Chapter 19, 20, 21 Exam FIN 434
Refer to the financial statements for Snapit Company. The firm's return on sales ratio for 2009 is
0.1325
Refer to the financial statements for Snapit Company. The firm's return on equity ratio for 2009 is
0.2960
Refer to the financial statements of Midwest Tours. The firm's market to book value for 2009 is
0.71
Refer to the financial statements for Snapit Company. The firm's quick ratio for 2009 is
0.72
Refer to the financial statements of Midwest Tours. The firm's quick ratio for 2009 is
0.85
Refer to the financial statements of Midwest Tours. The firm's asset turnover ratio for 2009 is
0.86
Refer to the financial statements of Black Barn Company. The firm's quick ratio for 2009 is
1.00
Refer to the financial statements of Midwest Tours. The firm's fixed asset turnover ratio for 2009 is
1.20
Refer to the financial statements of Black Barn Company. The firm's market to book value for 2009 is
1.26
Refer to the financial statements of Midwest Tours. The firm's current ratio for 2009 is
1.30
Refer to the financial statements of Black Barn Company. The firm's asset turnover ratio for 2009 is
1.34
Refer to the financial statements for Snapit Company. The firm's current ratio for 2009 is
1.53
A firm has a P/E ratio of 12 and a ROE of 13% and a market to book value of _________.
1.56
Refer to the financial statements of Black Barn Company. The firm's leverage ratio for 2009 is
1.56
Refer to the financial statements for Snapit Company. The firm's asset turnover ratio for 2009 is
1.60
A firm has a ROA of 14%, a debt/equity ratio of 0.8, a tax rate of 35%, and the interest rate on the debt is 10%. The firm's ROE is
11.18%
Refer to the financial statements of Black Barn Company. The firm's return on sales ratio for 2009 is __ percent
15.5
Refer to the financial statements of Midwest Tours. The firm's return on equity ratio is
15.50%
Refer to the financial statements of Black Barn Company. The firm's return on equity ratio for 2009 is
16.90%
Refer to the financial statements of Midwest Tours. The firm's leverage ratio for 2009 is
2.00
Refer to the financial statements of Black Barn Company. The firm's current ratio for 2009 is __
2.31
Refer to the financial statements of Black Barn Company. The firm's fixed asset turnover ratio for 2009 is
2.58
Refer to the financial statements for Snapit Company. The firm's market to book value for 2009 is
2.9400
Over a period of thirty-odd years in managing investment funds, Benjamin Graham used the approach of investing in the stocks of companies where the stocks were trading at less than their working capital value. The average return from using this strategy was approximately _____.
20%
Refer to the financial statements of Midwest Tours. The firm's return on sales ratio for 2009 is __ percent
21.6
Refer to the financial statements for Snapit Company. The firm's leverage ratio for 2009 is
3.06
Refer to the financial statements of Black Barn Company. The firm's inventory turnover ratio for 2009 is
3.15
A firm has a (net profit/pretax profit ratio) of 0.625, a leverage ratio of 1.2, a (pretax profit/EBIT) of 0.9, an ROE of 17.82%, a current ratio of 8, and a return on sales ratio of 8%. The firm's asset turnover is __
3.3
Refer to the financial statements for Snapit Company. The firm's times interest earned ratio for 2009 is
3.31
Refer to the financial statements of Midwest Tours. The firm's times interest earned ratio for 2009 is
3.375
A firm has an ROE of -2%, a debt/equity ratio of 1.0, a tax rate of 0%, and an interest rate on debt of 10%. The firm's ROA is
4%
Refer to the financial statements of Midwest Tours. The firm's inventory turnover ratio for 2009 is
4.42
Refer to the financial statements for Snapit Company. The firm's inventory turnover ratio for 2009 is
4.64
Refer to the financial statements of Midwest Tours. The firm's P/E ratio for 2009 is
4.74
Refer to the financial statements for Snapit Company. The firm's average collection period for 2009 is
47.90
Refer to the financial statements of Black Barn Company. The firm's average collection period for 2009 is
49.05
Refer to the financial statements of Midwest Tours. The firm's average collection period for 2009 is
69.35
A firm has a (net profit/pretax profit) ratio of 0.6%, a leverage ratio of 2, a (pretax profit/EBIT) of 0.6, an asset turnover ratio of 2.5, a current ratio of 1.5, and a return on sales ratio of 4%. The firm's ROE is
7.2%
Refer to the financial statements of Black Barn Company. The firm's P/E ratio for 2009 is
7.88
Refer to the financial statements of Black Barn Company. The firm's times interest earned ratio for 2009 is
8.86
___ is a false statement
During periods of inflation, FIFO makes the balance sheet less representative of actual inventory values than if LIFO were used and LIFO overstates earnings relative to FIFO
___ is a true statement
During periods of inflation, LIFO makes the balance sheet less representative of the actual inventory values than if FIFO were used
__ is a measure of what firms would have earned if it didn't have any other obligations to creditors or tax authorities
Earnings Before Interest and Taxes
which of the following are issues when dealing with the financial statements of international firms? I) Many countries allow firms to set aside larger contingency reserves than the amount allowed for U.S. firms II) Many firms outside the U.S. use accelerated depreciation methods for reporting purposes, whereas most U.S. firms use straight-line depreciation for reporting purposes III) Intangibles such as goodwill may be amortized over different periods or may be expensed rather than capitalized IV) There is no way to reconcile the financial statements of non-U.S. firms to GAAP
I, II, and III
if you wish to compute economic earnings and are trying to decide how to account for inventory,
LIFO is better than FIFO
What best explains why a firm's ratio of (long-term debt/total capital) is lower than the industry average, while the ratio of (income before interest and taxes/debt interest charges) is lower than the industry average?
The firm has more short-term debt than average
Which of the following would best explain a situation where the ratio of (net income/total equity) of a firm is higher than the industry average, while the ratio of (net income/total assets) is lower than the industry average?
The firm's debt ratio is higher than the industry average
___ of the profitability of the firm over a period of time such as a year.
The income statement is a summary
one problem with comparing financial ratios prepared by different reporting agencies is
agencies vary in their policies as to what is included in specific calculations
An American put option can be exercised
any time on or before the expiration date
An American call option allows the buyer to
buy the underlying asset at the exercise price on or before the expiration date and sell the option in the open market prior to expiration.
an example of a liquidity ratio is
current ratio; acid-test, or quick, ratio
if the interest rate on debt is higher than ROA, then a firm will ___ by increasing the use of debt in the capital structure
decrease the ROE
To create a common size balance sheet ___ all items on the balance sheet by
divide; total assets
To create a common size income statement, ____________ all items on the income statement by ____________.
divide; total revenue
Fundamental analysis uses
earnings and dividends prospects
The dollar value of a firm's return in excess of its opportunity costs is called its
economic value added
comparability problems arise because
firms may use different generally accepted accounting principles and inflation may affect firms differently due to accounting conventions used.
If a firm has a positive tax rate, a positive ROA, and the interest rate on debt is the same as ROA, then ROA will be
greater than the ROE
FOX Company has a ratio of (total debt/total assets) that is above the industry average, and a ratio of (long term debt/equity) that is below the industry average. These ratios suggest that the firm
has relatively high current liabilities
A firm's current ratio is above the industry average; however, the firm's quick ratio is below the industry average. These ratios suggest that the firm
has relatively more total current assets and even more inventory than other firms in the industry
during periods of inflation, the use of FIFO (rather than LIFO) as the method of accounting for inventories causes
higher income taxes
if the interest rate on debt is lower than ROA, then a firm will __ by increasing the use of debt in the capital structure
increase the ROE
suppose that chicken express inc. has a ROA of 7% and pays a 6% coupon on its debt. chicken express has a capital structure that is 70% equity and 30% debt. relative to a firm that is 100% equity-financed, chicken express's net profit will be ___ and its ROE will be ___.
lower; higher
Assuming continued inflation, a firm that uses LIFO will tend to have a(n) ________current ratio than a firm using FIFO, and the difference will tend to __________ as time passes.
lower; increase
the price that the writer of a put option receives for the underlying asset if the option is exercised is called the
none of these is correct
Common size financial statements make it easier to compare firms
of different sizes
Common size income statements make it easier to compare firms
of different sizes
common size balance sheets make it easier to compare firms
of different sizes
A European put option can be exercised
only on the expiration date
An American call option can be exercised
only on the expiration date
The level of real income of a firm can be distorted by the reporting of depreciation and interest expense. During periods of low inflation, the level of reported depreciation tends to __________ income, and the level of interest expense reported tends to __________ income.
overstate; understate
Proceeds from a company's sale of stock to the public are included in
par value and retained earnings
Ferris Corp. wants to increase its current ratio from the present level of 1.5 when it closes the books next week. The action of __________ will have the desired effect.
payment of current payables from cash
The price that the buyer of a call option pays to acquire the option is called the
premium
the price that the buyer of a put option pays to acquire the option is called the
premium
the price that the writer of a call option receives to sell the option is called the
premium
the price that the writer of a put option receives to sell the option is called the
premium
Economic value added (EVA) is also known as
residual income
which of the following ratios gives information on the amount of profits reinvested in the firm over the years?
retained earnings/total assets
a measure of asset utilization is
return on total assets
A European call option allows the buyer to
sell the option in the open market prior to expiration and buy the underlying asset at the exercise price on the expiration date.
An American put option allows the holder to
sell the underlying asset at the striking price on or before the expiration date.
A European put option allows the holder to
sell the underlying asset at the striking price on the expiration date.
which of the following financial statements recognizes only transactions in which cash changes hands?
statement of cash flows
The price that the buyer of a call option pays for the underlying asset if she executes her option is called the
strike price or exercise price
The price that the writer of a call option receives for the underlying asset if the buyer executes her option is called the
strike price or exercise price
the price that the buyer of a put option receives for the underlying asset if she executes her option is called the
strike price or exercise price
The P/E ratio that is based on a firm's financial statements and reported in the newspaper stock listings is different from the P/E ratio derived from the dividend discount model (DDM) because
the DDM uses different earnings measures in the denominator
return on total assets is the product of
the after-tax profit margin and the asset turnover ratio
___ a snapshot of the financial condition of the firm at a particular time
the balance sheet provides
a firm has a market to book value ratio that is equivalent to the industry average and an ROE that is less than the industry average, which implies
the firm has a higher P/E ratio than other firms in the industry
___ best explains a ratio of (sales/average net fixed assets) that exceeds the industry average
the firm has a substantial amount of old plant and equipment
A firm has a lower quick (or acid test) ratio than the industry average, which implies
the firm is less likely to avoid insolvency in the short run than other firms in the industry and the firm may be more profitable than other firms in the industry
A firm has a higher quick (or acid test) ratio than the industry average, which implies
the firm is more likely to avoid insolvency in the short run than other firms in the industry and the firm may be less profitable than other firms in the industry
A firm has a lower asset turnover ratio than the industry average, which implies
the firm is utilizing assets less efficiently than other firms in the industry
A firm has a higher asset turnover ratio than the industry average, which implies
the firm is utilizing assets more efficiently than other firms in the industry
a study by Speidell and Bavishi (1992) found that when accounting statements of foreign firms were restated on a common accounting basis,
the original and restated P/E ratios varied considerably
____ of the cash flow generated by the firm's operations, investments and financial activities
the statement of cash flows is a report
in periods of inflation, accounting depreciation is __ relative to replacement cost and real economic income is __
understated; overstated
