Question 1

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 D)
G) D) and E)

Question 2

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) B) and E)
G) B) and C)

Question 3

Aziz Industries has sales of $100,000 and accounts receivable of $11,500, and it gives its customers 30 days to pay. The industry average DSO is 27 days, based on a 365-day year. If the company changes its credit and collection policy sufficiently to cause its DSO to fall to the industry average, and if it earns 8.0% on any cash freed-up by this change, how would that affect its net income, assuming other things are held constant?

Accepted Answer

A)   $267.34
B)   $281.41
C)   $296.22
D)   $311.81
E)   $328.22F) None of the above
G) B) and D)

Question 4

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) None of the above
G) A) and E)

Question 5

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 6

Pettijohn Inc.
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 the data for Pettijohn Inc.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) A) and C)
G) B) and E)

Question 7

The basic earning power ratio (BEP) reflects the earning power of a firm's assets after giving consideration to financial leverage and tax effects.

Accepted Answer

A) True 
 B)False

Question 8

Pettijohn Inc.
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 the data for Pettijohn Inc.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) A) and B)
G) A) and C)

Question 9

Significant variations in accounting methods among firms make meaningful ratio comparisons between firms more difficult than if all firms used similar accounting methods.

Accepted Answer

A) True 
 B)False

Question 10

Rappaport Corp.'s sales last year were $320,000, and its net income after taxes was $23,000. What was its profit margin on sales?

Accepted Answer

A)   6.49%
B)   6.83%
C)   7.19%
D)   7.55%
E)   7.92%F) None of the above
G) A) and E)

Question 11

You observe that a firm's ROE is above the industry average, but its profit margin and debt ratio are both below the industry average. Which of the following statements is CORRECT?

Accepted Answer

A)   its total assets turnover must equal the industry average.
B)   its total assets turnover must be above the industry average.
C)   its return on assets must equal the industry average.
D)   its tie ratio must be below the industry average.
E)   its total assets turnover must be below the industry average.F) A) and B)
G) A) and C)

Question 12

Pettijohn Inc.
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 the data for Pettijohn Inc.What is the firm's EPS?

Accepted Answer

A)   $5.84
B)   $6.15
C)   $6.47
D)   $6.80
E)   $7.14F) None of the above
G) All of the above

Question 13

Firms A and B have the same current ratio, 0.75, the same amount of sales and cost of goods sold, 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

Pettijohn Inc.
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 the data for Pettijohn Inc.What is the firm's total assets turnover?

Accepted Answer

A)   0.90
B)   1.12
C)   1.40
D)   1.68
E)   2.02F) A) and E)
G) C) and D)

Question 15

Pettijohn Inc.
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 the data for Pettijohn Inc.What is the firm's EBITDA coverage?

Accepted Answer

A)   3.29
B)   3.46
C)   3.64
D)   3.82
E)   4.01F) All of the above
G) A) and B)

Question 16

Companies Heidee and Leaudy have the same sales, tax rate, interest rate on their debt, 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 more net income.
B)   company heidee pays less in taxes.
C)   company heidee has a lower equity multiplier.
D)   company heidee has a higher roa.
E)   company heidee has a higher times interest earned (tie)  ratio.F) B) and E)
G) A) and B)

Question 17

Vang Corp.'s stock price at the end of last year was $33.50 and its earnings per share for the year were $2.30. What was its P/E ratio?

Accepted Answer

A)   13.84
B)   14.57
C)   15.29
D)   16.06
E)   16.86F) A) and B)
G) A) and C)

Question 18

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

Accepted Answer

A)   the total assets turnover decreases.
B)   the tie declines.
C)   the dso increases.
D)   the ebitda coverage ratio increases.
E)   the current and quick ratios both decline.F) A) and D)
G) C) and D)

Question 19

If 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)   other things held constant, the lower the current ratio, the lower the interest rate the bank would charge the firm.
B)   the lower the company's ebitda coverage ratio, other things held constant, the lower the interest rate the bank would charge the firm.
C)   other things held constant, the higher the debt ratio, the lower the interest rate the bank would charge the firm.
D)   other things held constant, the lower the debt ratio, the lower the interest rate the bank would charge the firm.
E)   the lower the company's tie ratio, other things held constant, the lower the interest rate the bank would charge the firm.F) C) and E)
G) A) and D)

Question 20

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

Accepted Answer

A)   company heidee has a lower operating income (ebit)  than company ld.
B)   company heidee has a lower total assets turnover than company leaudy.
C)   company heidee has a lower equity multiplier than company leaudy.
D)   company heidee has a higher fixed assets turnover than company leaudy.
E)   company heidee has a higher roe than company leaudy.F) All of the above
G) A) and D)

Exam 7: Analysis of Financial Statements

If 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
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Rappaport Corp.'s sales last year were $320,000, and its net income after taxes was $23,000. What was its profit margin on sales?

Correct Answer
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Correct Answer
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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
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Companies Heidee and Leaudy have the same sales, tax rate, interest rate on their debt, 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
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Companies Heidee and Leaudy are virtually identical in that they are both profitable, and they have the same total assets (TA) , Sales (S) , return on assets (ROA) , and profit margin (PM) . However, Company Heidee has the higher debt ratio. Which of the following statements is CORRECT?

Correct Answer
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The basic earning power ratio (BEP) reflects the earning power of a firm's assets after giving consideration to financial leverage and tax effects.

Correct Answer
verified

Significant variations in accounting methods among firms make meaningful ratio comparisons between firms more difficult than if all firms used similar accounting methods.

Correct Answer
verified

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

Correct Answer
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Correct Answer
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Correct Answer
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Firms A and B have the same current ratio, 0.75, the same amount of sales and cost of goods sold, 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
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Correct Answer
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Which of the following would, generally, indicate an improvement in a company's financial position, holding other things constant?

Correct Answer
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You observe that a firm's ROE is above the industry average, but its profit margin and debt ratio are both below the industry average. Which of the following statements is CORRECT?

Correct Answer
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Vang Corp.'s stock price at the end of last year was $33.50 and its earnings per share for the year were $2.30. What was its P/E ratio?

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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Correct Answer
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Exam 7: Analysis of Financial Statements

If 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

Rappaport Corp.'s sales last year were $320,000, and its net income after taxes was $23,000. What was its profit margin on sales?

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

Companies Heidee and Leaudy have the same sales, tax rate, interest rate on their debt, 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

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

Correct AnswerverifiedShow Answer

The basic earning power ratio (BEP) reflects the earning power of a firm's assets after giving consideration to financial leverage and tax effects.

Correct AnswerverifiedShow Answer

Significant variations in accounting methods among firms make meaningful ratio comparisons between firms more difficult than if all firms used similar accounting methods.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Firms A and B have the same current ratio, 0.75, the same amount of sales and cost of goods sold, 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

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

Correct AnswerverifiedShow Answer

You observe that a firm's ROE is above the industry average, but its profit margin and debt ratio are both below the industry average. Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Vang Corp.'s stock price at the end of last year was $33.50 and its earnings per share for the year were $2.30. What was its P/E ratio?

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

Correct AnswerverifiedShow Answer

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