Test 1 M2-1&2

e. sales

A common-size income statement is an accounting statement that expresses all of a firms expenses as a percentage of: a. total assets b. total equity c. net income d. taxable income e. sales

d. unending equal payments paid at equal time intervals

A perpetuity is defined as: a. a limited number of equal payments paid in even time increments b. payments of equal amounts that are paid irregularly but indefinitely c. varying amounts that are paid at even intervals forever d. unending equal payments paid at equal time intervals e. unending equal payments paid at either equal or unequal time intervals

e. has an equity multiplier of 1.0 (DuPont identity)

If a company produces a return on assets of 14 percent and also a return on equity of 14 percent, then the firm: a. may have short-term, but not long-term debt b. is using its assets as efficiently as possible c. has no net working capital d. has a debt-equity ratio of 1.0 e. has an equity multiplier of 1.0

c. present value

Kurt won a lottery and will receive $1000 a year for the next 50 years. The current value of these winnings is called the: a. single amount b. future value c. present value d. simple amount e. compounded value

c. short-term solvency

Ratios that measure a firm's liquidity are known as ____ ratios: a. asset management b. long-term solvency c. short-term solvency d. profitability e. book value

d. profitability

Ratios that measure how efficiently a firm manages its assets and operations to generate net income are referred to as ____ ratios: a. asset management b. long-term solvency c. short-term solvency d. profitability e. turnover

b. negative earnings

The price-sales ratio is especially useful when analyzing firms that have: a. volatile market prices b. negative earnings c. positive PEG ratios d. a high Tobin's Q e. increasing sales

c. discounted cash flow valuation

The process of determining the present value of future cash flows in order to know their value today is referred to as: a. compound interest valuation b. interest on interest valuation c. discounted cash flow valuation d. future value interest factoring e. complex factoring

d. statement of cash flows

The sources and uses of cash over a stated period of time are reflected on the: a. income statement b. balance sheet c. tax reconciliation statement d. statement of cash flows e. statement of operating position

a. equity multiplier, profit margin, and total asset turnover

Which one of the following accurately describes the three parts of the DuPont identity? a. equity multiplier, profit margin, and total asset turnover b. debt-equity ratio, capital intensity ratio, and profit margin c. operating efficiency, equity multiplier, and profitability ratio d. return on assets, profit margin, and equity multiplier e. financial leverage, operating efficiency, and profitability ratio

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

Which one of the following statements correctly defines a time value of money relationship? a. time and future values are inversely related, all else held constant b. interest rates and time are positively related, all else held constant c. an increase in a positive discount rate increases the present value d. an increase in time increases the future value given a zero rate of interest e. time and present value are inversely related, all else held constant

e. price-earnings ratio

Which one of the following will decrease if a firm can decrease its operating costs, all else constant? a. return on equity b. return on assets c. profit margin d. total asset turnover e. price-earnings ratio

e. 8 percent interest for 10 years

Which one of the following will produce the lowest percent value interest factor? a. 6 percent interest for 5 years b. 6 percent interest for 8 years c. 6 percent interest for 10 years d. 8 percent interest for 5 years e. 8 percent interest for 10 years

d. dupont identity

Which one of these identifies the relationship between the return on assets and the return on equity? a. profit margin b. profitability determinant c. balance sheet multiplier d. dupont identity e. debt-equity ratio

d. decrease in the interest rate

Which one of these will increase the present value of a set amount to be received sometime in the future? a. increase in the time until the amount is received b. increase in the discount rate c. decrease in the future value d. decrease in the interest rate e. decrease in both the future value and the number of time periods

a. future value

You are investing $100 today in a savings account. Which one of the following terms refers to the total value of this investment one year from now? a. future value b. present value c. principal amount d. discounted value e. invested principal

c. later, sooner, high

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. a. sooner, later, low b. sooner, later, high c. later, sooner, high d. later, sooner, low e. today, later, high

b. increase

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: a. remain constant b. increase c. decrease d. equal $10,000 e. be less than $10,000

e. having the same fiscal year

All of the following issues represent problems encountered when comparing the financial statements of two separate entities except the issue of the companies: a. being conglomerates with unrelated lines of business b. having geographically varying operations c. using different accounting methods d. different seasonal peaks e. having the same fiscal year

c. total asset turnover and debt-equity ratio (DuPont identity)

An increase in which of the following must increase the return on equity, all else constant? a. total assets and sales b. net income and total equity c. total asset turnover and debt-equity ratio d. equity multiplier and total equity e. debt-equity ratio and total debt

d. accounts receivable

An increase in which one of the following will increase a firm's quick ratio without affecting its cash ratio: a. accounts payable b. cash c. inventory d. accounts receivable e. fixed assets

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

An ordinary annuity is best defined as: a. increasing payments paid for a definitive period of time b. increasing payments paid forever c. equal payments paid at the end of regular intervals over a stated time period d. equal payments paid at the beginning of regular intervals for a limited time period e. equal payments that occur at set intervals for an unlimited period of time

d. interest on interest

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: a. free interest b. bonus income c. simple interest d. interest on interest e. present value interest

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

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? a. The present values of Chang Lee's and Soo Lee's money are equal b. In future dollars, Soo Lee's money is worth more than Chang Lee's money c. In today's dollars, Chang Lee's money is worth more than Soo Lee's d. Twenty years from now, the value of Chang Lee's money will equal the value of Soo Lee's money e. Soo Lee's money is worth more than Chang Lee's money given the 7 percent discount rate

b. compounding

Christina invested $3000 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: a. simplyfing b. compounding c. aggregating d. accumulating

d. total assets for the current year

On a common-size balance sheet all accounts for the current year are expressed as a percentage of: a. sales for the period b. the base year sales c. total equity for the base year d. total assets for the current year e. total assets for the base year

b. he earned a lower interest rate than expected

Phillippe invested $1000 ten years ago and expected to have $1800 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 $1680 in his account today. Which one of the following must be true? a. He earned simple interest rather than compound interest b. he earned a lower interest rate than he expected c. he did not earn any interest on interest as he expected d. He ignored the rule of 72 which caused his account to decrease in value e. the future value interest factor turned out to be higher than he expected

b. utilizing its total assets more efficiently than Sam's

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? a. utilizing its fixed assets more efficiently than Sam's b. utilizing its total assets more efficiently than Sam's c. Generating $1 in sales for every $1.26 in net fixed assets d. generating $1.26 in net income for every $1 in net fixed assets e. maintaining the same level of current assets as Sam's

e. discount 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: a. current yield b. effective rate c. compound rate d. simple rate e. discount rate

b. discounting

Terry is calculating the present value of a bonus he will receive next year. The process he is using is called: a. growth analysis b. discounting c. accumulating d. compounding e. reducing

c. I, II, and III only

The DuPont 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 shareholder's equity? III. How much net profit is being generated per dollar of sales? IV. Does the company have the ability to meet its debt obligations in a timely manner? a. I and III only b. II and IV only c. I, II, and III only d. II, III and IV only e. I, II, III, and IV

e. compound interest

The interest earned on both the initial principal and the interest reinvested from prior periods is called: a. free interest b. dual interest c. simple interest d. interest on interest e. compound interest