Du Pont analysis breaks a firm’s ROE into components such as profit margin, asset
turnover and equity multiplier.
As a firm increases the amount spent on the collection of overdue accounts, both the
average collection period and the percentage of bad debts decline.
The beta coefficient of a stock is reflected in the slope of its characteristic line.
EBIT-EPS analysis tells management exactly how much leverage to use.
Budgets generally update annual plans every six months, especially in stable
businesses.
Flexibility options let companies respond more easily to changes in business conditions.
Bond ratings are primarily based on the issuing firm’s financial projections.
When a target company’s management and board of directors feel that a combination
would be a good idea and agree to cooperate with an acquirer, the result is commonly
called:
A.a friendly merger.
B.a friendly consolidation.
C.an agreement in principle.
D.None of the above
The advantage of the parent(holding company)-subsidiary organization is that it:
A.can keep the liabilities of subsidiaries away from the parent and other subsidiaries.
B.enables the parent to effectively control a subsidiary company without owning all of
its stock.
C.makes it easier to merge the operations of the acquired company with those of the
parent.
D.a and b
In discounting the forecasted future cash flows of a target company for valuation
purposes, which discount rate should be used?
A.WACC of the acquiring company
B.Cost of equity of the acquiring company
C.Cost of debt of the target company
D.Cost of equity of the target company
E.WACC of the target company
Corporate business plans:
A.routinely forecast substantial improvement in virtually every area.
B.are usually completely candid about areas of the business that are expected to
perform poorly.
C.are often overly optimistic because of the enthusiasm of young, lower level
managers.
D.usually understate the performance the organization is capable of.
Which business transaction will affect the quick ratio?
A.Purchase a fixed asset with money borrowed long term
B.Liquidate a temporary investment and put the money in a checking account
C.Sell some inventory and use the cash immediately to buy a fixed asset
D.Make a payment to a vendor on an account payable
When a lender uses trust receipts in financing a borrower’s inventory:
A.the specific units of inventory pledged as collateral are identified.
B.the lender has a general claim on all of the borrower’s inventory.
C.the lender retains physical control over the inventory.
D.public warehouses are frequently utilized.
The operating cycle is _____.
A.the same as the cash cycle
B.not calculated with items from the income statement
C.the length of time it takes to purchase inventory and then convert the sale of the
product/inventory into cash
D.generally less than the cash cycle
If Power-On has a total asset turnover of 1.8, a fixed asset turnover of 3.2, a debt ratio
of .5 and a total debt of $200,000, then fixed assets are:
A.$56,250.
B.$711,111.
C.$225,000.
D.None of the above
To evaluate a proposed capital project effectively, it is important to understand the
fundamental concept of incremental cash flows. Incremental cash flows can be viewed
as cash flows:
A.in addition to the company’s normal business.
B.separate from the company’s normal business.
C.occurring only if the project is undertaken.
D.All of the above
When companies merge and the combined unit’s performance is better than the sum of
the performances of the combining companies, the effect is called a(n):
A.positive merger attribute.
B.consolidation merger.
C.coalition of management skills.
D.synergy.
If you owe $1,200.00, which is the most advantageous way to pay it back assuming a
12% APR discount rate?
A.$100.00 monthly payments over the next twelve months
B.$300.00 quarterly payments over the next four quarters
C.$600.00 paid every six months over the next year
D.$1,200.00 paid after one year
The amount borrowed through a bond is generally its:
A.coupon value.
B.face value.
C.par value.
D.either face value or par value.
Which of the following is not a real asset?
A.Equipment
B.Land
C.Stock
D.None of the above
A stock just paid a $2.00 dividend that is anticipated to grow at 6% indefinitely. Similar
stocks are returning about 13%. The estimated selling price of this stock is:
A.$30.29.
B.$15.38.
C.$16.31.
D.$28.57.
Incompatible operations can be separated without damaging either or altering
stockholders positions through a:
A.sale for cash.
B.spinoff.
C.subsidiary divestiture.
D.breakout.
Which of the following does not describe risk aversion?
A.Investors prefer lower risk when returns are equal.
B.Investors expect higher returns when risk increases.
C.Investors try to avoid risk at all costs.
D.All of the above describe risk aversion.
E.None of the above describes risk aversion.
The following information pertains to a proposed new five-year venture for a firm:
Inventory reserve is conceptually similar to:
A.bad debt expense.
B.work in process.
C.allowance for doubtful accounts.
D.None of the above