FIN 320 Week 8 Quiz – Strayer
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Quiz 6 Chapter 14 and 15
Chapter 14: ___________________________________________________________________________
1. Which of the following assets is most liquid?
A. Cash equivalents
B. Receivables
C. Inventories
D. Plant and equipment
2. Cost of goods sold refers to ___________.
A. direct costs attributable to producing the product sold by the firm
B. salaries, advertising, and selling expenses
C. payments to the firm's creditors
D. payments to federal and local governments
3. Many observers believe that firms "manage" their income statements to _______.
A. minimize taxes over time
B. maximize expenditures
C. smooth their earnings over time
D. generate level sales
4. Depreciation expense is in what broad category of expenditures?
A. Operating expenses
B. General and administrative expenses
C. Debt interest expense
D. Tax expenditures
5. Firm A acquires firm B when firm B has a book value of assets of $155 million and a book value of liabilities of $35 million. Firm A actually pays $175 million for firm B. This purchase would result in goodwill for firm A equal to _____.
A. $175 million
B. $155 million
C. $120 million
D. $55 million
6. One of the biggest impediments to a global capital market has been _________.
A. volatile exchange rates
B. the lack of common accounting standards
C. lower disclosure standards in the United States than abroad
D. the lack of transparent reporting standards across the EU
7. Benjamin Graham thought that the benefits from detailed analysis of a firm's financial statements had _________ over his long professional life.
A. increased greatly
B. increased slightly
C. remained constant
D. decreased
8. If the interest rate on debt is higher than the ROA, then a firm's ROE will _________.
A. decrease
B. increase
C. not change
D. change but in an indeterminable manner
9. Which of the following is not one of the three key financial statements available to investors in publicly traded firms?
A. Income statement
B. Balance sheet
C. Statement of operating earnings
D. Statement of cash flows
10. In 2006 Hewlett-Packard repurchased shares of common stock worth $5,241 million and made dividend payments of $894 million. Other financing activities raised $196 million, and Hewlett-Packard's total cash flow from financing was -$6,077 million. How much did the long-term debt accounts of Hewlett-Packard change?
A. Increased $138 million
B. Decreased $138 million
C. Increased $836 million
D. Decreased $836 million
11.
What must cash flow from financing have been in 2008 for Interceptors, Inc.?
A. $5
B. $28
C. $30
D. $33
12.
Based on the cash flow data in the table for Interceptors Inc., which of the following statements is (are) correct?
I. This firm appears to be a good investment because of its steady growth in cash.
II. This firm has been able to generate growing cash flows only by borrowing or selling equity to offset declining operating cash flows.
III. Financing activities have been increasingly important for this firm's operations, at least in the short run.
A. I only
B. II and III only
C. II only
D. I and II only
13. Common-size balance sheets are prepared by dividing all quantities by ____________.
A. total assets
B. total liabilities
C. shareholders' equity
D. fixed assets
14. Operating ROA is calculated as __________, while ROE is calculated as _________.
A. EBIT/Total assets; Net profit/Total assets
B. Net profit/Total assets; EBIT/Total assets
C. EBIT/Total assets; Net profit/Equity
D. Net profit/EBIT; Sales/Total assets
15. A firm increases its financial leverage when its ROA is greater than the cost of debt. Everything else equal, this change will probably increase the firm's:
I. Beta
II. Earnings variability over the business cycle
III. ROE
IV. Stock price
A. I and II only
B. III and IV only
C. I, III, and IV only
D. I, II, and III only
16. The highest possible value for the interest-burden ratio is ______, and this occurs when the firm _________.
A. 0; uses as much debt as possible
B. 1; uses debt to the point where ROA = interest cost of debt
C. 1; uses no interest-bearing debt
D. -1; pays down its existing debts
17. Which one of the following ratios is used to calculate the times-interest-earned ratio?
A. Net profit/Interest expense
B. Pretax profit/EBIT
C. EBIT/Sales
D. EBIT/Interest expense
18. The process of decomposing ROE into a series of component ratios is called ______________.
A. DuPont analysis
B. technical analysis
C. comparative analysis
D. liquidity analysis
19. Which of the following is not a ratio used in the DuPont analysis?
A. Interest burden
B. Profit margin
C. Asset turnover
D. Earnings yield ratio
20. By 2008, over 100 countries had adopted financial reporting standards that are in conformance with ________.
A. GAAP
B. IFRS
C. FASB
D. GASB
21. Operating ROA can be found as the product of ______.
A. Return on sales × ATO
B. Tax burden × Interest burden
C. Interest burden × Leverage ratio
D. ROE × Dividend payout ratio
22. A firm has an ROE of 20% and a market-to-book ratio of 2.38. Its P/E ratio is _________.
A. 8.4
B. 11.9
C. 17.62
D. 47.6
23. If a firm has a positive tax rate and a positive operating ROA, and the interest rate on debt is the same as the operating ROA, then operating ROA will be _________.
A. greater than zero, but it is impossible to determine how operating ROA will compare to ROE
B. equal to ROE
C. greater than ROE
D. less than ROE
24. You find that a firm that uses debt has a compound leverage factor less than 1. This tells you that ________.
A. the firm's use of financial leverage is positively contributing to ROE
B. the firm's use of financial leverage is negatively contributing to ROE
C. the firm's use of operating leverage is positively contributing to ROE
D. the firm's use of operating leverage is negatively contributing to ROE
25. A firm has a P/E ratio of 24 and an ROE of 12%. Its market-to-book-value ratio is _________.
A. 2.88
B. 2
C. 1.75
D. .69
26. A firm has an ROA of 8% and a debt/equity ratio of .5; its ROE is _________.
A. 4%
B. 6%
C. 8%
D. 12%
27. A firm has a tax burden of .7, a leverage ratio of 1.3, an interest burden of .8, and a return-on-sales ratio of 10%. The firm generates $2.28 in sales per dollar of assets. What is the firm's ROE?
A. 12.4%
B. 14.5%
C. 16.6%
D. 17.8%
28. Economic value added (EVA) is:
A. the difference between the return on assets and the opportunity cost of capital times the capital base
B. ROA × ROE
C. a measure of the firm's abnormal return
D. largest for high-growth firms
29. Which of the following statements is true concerning economic value added?
A. A growing number of firms tie managers' compensation to EVA.
B. A profitable firm will always have a positive EVA.
C. EVA recognizes that the cost of capital is not a real cost.
D. If a firm has positive present value of growth opportunities, it will have positive EVA.
30. The financial statements of Flathead Lake Manufacturing Company are shown below:
Note: The common shares are trading in the stock market for $15 per share
Refer to the financial statements of Flathead Lake Manufacturing Company. The firm's current ratio for 2012 indicates that Flathead's liquidity has ________ since 2011.
A. risen
B. fallen
C. stayed the same
D. The answer cannot be determined from the information given.
31. The financial statements of Flathead Lake Manufacturing Company are shown below:
Note: The common shares are trading in the stock market for $15 per share
Refer to the financial statements of Flathead Lake Manufacturing Company. The firm's inventory turnover ratio is _________. (Please keep in mind that when a ratio involves both income statement and balance sheet numbers, the balance sheet numbers for the beginning and end of the year must be averaged.)
A. 11.6
B. 10.2
C. 9.5
D. 7.7
32. The financial statements of Flathead Lake Manufacturing Company are shown below:
Note: The common shares are trading in the stock market for $15 per share
Refer to the financial statements of Flathead Lake Manufacturing Company. The firm's debt-to-equity ratio for 2012 is _________.
A. 2.13
B. 2.44
C. 2.56
D. 2.89
33. The financial statements of Flathead Lake Manufacturing Company are shown below:
Note: The common shares are trading in the stock market for $15 per share
Refer to the financial statements of Flathead Lake Manufacturing Company. The firm's cash flow from operating activities for 2012 was _______.
A. $810,000
B. $775,000
C. $755,000
D. $735,000
34. The financial statements of Flathead Lake Manufacturing Company are shown below:
Note: The common shares are trading in the stock market for $15 per share
Refer to the financial statements of Flathead Lake Manufacturing Company. The industry average ACP is 32 days. How is Flathead doing in its collections relative to the industry? (Please keep in mind that when a ratio involves both income statement and balance sheet numbers, the balance sheet numbers for the beginning and end of the year must be averaged.)
A. Flathead's receivables are outstanding about 9 fewer days than the industry average.
B. Flathead's receivables are outstanding about 15 fewer days than the industry average.
C. Flathead's receivables are outstanding about 12 more days than the industry average.
D. Flathead's receivables are outstanding about 6 more days than the industry average.
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