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

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