Question 1

Leon is the owner of a corner store.Which ratio should he compute if he wants to know how long the store can pay its bills given its current level of cash and accounts receivable? Assume all receivables are collectible when due.

Accepted Answer

A)  Current ratio
B)  Debt ratio
C)  Cash coverage ratio
D)  Cash ratio
E)  Quick ratioF) A) and C)
G) A) and B)

Question 2

DJ&#8217;s has a total asset turnover rate of 1.13,an equity multiplier of 1.46,a profit margin of 5.28 percent,a retention ratio of .74,and total assets of $138,000.What is the sustainable growth rate?

Accepted Answer

A)  6.98 percent
B)  6.89 percent
C)  7.33 percent
D)  7.04 percent
E)  7.21 percentF) All of the above
G) A) and B)

Question 3

Which one of these transactions will increase the liquidity of a firm?

Accepted Answer

A)  Cash purchase of new production equipment
B)  Payment of an account payable
C)  Cash purchase of inventory
D)  Credit sale of inventory at cost
E)  Cash payment of employee wagesF) B) and D)
G) All of the above

Question 4

Fast Kars has a return on equity of 22.3 percent,a profit margin of 14.2 percent,and total equity of $467,000.What is the net income?

Accepted Answer

A)  $69,608
B)  $113,875
C)  $104,141
D)  $66,314
E)  $109,897F) D) and E)
G) A) and E)

Question 5

The DuPont identity can be used to help a financial manager determine the
I.degree of financial leverage used by a firm
II.operating efficiency of a firm
III.utilization rate of a firm's assets
IV.rate of return on a firm's assets

Accepted Answer

A)  II and III only
B)  I and III only
C)  II, III, and IV only
D)  I, II, and III only
E)  I, II, III, and IVF) None of the above
G) A) and B)

Question 6

Mike's Place has total assets of $152,080,a debt-equity ratio of .62,and net income of $14,342 What is the return on equity?

Accepted Answer

A)  13.48 percent
B)  13.73 percent
C)  15.74 percent
D)  15.28 percent
E)  14.61 percentF) B) and D)
G) B) and C)

Question 7

Wiggle Pools has total equity of $358,200 and net income of $47,500.The debt-equity ratio is .68 and the total asset turnover is 1.2.What is the profit margin?

Accepted Answer

A)  4.82 percent
B)  5.23 percent
C)  5.67 percent
D)  6.58 percent
E)  7.31 percentF) A) and C)
G) B) and E)

Question 8

Which one of these statements is true concerning the price-earnings (PE) ratio?

Accepted Answer

A)  A high PE ratio may indicate that a firm is expected to grow significantly.
B)  A PE ratio of 16 indicates that investors are willing to pay $1 for every $16 of current earnings.
C)  PE ratios are unaffected by the accounting methods employed by a firm.
D)  The PE ratio is classified as a profitability ratio.
E)  The PE ratio is a constant value for each firmF) B) and C)
G) A) and E)

Question 9

A firm can increase its sustainable rate of growth by decreasing its:

Accepted Answer

A)  profit margin.
B)  dividends.
C)  total asset turnover.
D)  target debt-equity ratio.
E)  equity multiplierF) C) and E)
G) A) and E)

Question 10

The cash ratio is used to evaluate the:

Accepted Answer

A)  liquidity of a firm.
B)  speed at which a firm generates cash.
C)  length of time that a firm can pay its bills if no additional cash becomes available.
D)  ability of a firm to pay the interest on its debt.
E)  relationship between the firm's cash balance and its current liabilitiesF) A) and E)
G) A) and C)

Question 11

Outdoor Gear reduced its general and administrative costs this year.This cost improvement will increase which of the following ratios
I.Profit margin
II.Return on assets
III.Total asset turnover
IV.Return on equity

Accepted Answer

A)  I and II only
B)  I and III only
C)  II, III, and IV only
D)  I, II, and IV only
E)  I, II, III, and IVF) A) and D)
G) B) and C)

Question 12

Briar Patch Fruits has sales of $529,600,cost of goods sold of $408,350,depreciation of $25,400,and interest expense of $9,100.The tax rate is 35 percent.What is the times interest earned ratio?

Accepted Answer

A)  10.53
B)  9.46
C)  8.87
D)  4.38
E)  4.79F) C) and E)
G) A) and E)

Question 13

If a firm has an inventory turnover of 15,the firm:

Accepted Answer

A)  sells its entire inventory every 15 days.
B)  stocks its inventory only once every 15 days.
C)  delivers inventory to its customers every 15 days.
D)  sells its inventory by granting customers 15 days' of free credit.
E)  sells its entire inventory an average of 15 times each yearF) None of the above
G) A) and D)

Question 14

The Kids&#8217; Mart has a market-to-book ratio of 3.3,net income of $87,100,a book value per share of $18.50,and 7,500 shares of stock outstanding.What is the price-earnings ratio?

Accepted Answer

A)  4.34
B)  8.16
C)  5.61
D)  6.25
E)  5.26F) A) and C)
G) A) and B)

Question 15

Western Hardwoods has total equity of $318,456,a profit margin of 3.79 percent,an equity multiplier of 1.68,and a total asset turnover of .97.What is the amount of the firm's sales?

Accepted Answer

A)  $518,956
B)  $473,550
C)  $195,420
D)  $190,839
E)  $639,440F) B) and D)
G) A) and D)

Question 16

Al&#8217;s Markets earns $.12 in profit for every $1 of equity and borrows $.65 for every $1 of equity.What is the firm's return on assets?

Accepted Answer

A)  12.00 percent
B)  7.27 percent
C)  15.15 percent
D)  13.75 percent
E)  8.33 percentF) A) and C)
G) A) and B)

Question 17

The sustainable growth rate is defined as the maximum rate at which a firm can grow given which of the following conditions?

Accepted Answer

A)  No new external financing of any kind
B)  No new debt but additional external equity equal to the increase in retained earnings
C)  New debt and external equity in equal proportions
D)  New debt and external equity, provided the debt-equity ratio remains constant
E)  No new external equity and a constant debt-equity ratioF) B) and D)
G) B) and E)

Question 18

A firm has an equity multiplier of 1.5.This means that the firm has a:

Accepted Answer

A)  debt-equity ratio of .67.
B)  debt-equity ratio of .33.
C)  total debt ratio of .50.
D)  total debt ratio of .67.
E)  total debt ratio of .33.F) A) and E)
G) C) and D)

Question 19

Oil Field Services has net income of $120,400,total assets of $1,219,000,total equity of $694,100,and total sales of $1,521,700.What is the common-size percentage for the net income?

Accepted Answer

A)  9.00 percent
B)  7.91 percent
C)  15.53 percent
D)  12.10 percent
E)  8.62 percentF) A) and B)
G) C) and D)

Question 20

BR Trucking has total sales of $911,300,a total asset turnover of 1.1,and a profit margin of 5.87 percent.Currently,the firm has 18,500 shares outstanding.What are the earnings per share?

Accepted Answer

A)  $2.92
B)  $2.97
C)  $2.86
D)  $2.58
E)  $2.89F) C) and E)
G) None of the above

Exam 3: Working With Financial Statements

The cash ratio is used to evaluate the:

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Oil Field Services has net income of $120,400,total assets of $1,219,000,total equity of $694,100,and total sales of $1,521,700.What is the common-size percentage for the net income?

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Western Hardwoods has total equity of $318,456,a profit margin of 3.79 percent,an equity multiplier of 1.68,and a total asset turnover of .97.What is the amount of the firm's sales?

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The DuPont identity can be used to help a financial manager determine the I.degree of financial leverage used by a firm II.operating efficiency of a firm III.utilization rate of a firm's assets IV.rate of return on a firm's assets

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Which one of these statements is true concerning the price-earnings (PE) ratio?

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Leon is the owner of a corner store.Which ratio should he compute if he wants to know how long the store can pay its bills given its current level of cash and accounts receivable? Assume all receivables are collectible when due.

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Briar Patch Fruits has sales of $529,600,cost of goods sold of $408,350,depreciation of $25,400,and interest expense of $9,100.The tax rate is 35 percent.What is the times interest earned ratio?

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Which one of these transactions will increase the liquidity of a firm?

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Mike's Place has total assets of $152,080,a debt-equity ratio of .62,and net income of $14,342 What is the return on equity?

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If a firm has an inventory turnover of 15,the firm:

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Wiggle Pools has total equity of $358,200 and net income of $47,500.The debt-equity ratio is .68 and the total asset turnover is 1.2.What is the profit margin?

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A firm can increase its sustainable rate of growth by decreasing its:

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BR Trucking has total sales of $911,300,a total asset turnover of 1.1,and a profit margin of 5.87 percent.Currently,the firm has 18,500 shares outstanding.What are the earnings per share?

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The sustainable growth rate is defined as the maximum rate at which a firm can grow given which of the following conditions?

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The Kids’ Mart has a market-to-book ratio of 3.3,net income of $87,100,a book value per share of $18.50,and 7,500 shares of stock outstanding.What is the price-earnings ratio?

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Outdoor Gear reduced its general and administrative costs this year.This cost improvement will increase which of the following ratios I.Profit margin II.Return on assets III.Total asset turnover IV.Return on equity

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A firm has an equity multiplier of 1.5.This means that the firm has a:

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Fast Kars has a return on equity of 22.3 percent,a profit margin of 14.2 percent,and total equity of $467,000.What is the net income?

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Al’s Markets earns $.12 in profit for every $1 of equity and borrows $.65 for every $1 of equity.What is the firm's return on assets?

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DJ’s has a total asset turnover rate of 1.13,an equity multiplier of 1.46,a profit margin of 5.28 percent,a retention ratio of .74,and total assets of $138,000.What is the sustainable growth rate?

Correct AnswerverifiedShow Answer

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