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Question;1.;Company J and Company K each recently reported the same;earnings per share (EPS). Company J's stock, however, trades at a higher price.;Which of the following statements is correct?;A. a. Company J must;have a higher P/E ratio.;B. b. Company J must;have a higher market to book ratio.;C. c. Company J must;be riskier;D. d. Company J must;have fewer growth opportunities.;E. e. All of the;statements above are correct.;Question 2 of 20;Which of the following statements is correct?;A. a. Many large firms;operate different divisions in different industries, and this makes it hard to;develop a meaningful set of industry benchmarks for these types of firms.;B. b. Financial;ratios should be interpreted with caution because there exist seasonal and;accounting differences that can reduce their comparability.;C. c. Financial;ratios should be interpreted with caution because it may be difficult to say;with certainty what is a "good" value. For example, in the case of;the current ratio, a "good" value is neither high nor low.;D. d. Ratio analysis;facilitates comparisons by standardizing numbers.;E. e. All of the;statements above are correct.;Question 3 of 20;Which of the following actions can a firm take to increase;its current ratio?;A. a. Issue;short-term debt and use the proceeds to buy back long-term debt with a maturity;of more than one year.;B. b. Reduce the;company's days sales outstanding to the industry average and use the resulting;cash savings to purchase plant and equipment.;C. c. Use cash to;purchase additional inventory.;D. d. Statements a;and b are correct.;E. e. None of the;statements above is correct.;Question 4 of 20;Which of the following actions will cause an increase in the;quick ratio in the short run?;A. a. $1,000 worth of;inventory is sold, and an account receivable is created. The receivable exceeds;the inventory by the amount of profit on the sale, which is added to retained;earnings.;B. b. A small;subsidiary which was acquired for $100,000 two years ago and which was;generating profits at the rate of 10 percent is sold for $100,000 cash.;(Average company profits are 15 percent of assets.);C. c. Marketable;securities are sold at cost.;D. d. All of the;answers above.;E. e. Answers a and b;above.;Question 5 of 20;Company A is financed with 90 percent debt, whereas Company;B, which has the same amount of total assets, is financed entirely with equity.;Both companies have a marginal tax rate of 35 percent. Which of the following;statements is correct?;A. a. If the two;companies have the same basic earning power (BEP), Company B will have a higher;return on assets.;B. b. If the two;companies have the same return on assets, Company B will have a higher return;on equity.;C. c. If the two;companies have the same level of sales and basic earning power (BEP), Company B;will have a lower profit margin.;D. d. All of the;answers above are correct.;E. e. None of the;answers above is correct.;Question 6 of 20;The Wilson Corporation has the following relationships;Sales/Total assets 2.0;Return on assets (ROA) 4%;Return on equity (ROE) 6%;What is Wilson's profit margin and debt ratio?;A. a. 2% and 0.33;B. b. 4% and 0.33;C. c. 4% and 0.67;D. d. 2% and 0.67;E. e. 4% and 0.50;Reset Selection;Question 7 of 20;Q Corp. has a basic earnings power (BEP) ratio of 15;percent, and has a times interest earned (TIE) ratio of 6. Total assets are;$100,000. The corporate tax rate is 40 percent. What is Q Corp.'s return on;assets (ROA)?;A. a. 7.5%;B. b. 10.0%;C. c. 12.2%;D. d. 13.1%;E. e. 14.5%;Question 8 of 20;Kansas Office Supply had $24,000,000 in sales last year. The;company's net income was $400,000. Its total assets turnover was 6.0. The;company's ROE was 15 percent. The company is financed entirely with debt and;common equity. What is the company's debt ratio?;A. a. 0.20;B. b. 0.30;C. c. 0.33;D. d. 0.60;E. e. 0.66;Question 9 of 20 Given the following information, calculate;the market price per share of WAM Inc.;Net income = $200,000;Earnings per share = $2.00;Stockholders' equity = $2,000,000;Market/Book ratio = 0.20;A. a. $20.00;B. b. $ 8.00;C. c. $ 4.00;D. d. $ 2.00;E. e. $ 1.00;Question 10 of 20;Taft Technologies has the following relationships;annual sales $1,200,000;current liabilities $375,000;days sales outstanding(DSO)(360-day year) 40;Inventory Turnover Ratio 4.8;current ratio 1.2;The company's current assets consist of cash, inventories;and accounts receivable. How much cash does Taft have on its balance sheet?;A. -$ 8,333;B. $ 66,667;C. $125,000;D. $200,000;E. $316,667;Question 11 of 20;Info Technics Inc. has an equity multiplier of 2.50. The;company's assets are financed with some combination of long-term debt and;common equity. What is the company's debt ratio?;A. a. 51.20%;B. b. 26.00%;C. c. 39.36%;D. d. 65.00%;E. e. 60.00%;Question 12 of 20;Cutler Enterprises has current assets equal to $5 million.;The company's current ratio is 1.25, and its quick ratio is 0.75. What is the;firm's level of current liabilities (in millions)?;A. a. $2.85;B. b. $3.0;C. c. $4.0;D. d. $0.9;E. e. 1.9;Question 13 of 20;Lewis Inc. has sales of $3,600,000 per year, all of which;are credit sales. Its days sales outstanding is 42 days. What is its average;accounts receivable balance? Assume 360 days per year.;A. a. $238,090;B. b. $420,000;C. c. $280,000;D. d. $386,000;E. e. $400,000;Question 14 of 20;A firm has total interest charges of $20,000 per year, sales;of $2,800,000, a tax rate of 40 percent, and a profit margin of 6 percent. What;is the firm's times-interest-earned ratio?;A. a. 15;B. b. 12.5;C. c. 11.5;D. d. 15.8;E. e. 16;Question 15 of 20;A fire has destroyed many of the financial records at;Anderson Associates. You are assigned to piece together information to prepare;a financial report. You have found that the firm's return on equity is 12;percent and its debt ratio is 0.20. What is its return on assets?;A. a. 6.40%;B. b. 4.85%;C. c. 9.60%;D. d. 8.50%;E. e. 6.90%;Question 16 of 20;Rowe and Company has a debt ratio of 0.20, a total assets;turnover of 0.25, and a profit margin of 10 percent. The president is unhappy;with the current return on equity, and he thinks it could be doubled. This;could be accomplished (1) by increasing the profit margin to 14 percent and (2);by increasing debt utilization. Total assets turnover will not change. What new;debt ratio, along with the 14 percent profit margin, is required to double the;return on equity?;A. a. 0.50;B. b. 0.56;C. c. 0.88;D. d. 0.78;E. e. 0.44;Question 17 of 20;Pinkerton Packaging's ROE last year was 4.5 percent, but its;management has developed a new operating plan designed to improve things. The;new plan calls for a total debt ratio of 50 percent, which will result in;interest charges of $240 per year. Management projects an EBIT of $800 on sales;of $8,000, and it expects to have a total assets turnover ratio of 1.6. Under;these conditions, the federal-plus-state tax rate will be 40 percent. If the;changes are made, what return on equity will Pinkerton earn?;A. a. 2.50%;B. b. 13.44%;C. c. 13.00%;D. d. 14.02%;E. e. 14.57%;Question 18 of 20;Examining the ratios of a particular firm against the same;measures for a small group of firms from the same industry, at a point in time;is an example of;A. a. Trend analysis.;B. b. Benchmarking.;C. c. Du Pont;analysis.;D. d. Simple ratio;analysis.;E. e. Industry;analysis.;Question 19 of 20;Which of the following statements is correct?;A. a. Having a high;current ratio and a high quick ratio is always a good indication that a firm is;managing its liquidity position well.;B. b. A decline in;the inventory turnover ratio suggests that the firm's liquidity position is;improving.;C. c. If a firm's;times-interest-earned ratio is relatively high, then this is one indication;that the firm should be able to meet its debt obligations.;D. d. Since ROA;measures the firm's effective utilization of assets (without considering how;these assets are financed), two firms with the same EBIT must have the same;ROA.;E. e. If, through;specific managerial actions, a firm has been able to increase its ROA, then;because of the fixed mathematical relationship between ROA and ROE, it must;also have increased its ROE.;Question 20 of 20;Which of the following statements is correct?;A. a. Suppose two;firms with the same amount of assets pay the same interest rate on their debt;and earn the same rate of return on their assets and that ROA is positive. However;one firm has a higher debt ratio. Under these conditions, the firm with the;higher debt ratio will also have a higher rate of return on common equity.;B. b. One of the;problems of ratio analysis is that the relationships are subject to;manipulation. For example, we know that if we use some cash to pay off some of;our current liabilities, the current ratio will always increase, especially if;the current ratio is weak initially, for example, below 1.0.;C. c. Generally;firms with high profit margins have high asset turnover ratios and firms with;low profit margins have low turnover ratios, this result is exactly as;predicted by the extended Du Pont equation.;D. d. Firms A and B;have identical earnings and identical dividend payout ratios. If Firm A's;growth rate is higher than Firm Bs, then Firm A's P/E ratio must be greater;than Firm B's P/E ratio.;E. e. Each of the;above statements is false.

 

Paper#42187 | Written in 18-Jul-2015

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