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Question;1. The reliability of a short-term cash;forecast depends most heavily on the quality of;a. Cost of goods sold forecast;b. Current ratio forecast;c. Sales forecast;d. Shares outstanding forecast;2. What is the correct order of the following steps in preparing a projected;income statement (not all steps may be show)?;i. Project future net sales;ii. Project future net income;iii. Project future cost of goods sold;iv. Project future interest expense;Choose one answer.;a. i, ii, iii, iv;b. ii, iv, iii, i;c. i, iii, ii, iv;d. I, iii, iv, ii;3. What is the correct order of the following steps in preparing a projected;balance sheet (not all steps may be shown)?;i. Project future cash;ii. Project future accounts receivable;iii. Project future accounts payable;iv. Project future property plant and equipment;Choose one answer.;a. i, ii, iv, iii;b. ii, iv, iii, i;c. I, iii, ii, iv;d. I, iii, iv, ii;4. Which of the following is the most useful in assessing short-term liquidity;of a company?;Choose one answer.;a. Taxes payable;b. Working Capital;c. Next period?s sales;d. Prospective cash flows;5. The residual income model defines stock price as book value plus the present;value of residual income. What is the effect on stock price in a given period;if the firm?s cost of capital is greater than its return on equity?;a. Cannot be determined;b. No effect;c. Stock price increases;d. Stock price decreases;6. Over time, what observation(s) best characterizes how ROE for a given firm;should behave?;i. ROE will increase, because the firm becomes more efficient;ii. ROE will decrease, because competition will erode profitability;iii. The answer depends on how conservative the firm?s accounting policies are;which affects its reported earnings.;a. i and ii;b. ii and iii;c. i, ii, and iii are all possibilities;d. None of the above;7. The reasonableness and feasibility of short-term cash forecasts can be;evaluated by preparing;a. A bank reconciliation;b. Pro forma financial statements;c. A statement of Cash Flows;d. Interest coverage computations;8. If a company is to successfully remain in business over the long haul, which;of the following statements is most correct?;a. Total cash flow from operations, measured over an extended period, must be;greater than zero;b. Total cash flow from investing, measured over an extended period, must be;positive;c. Total cash flow from financing, measured over an extended period, should be;negative;d. Total cash flow from financing plus total cash flow from investing, measured;over an extended period, must be positive;9. Which of the following statement is incorrect?;a. The quicker a company collects money from its customers the greater its;liquidity, all else equal;b. The more quickly a company turns over its inventory, the greater its;liquidity, all else equal;c. The lower a company?s depreciation the greater its liquidity, all else equal;d. The greater a company?s profit margin the greater its liquidity, all else;equal;10. Which of the following statement is incorrect?;a. It is possible for a profitable company to go out of business because of;short-term liquidity problems;b. If a company has a current ratio greater than 2, it will never go out of;business because of liquidity problems;c. The current ratio is always greater than or equal to the quick ratio;d. The accuracy of a cash flow forecast is inversely related to the forecast;horizon.;11. Which of the following best describes the current ratio?;a. debt ratio;b. operating performance ratio;c. liquidity ratio;d. efficiency ratio;12. Which of the following is NOT likely to be used to measure a company?s;liquidity?;a. working capital;b. financial leverage;c. current ratio;d. acid-test (quick) ratio;13. Which of the following will NOT affect the calculation of leverage ratios?;a. existence of non-capitalized operating leases;b. existence of assets where market value is much higher than book value;c. existence of significant debt covenants;d. existence of pension liabilities where projected benefit liability is much;greater than plan assets and accumulated benefit obligation;14. An analyst should treat preferred stock on a firm?s balance sheet as debt;when calculating leverage ratios if the preferred stock is;a. redeemable by shareholders;b. convertible into common stock;c. issued at a variable dividend rate;d. callable by the issuer;15. The short-term liquidity of a company;a. is only of concern to creditors of a company;b. is determinable by looking at current ratio;c. depends largely upon prospective cash flows;d. is determinable by calculating cash to current liabilities ratio;16. A company wishes to increase its financial leverage. Which of the following;actions, all other things being equal, will achieve this?;i. repurchase stock;ii. issue more dividends;iii. sell accounts receivable at face value;iv. split stock 2 for 1;a. i, ii and iii;b. i and ii;c. I and iv;d. I, ii and iv;17. Which of the following statements are correct with respect to the times;interest earned ratio?;i. it is independent of operating income;ii. it is independent of the interest rate paid on debt;iii. it is independent of the tax rate;iv. it is independent of the amount of dividends paid;a. i, ii and iii;b. i and iii;c. i and iv;d. iii and iv;18. The earnings to fixed charges ratio;a. indicates how efficiently assets are used;b. typically includes depreciation in the denominator;c. typically excludes extraordinary gains and losses from the numerator;d. indicates the proportion of debt used to finance the company;19. Reported operating income for Horace Corporation was $145,000 and reported;interest expense was $45,000. Times interest earned for Horace Corporation;after necessary adjustments, was;a. 2.22;b. 3.22;c. 4.22;d. 4.48;20. Typical debt covenants would;i. limit the issuance of additional debt senior to the obligation;ii. specify minimum levels of selected financial ratios;iii. specify minimum levels of earnings coverage;iv. prohibit excessive dividends or stock repurchases;a. ii and iii;b. ii and iv;c. i, iii and iv;d. I, ii, iii and iv;21. Pitfalls when forecasting earnings include failure to consider;i. capital adequacy;ii. capacity constraints;iii. anticipated return on equity;iv. new management;a. i and iii;b. ii and iv;c. I, iii and iv;d. I, ii and iii;22. Which of the following can affect earnings quality?;i. management?s choice of accounting principle;ii. management?s choice of dividend policy;iii. management?s estimates;iv. management?s discretionary expenditures;a. i, ii, iii and iv;b. i, ii and iii;c. i, iii and iv;d. i and iii;23. Which of the following is NOT a typical form of earnings management?;a. Changing accounting estimates;b. Offsetting one-time gains and losses;c. Changing accounting principles;d. Changing auditors;24. Which of the following would NOT be considered a component of business;risk?;a. financial leverage;b. variability of demand;c. variability of price of inputs to production;d. changing regulatory requirements;25. business risk;a. is independent of actions by management;b. does not affect the systematic risk of a company;c. refers to financial leverage;d. is a component of the overall risk of a company;26. Interim financial reports;a. are not required by SEC;b. are as reliable as annual reports;c. require allocation of certain discretionary costs across interim periods;d. normally use FIFO inventory reporting, regardless of method used for annual;reports.;27. Which of the following will affect observed price earnings ratio (lagged;ratio);i. quality of earnings;ii. business risk;iii. risk free rate of interest;iv. expected growth;a. all of the above;b. ii, iii and iv;c. ii and iv;d. i, ii and iv;28. Which of the following will affect observed price to book ratio;i. expected ROCE;ii. business risk;iii. risk free rate of interest;iv. expected growth;a. all of the above;b. ii, iii and iv;c. ii and iv;d. i, ii and iv;29. Which of the following statement is most correct?;a. if two companies have the same ROE and the same risk they must have the same;residual income (abnormal earnings) for the year;b. If two companies have the same net book value and the same residual income;this year, then their stock prices must be the samec. If two companies have the same ROE and the same stock;price their earnings must be the same for the year;d. If two companies have the same ROE, net book value, and cost of capital then;their residual income must be the same for the year;30. Two companies, A and B, have the same ROEs but Company A has a higher;residual income. Which of the following would explain this, all else equal?;a. company A is riskier than company B;b. Company A has higher expected future growth;c. Company A has greater net book value;d. Company A has lower ROA

 

Paper#40675 | Written in 18-Jul-2015

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