Chapter 3 Quiz

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?

Net cash from operating activities = $911 + 47 + 15 - 28 + 14 = $959

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?

Common-base year inventory = $527 / $509 = 1.04

Best-Ever Chicken has a debt-equity ratio of .94. Return on assets is 8.5 percent, and total equity is $520,000. What is the net income?

Equity multiplier = 1 + .94 = 1.94 Return on equity = .085 × 1.94 = .1649 Net income = .1649 × $520,000 = $85,748

The most acceptable method of evaluating the financial statements of a firm is to compare the firm's current:

Financial ratios to the firm's historical ratios.

Which one of the following statements is correct?

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

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?

I, II, and III only.

The cash coverage ratio directly measures the ability of a firm to meet which one of its following obligations?

Payment of interest to a lender.

Use the below information to answer the following question. What is the price-sales ratio if the market price is $43.20 per share? (Use end-of-year values)

Price-sales ratio = $43.20 / [$827,500 / ($82,000 / $1)] = 4.28

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

Standard Industrial Classification codes.