Finance Ch. 3 Quiz

Al's has a price-earnings ratio of 18.5. Ben's also has a price-earnings ratio of 18.5. Which one of the following statements must be true if Al's has a higher PEG ratio than Ben's?

Ben's is increasing its earnings at a faster rate than Al's.

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

statement of cash flows.

Dandelion Fields has a Tobin's Q of .96. The replacement cost of the firm's assets is $225,000 and the market value of the firm's debt is $101,000. The firm has 20,000 shares of stock outstanding and a book value per share of $2.09. What is the market-to-book ratio?

2.75 times MV of assets = .96($225,000)MV of assets = $216,000MV of equity = $216,000 − 101,000MV of equity = $115,000MV per share = $115,000/20,000MV per share = $5.75Market-to-book ratio = $5.75/$2.09Market-to-book ratio = 2.75 times

On the statement of cash flows, which one of the following is considered an operating activity?

Decrease in accounts payable

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

Price-earnings ratio

The U.S. government coding system that classifies a company by the nature of its business operations is known as the:

Standard Industrial Classification codes.

A firm has total assets with a current book value of $71,600, a current market value of $82,300, and a current replacement cost of $90,400. What is the value of Tobin's Q?

.91 Tobin's Q = $82,300/$90,400Tobin's Q = .91

Lawn Care, Inc., has sales of $367,400, costs of $183,600, depreciation of $48,600, interest of $39,200, and a tax rate of 25 percent. The firm has total assets of $422,100, long-term debt of $102,000, net fixed assets of $264,500, and net working capital of $22,300. What is the return on equity?

38.96 percent Net income = ($367,400 − 183,600 − 48,600 − 39,200) (1 − .25)Net income = $72,000 Current liabilities = $422,100 − 264,500 − 22,300Current liabilities = $135,300 Total equity = $422,100 − 135,300 − 102,000Total equity = $184,800 ROE = $72,000/$184,800ROE = .3896, or 38.96%

The Green Fiddle has current liabilities of $28,000, sales of $156,900, and cost of goods sold of $62,400. The current ratio is 1.22 and the quick ratio is .71. How many days on average does it take to sell the inventory?

83.53 days Inventory = $28,000 (1.22 − .71) Inventory = $14,280 Days' sales in inventory = 365/($62,400/$14,280) Days' sales in inventory = 83.53 days

Which one of the following statements is correct?

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