FRL 300 Midterm 1: CH 3 & 4 class quiz

The external financing need: A. Will limit growth if unfunded B. Is unaffected by the dividend payout ratio C. Must be funded by long-term debt D. Ignores any changes in retained earnings E. Considers only the required increase in fixed assets

A

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 ha a higher PEG ratio then Ben's? A. Al's has more net income than Ben's B. Ben's is increasing its earnings at a faster rate than the Al' C. Al's has a higher market value per share than does Ben's D. Ben's has a lower market-to-book ratio than Al's E. Al's has a higher earnings growth rate than Ben's

B Higher PEG ratio = High price = Expensive therefore, less desirable So Ben's statement is more appealing than Al's bc cheaper

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

You are getting ready to prepare pro forma statements for your business. Which of the following are you most likely to estimate first as you begin this process? A. Need for additional fixed assets B. Current fixed costs C. Projected sales D. Desired net income E. Desired dividend payments

C "Pro forma" statements = financial PROJECTIONS

A firm's external financing need is financed by which of the following? A. Retained earnings B. Net working capital and retained earnings C. Net income and retained earnings D. Debt or equity E. Owners' equity, including retained earnings

D "external financing need" = money OUTSIDE of what you HAVE