FINA 4300 Ch 1 and 2, Exam 1

JM Case Inc. has a market value of $5 million with 500,000 shares outstanding. The book value of its equity is $1,750,000. What is JM Case's price per share?

$10

Which one of the following statements does NOT describe a problem with using ROE as a performance measure?

ROE is a forward-looking, one-period measure, while business decisions span the past and present.

Which one of the following statements is correct?

The assets-to-equity ratio can be computed as 1 plus the debt-to-equity ratio.

Ptarmigan Travelers had sales of $420,000 in 2010 and $480,000 in 2011. The firm's current accounts remained constant. Given this information, which one of the following statements must be true?

The collection period decreased.

Which one of the following ratios identifies the amount of assets a firm needs in order to generate $1 in sales?

asset turnover

Ratios that measure how efficiently a firm manages its assets and operations to generate net income are referred to as _____ ratios.

asset turnover and control

Which one of the following is the financial statement that shows a financial snapshot, taken at a point in time, of all the assets the company owns and all the claims against those assets?

balance sheet

The book value of a firm is:

based on historical cost.

Which one of the following is the financial statement that summarizes changes in the company's cash balance over a period of time?

cash flow statement

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

cash flow statement.

Which one of the following is a source of cash? (2nd)

decrease in accounts receivable

Noncash items refer to:

expenses, like depreciation, which do not directly affect cash flows.

Which one of the following is the financial statement that summarizes a firm's revenue and expenses over a period of time?

income statement

Which one of the following is a source of cash? (1st)

increase in accounts payable

Which one of the following is a use of cash?

increase in inventory

Breakers Bay Inc. 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. All else held constant, how will this accomplishment be reflected in the firm's financial ratios?

increase in the inventory turnover rate

Which of these ratios, or levers of performance, are the determinants of ROE? I. profit margin II. financial leverage III. times interest earned IV. asset turnover

I, II, and IV only

Which of the following tends to cause differences between market values and book values? I. Accounting often creates a dichotomy between realized and unrealized income. II. Accountants allocate goodwill when a firm is acquired for more than book value. III. Many accounting values are transactions-based and hence backward-looking. IV. The use of fair-value accounting. V. Accountants refuse to assign a cost to equity capital.

I, III, and V only

Which of the following ratios are measures of a firm's liquidity? I. fixed asset turnover ratio II. current ratio III. debt-equity ratio IV. acid test

II and IV only

JM Case Inc. has a market value of $5 million with 500,000 shares outstanding. The book value of its equity is $1,750,000. What is JM Case's book value per share?

$3.50

JM Case Inc. has a market value of $5 million with 500,000 shares outstanding. The book value of its equity is $1,750,000. If the company repurchases 20 percent of its shares in the stock market and there are no taxes or transactions costs and all else remains the same, what should the market value of the firm be after the repurchase?

$4,000,000

JM Case Inc. has a market value of $5 million with 500,000 shares outstanding. The book value of its equity is $1,750,000. If the company repurchases 20 percent of its shares in the stock market, what will be the book value of equity if all else remains the same?

$750,000

Which of the following statements concerning a firm's cash flows and profits is false?

A company that sells merchandise at a profit will generate cash soon enough to replenish cash flows required for continued production.

Which of the following statements concerning the cash flow production cycle is true?

The profits reported in a given time period equal the cash flows generated.

Depreciation expense:

reduces both taxes and net income.

The most popular yardstick of financial performance among investors and senior managers is the:

return on equity

Assume you are a banker who has loaned money to a firm, but that firm is now facing increased competition and reduced cash flows. Which one of the following ratios would you most closely monitor to evaluate the firm's ability to repay its loan?

times burden covered ratio

On a common-size balance sheet, all accounts are expressed as a percentage of:

total assets for the current year.