Question 1

Calculate cash coverage ratio given the following information: depreciation expense = $30,000; EBIT = $480,000; times interest earned = 12 times.

Accepted Answer

A)   12.25 times
B)   12.50 times
C)   12.75 times
D)   13.00 times
E)   13.25 timesF) B) and C)
G) D) and E)

Question 2

Sales divided by the value computed as current assets minus current liabilities is referred to as the:

Accepted Answer

A)   Net working capital turnover.
B)   Cash coverage ratio.
C)   Equity multiplier.
D)   Total asset turnover.
E)   Capital intensity ratio.F) None of the above
G) A) and C)

Question 3

Which one of the following statements is correct if a ﬁrm has a receivables turnover measure of 10?

Accepted Answer

A)   It takes a ﬁrm 10 days to collect payment from its customers.
B)   It takes a ﬁrm 36.5 days to sell its inventory and collect the payment from the sale.
C)   It takes a ﬁrm 36.5 days to pay its creditors.
D)   The ﬁrm has an average collection period of 36.5 days.
E)   The ﬁrm has ten times more in accounts receivable than it does in cash.F) B) and D)
G) D) and E)

Question 4

Theodore's Corner Market has a debt-equity ratio of 60 %, sales of $318,000, net income of $24,900, and total debt of $112,500. What is the return on equity?

Accepted Answer

A)   13.28 %
B)   14.67 %
C)   14.82 %
D)   15.43 %
E)   16.09 %F) C) and D)
G) D) and E)

Question 5

The inventory turnover ratio is measured as:

Accepted Answer

A)   Total sales minus inventory.
B)   Inventory times total sales.
C)   Cost of goods sold divided by inventory.
D)   Inventory times cost of goods sold.
E)   Inventory plus cost of goods sold.F) D) and E)
G) A) and E)

Question 6

Which one of the following measures indicates how long a ﬁrm can continue operating without any additional cash inﬂows?

Accepted Answer

A)   Current ratio
B)   Cash ratio
C)   Quick ratio
D)   Interval measure
E)   Total debt ratioF) None of the above
G) A) and B)

Question 7

A Calgary ﬁrm has 11,000 shares of stock outstanding, sales of $1.62 million, net income of $20,020, a price-earnings ratio of 21.6, and a book value per share of $8.64. What is the market-to-book
Ratio?

Accepted Answer

A)   1.82
B)   2.11
C)   2.50
D)   3.79
E)   4.55F) All of the above
G) D) and E)

Question 8

If Young stock sells for $40 and there are 100 million shares outstanding, what is the P/E ratio($ in millions) ?

Accepted Answer

A)   5.68
B)   10.26
C)   11.02
D)   25.64
E)   32.49F) A) and C)
G) A) and B)

Question 9

Assume a ﬁrm's current ratio equals 3.1. Which of the following actions would increase it?

Accepted Answer

A)   Discarding and writing off spoiled inventory.
B)   Receiving a full cash payment on an account receivable.
C)   Paying off a short-term bank loan with the proceeds from new long-term debt.
D)   Purchasing new ﬁxed assets using the proceeds from a new stock issue.
E)   Buying inventory on credit, thereby increasing accounts payable.F) A) and B)
G) A) and C)

Question 10

A small local company has net income of $200, interest expenses of $50, and depreciation of $51. The corporate tax rate is 50%. What is the cash coverage ratio?

Accepted Answer

A)   1.2 times
B)   1.8 times
C)   3.0 times
D)   9.0 times
E)   10.0 timesF) A) and B)
G) A) and C)

Question 11

In a common size statement, the statement of ﬁnancial position may be expressed as a percentage of ____________ while the statement of comprehensive income may be expressed as a
Percentage of ____________.

Accepted Answer

A)   liabilities plus equity; net income
B)   assets; net income
C)   sales; liabilities plus equity
D)   liabilities plus equity; sales
E)   liabilities; salesF) B) and C)
G) C) and D)

Question 12

Cash is $500, inventory is $4,800, accounts receivable is $3,200 and accounts payable is $2,400. What is the quick ratio?

Accepted Answer

A)   0.77
B)   1.54
C)   1.67
D)   3.33
E)   3.54F) C) and D)
G) B) and E)

Question 13

The value of the current assets divided by the value of the current liabilities is called:

Accepted Answer

A)   Net working capital.
B)   Current ratio.
C)   Quick ratio.
D)   Liquid ratio.
E)   Cash ratio.F) A) and D)
G) A) and E)

Question 14

Stockholders are most interested in the:

Accepted Answer

A)   Times interest earned ratio.
B)   Current ratio.
C)   Return on equity ratio.
D)   Total asset turnover rate.
E)   Return on assets ratio.F) A) and D)
G) C) and D)

Question 15

Calculate total equity value given the following information: ROE = 8%; Total assets = $1,000,000 and ROA = 5%

Accepted Answer

A)   $625,000
B)   $650,000
C)   $700,000
D)   $750,000
E)   $800,000F) B) and D)
G) A) and E)

Question 16

Proﬁt margin is deﬁned as:

Accepted Answer

A)   EBIT divided by sales.
B)   Cost of goods sold divided by sales.
C)   Net income divided by sales.
D)   Net income divided by total assets.
E)   EBIT divided by total assets.F) A) and E)
G) All of the above

Question 17

Which one of the following is found in the operating activity section of a statement of cash ﬂows?

Accepted Answer

A)   Decrease in long-term debt.
B)   Fixed asset acquisition.
C)   Dividends paid.
D)   Increase in accounts payable.
E)   Decrease in common stock.F) A) and B)
G) B) and D)

Question 18

What was the greatest source of funds for Bo Knows Proﬁt Corp.?

Accepted Answer

A)   Sale of inventory.
B)   Increase in long-term debt.
C)   Acquisition of more ﬁxed assets.
D)   Increase in notes payable.
E)   Increase in common stock.F) B) and D)
G) A) and D)

Question 19

When comparing the ﬁnancial statements of one ﬁrm with those of another ﬁrm, a problem that may
be encountered is that the two ﬁrms may be seasonal in nature and have different ﬁscal year ends.

Accepted Answer

A) True 
 B)False

Question 20

Days' sales in inventory of car dealerships are generally lower when compared to grocery stores.

Accepted Answer

A) True 
 B)False

Exam 3: Working With Financial Statements

Calculate cash coverage ratio given the following information: depreciation expense = $30,000; EBIT = $480,000; times interest earned = 12 times.

Correct AnswerverifiedShow Answer

When comparing the ﬁnancial statements of one ﬁrm with those of another ﬁrm, a problem that may be encountered is that the two ﬁrms may be seasonal in nature and have different ﬁscal year ends.

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The inventory turnover ratio is measured as:

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The value of the current assets divided by the value of the current liabilities is called:

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Days' sales in inventory of car dealerships are generally lower when compared to grocery stores.

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In a common size statement, the statement of ﬁnancial position may be expressed as a percentage of ____________ while the statement of comprehensive income may be expressed as a Percentage of ____________.

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What was the greatest source of funds for Bo Knows Proﬁt Corp.?

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Which one of the following is found in the operating activity section of a statement of cash ﬂows?

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If Young stock sells for $40 and there are 100 million shares outstanding, what is the P/E ratio($ in millions) ?

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Proﬁt margin is deﬁned as:

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Stockholders are most interested in the:

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Sales divided by the value computed as current assets minus current liabilities is referred to as the:

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Which one of the following statements is correct if a ﬁrm has a receivables turnover measure of 10?

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Assume a ﬁrm's current ratio equals 3.1. Which of the following actions would increase it?

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A small local company has net income of $200, interest expenses of $50, and depreciation of $51. The corporate tax rate is 50%. What is the cash coverage ratio?

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Which one of the following measures indicates how long a ﬁrm can continue operating without any additional cash inﬂows?

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Cash is $500, inventory is $4,800, accounts receivable is $3,200 and accounts payable is $2,400. What is the quick ratio?

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A Calgary ﬁrm has 11,000 shares of stock outstanding, sales of $1.62 million, net income of $20,020, a price-earnings ratio of 21.6, and a book value per share of $8.64. What is the market-to-book Ratio?

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Calculate total equity value given the following information: ROE = 8%; Total assets = $1,000,000 and ROA = 5%

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Theodore's Corner Market has a debt-equity ratio of 60 %, sales of $318,000, net income of $24,900, and total debt of $112,500. What is the return on equity?

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In a common size statement, the statement of ﬁnancial position may be expressed as a percentage of while the statement of comprehensive income may be expressed as a Percentage of .

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