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Although a full liquidity analysis requires the use of a cash budget




Question;True-False;1. Although a full liquidity analysis;requires the use of a cash budget, the current and quick;ratios provide fast and easy-to-use;measures of a firm's liquidity position.;a. True;b. False;2. High current and quick ratios always;indicate that a firm is managing its liquidity position;well.;a. True;b. False;3. The inventory turnover ratio and days;sales outstanding (DSO) are two ratios that are used;to assess how effectively a firm is;managing its assets.;a. True;b. False;4. Companies HD and LD have the same sales;tax rate, interest rate on their debt, total assets;and basic earning power. Both companies;have positive net incomes. Company HD;has a higher debt ratio and, therefore, a;higher interest expense. Which of the following;statements is CORRECT?;a. Company HD pays less in taxes.;b. Company HD has a lower equity;multiplier.;c. Company HD has a higher ROA.;d. Company HD has a higher times interest;earned (TIE) ratio.;e. Company HD has more net income.;5. Which of the following statements is;CORRECT?;a. If a firm has the highest price/earnings;ratio of any firm in its industry, then, other things;held constant, this suggests that the board;of directors should fire the president.;b. If a firm has the highest market/book;ratio of any firm in its industry, then, other things held;constant, this suggests that the board of;directors should fire the president.;c. Other things held constant, the higher a;firm?s expected future growth rate, the lower its P/E;ratio is likely to be.;d. The higher the market/book ratio, then;other things held constant, the higher one would;expect to find the Market Value Added;(MVA).;e. If a firm has a history of high Economic;Value Added (EVA) numbers each year, and if investors;expect this situation to continue, then its;market/book ratio and MVA are both likely;to be below average.;6. Walter Industries? current ratio is 0.5.;Considered alone, which of the following actions;would increase the company?s current ratio?;a. Borrow using short-term notes payable;and use the cash to increase inventories.;b. Use cash to reduce accruals.;c. Use cash to reduce accounts payable.;d. Use cash to reduce short-term notes;payable.;e. Use cash to reduce long-term bonds;outstanding.;7. Nikko Corp.'s total common equity at the;end of last year was $305,000 and its net income;after taxes was $60,000. What was its ROE?;a. 16.87%;b. 17.75%;c. 18.69%;d. 19.67%;e. 20.66%;8. Last year Urbana Corp. had $197,500 of;assets, $307,500 of sales, $19,575 of net income;and a debt-to-total-assets ratio of 37.5%.;The new CFO believes a new computer program;will enable it to reduce costs and thus;raise net income to $33,000. Assets, sales, and the;debt ratio would not be affected. By how;much would the cost reduction improve the;ROE?;a. 9.32%;b. 9.82%;c. 10.33%;d. 10.88%;e. 11.42%;9. Last year Mason Inc. had a total assets;turnover of 1.33 and an equity multiplier of 1.75.;Its sales were $195,000 and its net income;was $10,549. The CFO believes that the company;could have operated more efficiently;lowered its costs, and increased its net income by;$5,250 without changing its sales, assets;or capital structure. Had it cut costs and increased;its net income in this amount, by how much;would the ROE have changed?;a. 5.66%;b. 5.95%;c. 6.27%;d. 6.58%;e. 6.91%;10. Bonner Corp.'s sales last year were;$415,000, and its year-end total assets were $355,000.;The average firm in the industry has a;total assets turnover ratio (TATO) of 2.4. Bonner's;new CFO believes the firm has excess assets;that can be sold so as to bring the TATO;down to the industry average without;affecting sales. By how much must the assets be;reduced to bring the TATO to the industry;average, holding sales constant?;a. $164,330;b. $172,979;c. $182,083;d. $191,188;e. $200,747


Paper#51335 | Written in 18-Jul-2015

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