Finance exam 1

4. Suppose an acquiring firm pays $100 million for a target firm and the target's assets have a book value of $70 million and an estimated replacement value of $80 million. What amount would be allocated to the acquiring firm's goodwill account? a. $20 million b. $70 million c. None of the answers provided d. $80 million e. $0 million f. $30 million

a. $20 million

3. JM Case Inc. has a market value of $5 million with 500,000 shares outstanding. The book value of its shareholder's equity is $1,800,000. If the company repurchases 30 percent of its shares in the stock market, what will be the book value of equity if all else remains the same? a. $300,000 b. None of the answers given c. $800,000 d. $400,000 e. $1,400,000 f. $750,000

a. $300,000

You want to figure out if Easy, Breezy and Bruteful has too much debt. Which of the following ratios is going to be the least useful to you. a. Collection period b. Current ratio c. Debt to assets d. Times interest covered

a. Collection period

Did Easy, Breezy and Bruteful's profit margin improve from 2013 to 2014? a. Got worse in 2014 b. Improved in 2014 c. Insufficient information

a. Got worse in 2014

Did Easy, Breezy and Bruteful's asset turnover ratio improve from 2013 to 2014? a. Improved in 2014 b. Worsened in 2014 c. Insufficient information

a. Improved in 2014

You want to compare Easy, Breezy and Bruteful's operating performance to tis main competitor, Ain't So Pretty Enterprises, however, Ain't So Pretty doesn't use any debt. What measure will allow you to compare their operating performance without any distortions from the difference in leverage between the two companies? a. Return on invested capital b. Return on equity c. All of these measures will be distorted by leverage d. Return on assets

a. Return on invested capital

7. What was the Easy, Breezy and Bruteful's return on invested capital in 2014? a. 23.91% b. 22.05% c. 19.33% d. 20.49%

c. 19.33%

If a company gets into financial difficulty, it can use some of its shareholders' equity to pay its bills for a time. true or false

false

The accrual principle requires that revenue not be recognized until payment from a sale received true or false

false

An inventory turnover ratio of 10 means that, on average, items are held in inventory for 10 days. true or false

false

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

1. At the end of 2014, Stacky Corp. had $500,000 in liabilities and a debt-to-assets ratio of 0.5. For 2014 Stacky had an asset turnover of 3.0. What were annual sales for Stacky in 2014? a. $1,800,000 b. $3,000,000 c. $1,200,000 d. $333,333

b. $3,000,000

8. What was the times burden covered ratio for Easy, Breezy and Bruteful in 2013? a. 4.95 b. 5.80 c. 6.31 d. 5.24

b. 5.80

Easy, Breezy and Bruteful's suppliers all allow 60 days before payment is due. Assuming that all of Easy, Breezy and Bruteful's purchases are on credit is the company on average making their payments early, late, or on time? a. No way to know b. Early c. On time d. Late

b. Early

The industry average of days sales in cash for companies like Easy, Breezy and Bruteful in 2014 is 27 days. Based only on this information, does it seem like Easy, Breezy Bruteful is holding too much cash or not enough? a. Too much b. Not enough c. What's cash again? d. Just rights

b. Not enough

Ptarmigan Travelers had sales of $420,000 in 2013 and $480,000 in 2014. The firm's current asset accounts remained constant. Given this information, which one of the following statements must be true? a. The days' sales in receivables increased b. The collection period decreased c. The inventory turnover rate increased d. The fixed asset turnover decreased

b. The collection period decreased

6. If you were asked to prepare the common-size Balance sheet for Easy, Breezy and Bruteful, what would the percentage point change between 2013 to 2014 on Inventories? a. decrease of 3.53 percentage point b. increase of 1.52 percentage point c. decrease of 1.52 percentage point d. increase of 3.53 percentage point

b. increase of 1.52 percentage point

Would you like some free points for reading all the questions? a. Zero b. No thanks! c. Free points please! d. Don't choose me

c. Free points please!

Which of the following would NOT be considered a use of cash? a. Dividends paid b. An increase in the cash and marketable securities account c. A decrease in accounts payable d. Depreciation

d. Depreciation

Depreciation expense: a. increases net fixed assets as shown on the balance sheet. b. is a noncash item that increases net income. c. decreases current assets, net income, and operating cash flows. d. reduces both taxes and net income.

d. reduces both taxes and net income.

2. Big Ben's Farm has a market value of $5 million with 500,000 shares outstanding. The book value of its shareholder's equity is $1,750,000. If the company repurchases 25 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? a. $1,400,000 b. $4,000,000 c. $5,000,000 d. $1,750,000 e. $3,750,000

e. $3,750,000

5. Big Timer's income statement shows a provision for income taxes of $65 million in 2014. At the end of 2013, Big Timer's balance sheet reported income taxes payable of $12 million and deferred taxes of $18 million. At the end 2014 their balance sheet shows income taxes payable of $15 million and deferred taxes of $19 million. What is the amount for taxes paid in 2014? a. $63 million b. $69 million c. $65 million d. $60 million e. $61 million

e. $61 million

On a common-size balance sheet, all accounts are expressed as a percentage of: a. profits b. Sales c. Equity d. Shareholder's equity e. Liabilities f. Total Assets

f. Total Assets

All else equal, a firm would prefer to have a lower asset turnover ratio

false

An increase in an asset account source of cash. true or false

false

A company's return on equity will always equal or exceed its return on assets. true or false

true

If two firms have the same profit margin and asset turnover ratio, the firm with the most debt will have highest ROE. true or false

true

The times-interest-earned ratio always equals or exceeds the time-burden-covered ratio true or false

true

When reporting financial performance for tax purposes, U.S. companies prefer to use accelerated depreciation methods over the straight-line method true or false

true

When reporting financial performance for tax purposes, U.S. companies prefer to use accelerated depreciation methods over the straight-line method. true or false

true