fin exam 1 chp 3

A firm has net working capital of $2,715, net fixed assets of $22,407, sales of $31,350, and current liabilities of $3,908. How many dollars worth of sales are generated from every $1 in total assets? A. $1.08 B. $1.14 C. $1.19 D. $1.26 E. $1.30

A. $1.08

A firm has a debt-equity ratio of .57. What is the total debt ratio? A. .36 B. .30 C. .44 D. 2.27 E. 2.75

A. .36

A firm has sales of $3,340, net income of $274, net fixed assets of $2,600, and current assets of $920. The firm has $430 in inventory. What is the common-size statement value of inventory? A. 12.22 percent B. 44.16 percent C. 16.54 percent D. 13.36 percent E. 46.74 percent

A. 12.22 percent

A firm has sales of $96,400, costs of $53,800, interest paid of $2,800, and depreciation of $7,100. The tax rate is 34 percent. What is the value of the cash coverage ratio? A. 15.21 B. 12.14 C. 17.27 D. 23.41 E. 12.68

A. 15.21

Bernice's has $823,000 in sales. The profit margin is 3.9 percent and the firm has 7,500 shares of stock outstanding. The market price per share is $15. What is the price-earnings ratio? A. 3.51 B. 3.98 C. 4.42 D. 3.15 E. 4.27

A. 3.51

TJ's has annual sales of $813,200, total debt of $176,000, total equity of $395,000, and a profit margin of 5.63 percent. What is the return on assets? A. 8.02 percent B. 6.48 percent C. 9.94 percent D. 7.78 percent E. 11.59 percent

A. 8.02 percent

According to the statement of cash flows, an increase in interest expense will _____ the cash flow from _____ activities. A. Decrease; operating. B. Decrease; financing. C. Increase; operating. D. Increase; financing. E. Increase; investment.

A. Decrease; operating.

A firm currently has $600 in debt for every $1,000 in equity. Assume the firm uses some of its cash to decrease its debt while maintaining its current equity and net income. Which one of the following will decrease as a result of this action? A. Equity multiplier. B. Total asset turnover. C. Profit margin. D. Return on assets. E. Return on equity.

A. Equity multiplier

Al;s has a price-earnings ratio of 18.5. Bens also has a price-earnings ratio of 18.5. Which one of the following statements must be true if Als has a higher PEG ratio than Bens? A. Al;s has more net income than Ben;s. B. Ben;s is increasing its earnings at a faster rate than the Al;s. C. Al;s has a higher market value per share than does Bens. D. Bens has a lower market-to-book ratio than Als. E. Al's has a higher earnings growth rate than Ben's.

B. Ben;s is increasing its earnings at a faster rate than the Al;s.

A supplier, who requires payment within 10 days, should be most concerned with which one of the following ratios when granting credit? A. Current. B. Cash, C. Debt-equity, D. Quick, E. Total debt,

B. Cash,

Which of the following ratios are measures of a firm's liquidity? I. Cash coverage ratio. II. Interval measure. III. Debt-equity ratio. IV. Quick ratio. A. I and III only. B. II and IV only. C. I, III, and IV only. D. I, II, and III only. E. I, II, III, and IV.

B. II and IV only.

Lenders probably have the most interest in which one of the following sets of ratios? A. Return on assets and profit margin. B. Long-term debt and times interest earned. C. Price-earnings and debt-equity. D. Market-to-book and times interest earned. E. Return on equity and price-earnings.

B. Long-term debt and times interest earned.

The price-sales ratio is especially useful when analyzing firms that have which one of the following? A. Volatile market prices. B. Negative earnings. C. Positive PEG ratios. D. A negative Tobin's Q. E. Increasing sales.

B. Negative earnings.

Activities of a firm that require the spending of cash are known as: A. Sources of cash. B. Uses of cash. C. Cash collections. D. Cash receipts. E. Cash on hand.

B. Uses of cash.

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.

B. Utilizing its total assets more efficiently than Sam's.

The DuPont identity can be used to help managers answer which of the following questions related to a firm's operations? I. How many sales dollars has the firm generated per each dollar of assets? II. How many dollars of assets has a firm acquired per each dollar in shareholders' equity? III. How much net profit is a firm generating per dollar of sales? IV. Does the firm 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.

C. I, II, and III only.

A firm generated net income of $911. The depreciation expense was $47 and dividends were paid in the amount of $25. Accounts payables increased by $15, accounts receivables increased by $28, inventory decreased by $14, and net fixed assets decreased by $8. There was no interest expense. What was the net cash flow from operating activity? A. $776 B. $865 C. $959 D. $922 E. $985

C. $959

The Up-Towner has sales of $913,400, costs of goods sold of $579,300, inventory of $187,400, and accounts receivable of $78,900. How many days, on average, does it take the firm to sell its inventory assuming that all sales are on credit? A. 74.19 days B. 84.69 days C. 118.08 days D. 106.46 days E. 121.07 days

C. 118.08 days

Which one of the following standardizes items on the income statement and balance sheet relative to their values as of a chosen point in time? A. Statement of standardization. B. Statement of cash flows. C. Common-base year statement. D. Common-size statement. E. Base reconciliation statement.

C. Common-base year statement.

An increase in current liabilities will have which one of the following effects, all else held constant? Assume all ratios have positive values. A. Increase in the cash ratio. B. Increase in the net working capital to total assets ratio. C. Decrease in the quick ratio. D. Decrease in the cash coverage ratio. E. Increase in the current ratio.

C. Decrease in the quick ratio.

According to the statement of cash flows, an increase in inventory will _____ the cash flow from _____ activities. A. Increase; operating. B. Decrease; financing. C. Decrease; operating. D. Increase; financing. E. Increase; investment.

C. Decrease; operating.

Which one of the following accurately describes the three parts of the DuPont identity? A. Operating efficiency, equity multiplier, and profitability ratio. B. Financial leverage, operating efficiency, and profitability ratio. C. Equity multiplier, profit margin, and total asset turnover. D. Debt-equity ratio, capital intensity ratio, and profit margin. E. Return on assets, profit margin, and equity multiplier.

C. Equity multiplier, profit margin, and total asset turnover.

Which one of the following statements is correct? A. Book values should always be given precedence over market values. B. Financial statements are rarely used as the basis for performance evaluations. C. Historical information is useful when projecting a firm's future performance. D. Potential lenders place little value on financial statement information. E. Reviewing financial information over time has very limited value.

C. Historical information is useful when projecting a firm's future performance.

On the statement of cash flows, which of the following are considered operating activities? I. Costs of goods sold. II. Decrease in accounts payable. III. Purchase of equipment. IV. Dividends paid. A. I and III only. B. III and IV only. C. I and II only. D. I, III, and IV only. E. I, II, III, and IV.

C. I and II only

An increase in which of the following will increase the return on equity, all else constant? I. Total asset turnover. II. Net income. III. Total assets. IV. Debt-equity ratio. A. I only. B. I and II only. C. I, II, and IV only. D. I, II, and III only. E. I, II, III, and IV.

C. I, II, and IV only

The cash coverage ratio directly measures the ability of a firm to meet which one of its following obligations? A. Payment to supplier. B. Payment to employee. C. Payment of interest to a lender. D. Payment of principal to a lender. E. Payment of a dividend to a shareholder.

C. Payment of interest to a lender.

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.

C. Short-term solvency.

The U.S. government coding system that classifies a firm by the nature of its business operations is known as the: A. Centralized Business Index. B. Peer Grouping codes. C. Standard Industrial Classification codes. D. Governmental ID codes. E. Government Engineered Coding System.

C. Standard Industrial Classification codes.

All-State Moving had sales of $899,000 in 2014 and $967,000 in 2015. The firm's current accounts remained constant. Given this information, which one of the following statements must be true? A. The total asset turnover rate increased. B. The days' sales in receivables increased. C. The net working capital turnover rate increased. D. The fixed asset turnover decreased. E. The receivables turnover rate decreased.

C. The net working capital turnover rate increased.

Last year, which is used as the base year, a firm had cash of $52, accounts receivable of $223, inventory of $509, and net fixed assets of $1,107. This year, the firm has cash of $61, accounts receivable of $204, inventory of $527, and net fixed assets of $1,216. What is the common-base year value of inventory? A. .67 B. .91 C. .88 D. 1.04 E. 1.18

D. 1.04

Terry's Pets paid $2,380 in interest and $2,200 in dividends last year. The times interest earned ratio is 2.4 and the depreciation expense is $760. What is the value of the cash coverage ratio? A. 1.42 B. .77 C. 2.94 D. 2.72 E. 2.46

D. 2.72

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.

D. Accounts receivable.

A firm has an interval measure of 48. This means that the firm has sufficient liquid assets to do which one of the following? A. Pay all of its debts that are due within the next 48 hours. B. Pay all of its debts that are due within the next 48 days. C. Cover its operating costs for the next 48 hours. D. Cover its operating costs for the next 48 days. E. Meet the demands of its customers for the next 48 hours.

D. Cover its operating costs for the next 48 days.

The most acceptable method of evaluating the financial statements of a firm is to compare the firm's current: A. Financial ratios to the firm's historical ratios. B. Financial statements to the financial statements of similar firms operating in other countries. C. Financial ratios to the average ratios of all firms located within the same geographic area. D. Financial statements to those of larger firms in unrelated industries. E. Financial statements to the projections that were created based on Tobin's Q.

A. Financial ratios to the firms historical ratios

Relationships determined from a firm's financial information and used for comparison purposes are known as: A. Financial ratios. B. Identities. C. Dimensional analysis. D. Scenario analysis. E. Solvency analysis.

A. Financial ratios.

On the statement of cash flows, which of the following are considered financing activities? I. Increase in long-term debt. II. Decrease in accounts payable. III. Interest paid. IV. Dividends paid. A. I and IV only. B. III and IV only. C. II and III only. D. I, III, and IV only. E. I, II, III, and IV.

A. I and IV only.

Which of the following can be used to compute the return on equity? I. Profit margin x Return on assets II. Return on assets x Equity multiplier III. Profit margin x Total asset turnover x Debt-equity ratio IV. Net income / Total assets A. II only. B. II and III only. C. II and IV only. D. I, II, and III only. E. I, II, III, and IV.

A. II only.

If a firm has a debt-equity ratio of 1.0, then its total debt ratio must be which one of the following? A. 0 B. .5 C. 1.0 D. 1.5 E. 2.0

B. .5

A firm has sales of $4,300, net income of $320, total assets of $4,800, and total equity of $2,950. Interest expense is $65. What is the common-size statement value of the interest expense? A. .89 percent B. 1.51 percent C. 1.69 percent D. 2.03 percent E. 1.35 percent

B. 1.51 percent

Flo's Flowers has accounts receivable of $4,511, inventory of $1,810, sales of $138,609, and cost of goods sold of $64,003. How many days does it take the firm to sell its inventory and collect the payment on the sale assuming that all sales are on credit? A. 11.88 days B. 22.20 days C. 16.23 days D. 14.50 days E. 18.67 days

B. 22.20 days

A firm has total assets of $310,100 and net fixed assets of $168,500. The average daily operating costs are $2,980. What is the value of the interval measure? A. 31.47 days B. 47.52 days C. 56.22 days D. 68.05 days E. 104.62 days

B. 47.52 days

Which one of the following is a source of cash? A. Repurchase of common stock, B. Acquisition of debt, C. Purchase of inventory, D. Payment to a supplier, E. Granting credit to a customer,

B. Acquisition of debt,

Uptown Men's Wear has accounts payable of $2,214, inventory of $7,950, cash of $1,263, fixed assets of $8,400, accounts receivable of $3,907, and long-term debt of $4,200. What is the value of the net working capital to total assets ratio? A. .31 B. .42 C. .47 D. .51 E. .56

D. .51

Duke's Garage has cash of $68, accounts receivable of $142, accounts payable of $235, and inventory of $318. What is the value of the quick ratio? A. 2.25 B. .53 C. .71 D. .89 E. 1.35

D. .89

The Corner Hardware has succeeded in increasing the amount of goods it sells while holding the amount of inventory on hand at a constant level. Assume that both the cost per unit and the selling price per unit also remained constant. This accomplishment will be reflected in the firm's financial ratios in which one of the following ways? A. Decrease in the inventory turnover rate. B. Decrease in the net working capital turnover rate. C. Increase in the fixed asset turnover rate. D. Decrease in the day's sales in inventory. E. Decrease in the total asset turnover rate.

D. Decrease in the day's sales in inventory.

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. DuPont identity

Which one of the following is a source of cash for a non-tax-paying firm? A. Increase in accounts receivable. B. Increase in depreciation. C. Decrease in accounts payable. D. Increase in common stock. E. Increase in inventory.

D. Increase in common stock.

Barlow's Feed had the following current account values. What effect did the change in net working capital have on the firm;s cash flows for the year? Beginning of Year End of Year Cash $ 179 $ 164 Accounts receivable 415 480 Inventory 987 923 Accounts payable 562 649 A. Net use of cash of $73. B. Net use of cash of $88. C. Net source of cash of $86. D. Net source of cash of $101. E. Net source of cash of $135.

D. Net source of cash of $101.

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.

D. Profitability.

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.

D. Statement of cash flows

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.

D. Total assets for the current year.

A firm has total debt of $4,850 and a debt-equity ratio of .57. What is the value of the total assets? A. $6,128.05 B. $7,253.40 C. $9,571.95 D. $11,034.00 E. $13,358.77

E. $13,358.77

Reliable Cars has sales of $807,200, total assets of $1,105,100, and a profit margin of 9.68 percent. The firm has a total debt ratio of 64 percent. What is the return on equity? A. 13.09 percent B. 16.04 percent C. 21.03 percent D. 18.56 percent E. 19.64 percent

E. 19.64 percent

Which one of the following statements is correct? A. If the total debt ratio is greater than .50, then the debt-equity ratio must be less than 1.0. B. Long-term creditors would prefer the times interest earned ratio be 1.4 rather than 1.5. C. The debt-equity ratio can be computed as 1 plus the equity multiplier. D. An equity multiplier of 1.2 means a firm has $1.20 in sales for every $1 in equity. E. An increase in the depreciation expense will not affect the cash coverage ratio.

E. An increase in the depreciation expense will not affect the cash coverage ratio.

On a common-base year financial statement, accounts receivables for the current year will be expressed relative to which one of the following? A. Current year sales. B. Current year total assets. C. Base-year sales. D. Base-year total assets. E. Base-year accounts receivables.

E. Base-year accounts receivables.

Which one of the following is a use of cash? A. Decrease in fixed assets. B. Decrease in inventory. C. Increase in long-term debt. D. Decrease in accounts receivables. E. Decrease in accounts payable.

E. Decrease in accounts payable.

Which one of the following is a source of cash? A. Increase in accounts receivable, B. Decrease in common stock, C. Increase in fixed assets, D. Decrease in accounts payable, E. Decrease in inventory,

E. Decrease in inventory,

If a firm produces a 13 percent return on assets and also a 13 percent return on equity, 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.

E. Has an equity multiplier of 1.0.

Which of the following represent problems encountered when comparing the financial statements of two separate entities? I. Either one, or both, of the firms may be conglomerates and thus have unrelated lines of business. II. The operations of the two firms may vary geographically. III. The firms may use differing accounting methods. IV. The two firms may be seasonal in nature and have different fiscal year ends. A. I and II only. B. II and III only. C. I, III, and IV only. D. I, II, and III only. E. I, II, III, and IV.

E. I, II, III, and IV.

During the year, Al's Tools decreased its accounts receivable by $160, increased its inventory by $115, and decreased its accounts payable by $70. How did these three accounts affect the firm's cash flows for the year? A. Net source of cash of $120. B. Net source of cash of $205. C. Net source of cash of $45. D. Net use of cash of $115. E. Net use of cash of $25.

E. Net use of cash of $25

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. Price-earnings ratio.

A common-size income statement is an accounting statement that expresses all of a firm's expenses as a percentage of: A. Total assets. B. Total equity. C. Net income. D. Taxable income. E. Sales.

E. Sales.

Tobin's Q relates the market value of a firm's assets to which one of the following? A. Initial cost of creating the firm. B. Current book value of the firm. C. Average asset value of similar firms. D. Average market value of similar firms. E. Today's cost to duplicate those assets.

E. Today;s cost to duplicate those assets