MBA 702 Module 2

If a company produces a return on assets of 14 percent and also a return on equity of 14 percent, then the firm:

Has an equity multipler of 1.0

All of the following issues represent problems encountered when comparing the financial statements of two separate entities except the issue of the companies:

Having the same fiscal year

Ratio that measure how efficiently a firm manages its assets and operations to generate net income are reffered to as

Profitability reatios

Ratios that measure a firm's liquidity are known as ______________ ratios

short term solvency

You are investing $100 today in a savings account. Which one of the following terms refers to the value of this investment one year from now?

Future value

Which one of the following will produce the lowest present value interest factor?

8 percent interest for 10 years

An increase in which one of the following will increase a firm's quick ratio without affecting its cash ratio?

Accounts receivable

The interest earned on both the initial principal and the interest reinvested from prior periods is called:

Compound interest

Christina invested $3,000 five years ago and earns 2 percent annual interest. By leaving her interest earnings in her account, she increases the amount of interest she earns each year. The way she is handling her interest income is referred to as which one of the following?

Compounding

Which one of these identifies that relationship between return on assets and the return on equity?

DePont identity

Which one of these will increase the present value of a set amount to be received sometime in the future?

Decrease in the interest rate

Steve just computed the present value of a $10,000 bonus he will receive next year. The interest rate he used in his computation is referred to as the:

Discount rate

The process of determining the present value of future cash flows in order to know their value today is referred to as:

Discounted cash flow valuation

Terry is calculating the present value of a bonus he will receive next year. The process he is using is called:

Discounting

Which one of the following accurately describes the three parts of the DePont identity?

Equity multiplier, profit margin, and total asset turnover

Phillippe invested $1,000 ten years ago and expected to have $1,800 today He has neither added nor withdrawn any money since his initial investment. All interest was reinvested and compounded annually. As it turns out, he only has $1,680 in his account today. Which one of the following must be true?

He earned a lower interest rate than he expected

The DePont identity can be used to help managers answer which of the following questions related to a company's operations? I. How many sales dollars are being generated per each dollar of assets? II. How many dollars of assets have been acquired per each dollar in shareholders' equity? III. How much net profit is being generating per dollar of sales? IV. Does a company have the ability to meet its debt obligations in a timely manner?

I, II, and III only

Chang Lee is going to receive $20,000 six years from now. Soo Lee is going to receive $20,000 nine years from now. Which one of the following statements is correct if both individuals apply a discount rate of 7 percent?

In today's dollars, Chang Lee's money is worth more than Soo Lee's

Kurt won a lottery and will receive $1,000 a year for the next 50 years. The value of his winnings today discounted at his discount rate is called which one of the following?

Present value

Which of the following will decrease if a firm can decrease its operating costs, all else constant?

Price-earnings ratio

A common-size income statement is an accounting statement that expresses all of a firm's expenses as a percentage of:

Sales

The sources and uses of cash over a stated period of time are reflected on the:

Statement of cash flows

Which one of the following statements correctly defines a time value of money relationship?

Time and present value are inversely related, all else held constant.

An increase in which of the following must increase the return on equity, all else constant?

Total asset turnover and debt-equity ratio

On a common-size balance sheet all accounts for the current year are expressed as a percentage of:

Total assets for the current year

RJ's has a fixed asset turnover rate of 1.26 and a total asset turnover rate of .97. Sam's has a fixed asset turnover rate of 1.31 and a total asset turnover rate of .94. Both companies have similar operations. Based on this information, RJ's must be doing which one of the following?

Utilizing its total assets more efficiently than Sam's

The price-sales ratio is especially useful when analyzing firms that have:

negative earnings

An ordinary annuity is best defined as:

equal payments paid at the end of regular intervals over a stated time period.

Your grandmother has promised to give you $10,000 when you graduate from college. If you speed up your graduation by one year and graduate two years from now rather than the expected three years, the present value of this gift will:

increase

Art invested $100 two years ago at 8 percent interest. The first year, he earned $8 interest on his $100 investment. He reinvested the $8. The second year, he earned $8.64 interest on his $108 investment. The extra $.64 he earned in interest the second year is referred to as:

interest on interest

Your goal is to have $1 million in your retirement savings on the day you retire. To fund this goal, you will make one lump sum deposit today. If you plan to retire _____ rather than _____ and earn a _____ rate of interest, then you can deposit a smaller lump sum today.

later, sooner, high

A perpetuity is defined as:

unending equal payments paid at equal time intervals