56. Emma Corp. had credit sales of $300,000 last year and on average had $25,000 in its accounts
receivable during the year. What is its average collection period?
a.
about 30 days
b.
about 12 days
c.
about 1 day
d.
about 3 days
57. The firm that you work for had credit sales of $3,500,000 last year and on average had $33,000 in its
accounts receivable during the year. What is its average collection period?
a.
3 days
b.
3.44 days
c.
3.5 days
d.
none of the above
58. In general, the more debt a firm uses in relation to its total assets
a.
the less risk there is to the equity holders of the firm.
b.
the less financial leverage it uses.
c.
the greater the financial leverage it uses.
d.
the greater extent to which it uses equity.
59. Devil Inc. has total liabilities equal to $3,500 and total assets equal to $5,000. What is Devil’s
asset-to-equity ratio?
a.
1.43
b.
2.33
c.
3.33
d.
none of the above
60. Roxy Corp has an operating profit of $15,000 produced from $12,000 in sales. If Roxy has no interest
expense and currently pays 35% of its operating profits in taxes, what is Roxy’s net profit margin?
a.
81.25%
b.
12.50%
c.
1.25%
d.
65.00%
61. Straw Corp has an operating profit of $1,200 produced from $9,800 in sales. If Straw has no interest
expense and currently pays 35% of its operating profits in taxes and $200 per year in preferred
dividends, then what is Straw’s net profit margin?
a.
5.92%
b.
7.96%
c.
7.96%
d.
10.20%
62. Straw Corp has an operating profit of $1,200 produced from $20,000 in total assets. If Straw has no
interest expense and currently pays 35% of its operating profits in taxes and $200 per year in preferred
dividends, then what is Straw’s net profit margin?
a.
2.90%
b.
3.90%
c.
5.0%
d.
none of the above
NARRBEGIN: Import
Import, Inc.
Import, Inc. has earnings available for common shareholders of $700 produced by sales of $10,000. It
also has total assets of $20,000 and an assets to equity ratio of 2.5.
NARREND
63. What is Import Inc.’s return on assets?
a.
14%
b.
7%
c.
3.5%
d.
none of the above
64. What is Import Inc.’s return on common equity?
a.
7.0%
b.
8.75%
c.
17.5%
d.
none of the above
65. EmmaCor is currently selling for $22 per share. If it is selling at a P/E ratio of 12, calculate
EmmaCor’s recent earnings per share.
a.
$0.45
b.
$0.55
c.
$1.83
d.
$2.20
66. FactorMax is currently selling for $75 per share. If it is selling at a P/E ratio of 50, calculate
FactorMax’s recent earnings per share.
a.
$.15
b.
$.67
c.
$1.50
d.
none of the above
67. What is the financial ratio that measures the price per share of stock divided by earnings per share?
a.
Return on assets
b.
Return on equity
c.
Debt-equity ratio
d.
Price-earnings ratio
NARRBEGIN: Stone Cold
Stone Cold Incorporated
Balance Sheet: 12/31/12
Assets
2012
2011
Cash and Marketable Securities
10
80
Accounts Receivable
375
315
Inventories
615
415
Total Current Assets
1,000
810
Net plant and equipment
1,000
870
TOTAL ASSETS
2,000
1,680
Liabilities and Equity
2012
2011
Accounts Payable
60
40
Notes Payable
140
60
Accruals
110
130
Total Current Liabilities
310
230
Long Term Bonds
754
580
TOTAL DEBT
1,064
810
Preferred Stock
40
40
Common Stock
130
130
Retained earnings
766
700
TOTAL COMMON EQUITY
896
830
TOTAL LIABILITIES AND EQUITY
2,000
1,680
Income Statement: 12/31/12
2012
2011
Net Sales
3,200
2,850
Operating Costs (excludes Dep/Amortization)
2,700
2,497
EBITDA
500
353
Depreciation
100
90
Amortization
0
0
Depreciation and Amortization
100
90
EBIT
400
263
Less Interest
88
60
EBT
312
203
Taxes (40%)
124.8
81.2
NET INCOME (before Preferred Dividends)
187.2
121.8
Preferred Dividends
4
4
NET INCOME
183.2
117.8
Common Dividends
117
53
Addition to Retained Earnings
66.2
64.8
NARREND
68. Refer to Stone Cold. For 2012, what was the return on assets?
a.
9.16%
b.
12.40%
c.
15.60%
d.
20.00%
69. Refer to Stone Cold. For 2012, what was the return on common equity?
a.
9.36%
b.
12.40%
c.
20.44%
d.
20.90%
70. Refer to Stone Cold. For 2012, what was the debt–to-equity ratio?
a.
0.81
b.
0.84
c.
0.98
d.
1.19
71. Refer to Stone Cold. For 2012, what was the average collection period for the firm in 2004?
a.
6.84 days
b.
8.77 days
c.
42.77 days
d.
51.22 days
72. Refer to Stone Cold. For 2012, what was the total asset turnover for 2012?
a.
0.80
b.
1.20
c.
1.40
d.
1.60
73. Refer to Stone Cold. For 2012, what was the times interest earned ratio for 2012?
a.
2.13
b.
2.77
c.
3.55
d.
4.55
74. What was the free cash flow in 2012 for Stone Cold Incorporated?
a.
-$55.20
b.
-$44.80
c.
$145.20
d.
$215.00
75. Consider the following financial information for Classic City Ice Cream Corporation:
2012 Financial Data
Net Income
$ 50,000
Total Assets
$300,000
Total Shareholder Equity
$200,000
Net Sales
$100,000
What is the total asset turnover for the firm in 2012?
a.
16.67%
b.
25.00%
c.
33.33%
d.
40.00%
76. Consider the following financial information for Classic City Ice Cream Corporation:
2012 Financial Data
Net Income
$ ???,???
Total Assets
$250,000
Total Shareholder Equity
$200,000
Net Sales
$100,000
If the return on equity is 20%, what was Net Income for 2012?
a.
$25,000
b.
$40,000
c.
$50,000
d.
$65,000
NARRBEGIN: Titans Electronics
Titans Electronics
Titans Electronics reports the following data for the past year:
EBIT
$1,000,000
# of Common shares
400,000
Net Income
$ 480,000
Total Dividends Paid
$120,000
Interest Paid
$ 200,000
Current Assets
$ 80,000
Total Assets
$6,000,000
Current Liabilities
$ 60,000
Market Price of
Common equity
$ 20
NARREND
77. What is the current P/E ratio for the Titans?
a.
8.00
b.
10.00
c.
15.50
d.
16.67
78. Titans Electronics is applying for a new line of credit from their banking partner. To issue the credit,
the bank requires the following cutoffs for certain financial ratios:
TIE ratio of 4.25 Current Ratio of 1.50 ROA of 5%.
What is a likely response from the bank to the application?
a.
The bank will have reservations, as the TIE ratio does not meet requirements.
b.
The bank will have concerns, as the current ratio does not meet requirements.
c.
The bank will have concerns, as the ROA is not high enough.
d.
The bank will have concerns, as two or more of the requirements are not met.
NARRBEGIN: Exhibit 2-1
Exhibit 2-1
The tax schedule for corporate income is shown in the table below:
Taxable Income Over
Not Over
Tax Rate
$ 0
$ 50,000
15.00%
50,000
75,000
25.00%
75,000
100,000
34.00%
100,000
335,000
39.00%
335,000
500,000
34.00%
10,000,000
15,000,000
35.00%
15,000,000
18,333,333
38.00%
18,333,333
……………
35.00%
NARREND
79. Refer to Exhibit 2-1. Pale Rider Corporation reports taxable income of $500,000 in 2011. What was
their tax liability for the year?
a.
$56,100
b.
$91,650
c.
$170,000
d.
$200,000
80. Refer to Exhibit 2-1. Pale Rider Corporation reports taxable income of $500,000 in 2011. What was
the average tax rate they paid for the year?
a.
23.25%
b.
25.00%
c.
29.40%
d.
34.00%
81. Refer to Exhibit 2-1. Big Diesel Incorporated reports taxable income of $200,000 in 2011. What was
the average tax rate they paid for the year?
a.
25.00%
b.
29.40%
c.
30.63%
d.
34.00%
82. Refer to Exhibit 2-1. Big Diesel Incorporated currently predicts taxable income of $200,000 for the
next year. If this is their actual income, what will be the tax liability for Big Diesel?
a.
$45,250
b.
$56,500
c.
$61,250
d.
$91,650
83. What ratio measures the ability of the firm to satisfy its short term obligations as they come due?
a.
Activity ratio
b.
Times interest earned ratio
c.
Current ratio
d.
Inventory turnover ratio
84. The asset to equity ratio for a firm is 1.5, and the firm has total assets of $3,000,000. Last year, net
income for the firm was $250,000, and the earnings per share for the firm was reported as $0.50. What
is the current book value per share for the firm?
a.
$2
b.
$4
c.
$6
d.
$8
85. Which financial ratio measures the effectiveness of management in generating returns to common
stockholders with its available assets?
a.
Gross profit margin
b.
Return on equity
c.
Return on assets
d.
Current ratio
86. When is the return on assets equal to the return on equity?
a.
When the current ratio of the firm equals 1.
b.
When the firm issues equal amounts of long term debt and common stock.
c.
When the firm issues no dividends for a given time period.
d.
When the firm only issues equity to finance its borrowing.
87. Consider the following working capital information for Full House Corporation:
Year
2011
2012
Accounts Receivable
$ 0
$100
Inventory
$100
$100
Accounts Payable
$ 0
$ 50
What was the effect on free cash flow for the firm this past year?
a.
Increase of $100
b.
Increase of $150
c.
Decrease of $50
d.
Decrease of $100
88. A firm reports net income of $500,000 for 2011. The most recent balance sheet for the reports retained
earnings of $2,000,000. The firm will pay out 25% of net income as dividends. What will the new
balance be for retained earnings?
a.
$1,875,000
b.
$2,125,000
c.
$2,375,000
d.
$2,500,000
89. Emmacorp reports a current ratio of 2 and a quick ratio of 1.4. The firm has total current assets of
$8,000. If Emmacorp reports cost of goods sold at $30,000 for the given year, what is Emmacorp’s
inventory turnover?
a.
12.5
b.
15.5
c.
21.4
d.
5.2
90. A firm reports a current ratio of 2 and a quick ratio of 1.2. The firm has total current assets of $4,000.
If the firm reports cost of goods sold at $25,000 for the given year, what is the average age of their
inventory?
a.
12.35 days
b.
15.63 days
c.
18.24 days
d.
23.36 days
91. The average age of the inventory for a firm is 10 days old. If the current dollar amount of inventory is
$1,000, what is a good estimate for the cost of goods sold over the last year?
a.
$16,500
b.
$26,500
c.
$32,500
d.
$36,500
92. Accountants:
a.
generally construct financial statements using the cash-based approach
b.
generally construct financial statements using the accrual-based approach
c.
must apply Generally Accepted Accounting Principles to fairly portray how the firm has
performed in the past
d.
must apply Generally Accepted Accounting Principles to fairly portray how the firm will
perform in the future
e.
both (b) and (c)
93. Which of the following statements is TRUE?
a.
Financial professionals prefer the accrual-based approach as it focuses more attention on
cash inflows and outflows
b.
Financial managers do not need to make any adjustments to financial statements for
decision-making
c.
Financial managers must convert cash-based financial statements to accrual-based ones
before they can begin analyzing a firm
d.
Financial professionals prefer the cash-based approach as it focuses more attention on cash
inflows and outflows
94. Which of the following statements is FALSE?
a.
On the balance sheet a firm’s assets are listed in ascending order of liquidity.
b.
In a common size balance sheet, all assets are expressed as a percentage of sales.
c.
Net property, plant and equipment represents the original value of all real property,
structures and long-lived equipment owned by the corporation.
d.
all of the above statements are false
95. The Statement of Retained Earnings
a.
reconciles the net income earned during a given time period and any cash dividends paid
with the change in Retained Earnings between the start and end of that period.
b.
shows a snapshot of the firm’s financial position at a specific point in time
c.
reconciles the net income earned during a given time period and any cash dividends and
interest on debt paid with the change in Retained Earnings between the start and end of
that period
d.
shows the impact of Treasury Stock on the firm’s Common Equity
96. Which of the following statements is FALSE?
a.
The Notes to Financial Statements provide little information that is relevant to
professional security analysts.
b.
The Notes to Financial Statements provide additional information about a firm, including
employee compensation plans, revenue recognition practices and leases.
c.
The Notes to Financial Statements provide detailed explanatory information that is keyed
to various accounts on the financial statements.
d.
all of the above statements are true
e.
both (a) and (c) are false
97. Which of the following is NOT a classification of a firm’s cash flows:
a.
investment flows
b.
financial flows
c.
operating flows
d.
capital flows
98. Which of the following represents an inflow of cash?
a.
A decrease in any liability
b.
Dividends paid
c.
Repurchase or retirement of stock
d.
An increase in any asset
e.
A decrease in any asset
99. How is depreciation accounted for on the Statement of Cash Flows?
a.
Depreciation is irrelevant for cash flow purposes and has no place on the Statement of
Cash Flows.
b.
Depreciation expense is included in the operating activities section of the statement.
c.
As depreciation is deducted to determine Net Income there is no need to include it on the
statement.
d.
None of the above
100. The Statement of Cash Flows is helpful to financial managers in that:
a.
It calls attention to unusual changes in either the major categories of cash flow or specific
items so that the financial manager can pinpoint problems the firm may be having
b.
It calls attention to the expenses deducted to determine net income.
c.
Financial managers can create pro forma statements to determine whether or not the firm
will need additional external financing.
d.
All of the above
e.
Both (a) and (c)
101. Which of the following statements is FALSE?
a.
A firm’s creditors are primarily interested in a firm’s Activity Ratios.
b.
Norms exist for all financial ratios that can be applied across all industries.
c.
Current and future stockholders are most interested in a firm’s short-term liquidity ratios.
d.
All of the above statements are false.
102. Which of the following statements is TRUE?
a.
Net working capital is a firm’s current assets divided by its current liabilities.
b.
Net working capital is a firm’s current assets minus its current liabilities.
c.
Net working capital measures a firm’s ability to meet its short-term obligations.
d.
All of the above statements are false.
103. The DuPont system:
a.
breaks the ROA and ROE ratios into component pieces
b.
requires data from only the balance sheet
c.
evaluates ROA the product of a firm’s profit on its sales and the efficiency of the firm to
generate sales from its investment in its assets
d.
all of the above
e.
Both (a) and (c)
104. Use the following information to determine Bill’s Solvency Ratio.
Total net worth: $150,000
Cash surplus: $15,000
Income after taxes: 105,000
Total assets: $300,000
a.
14.29%
b.
50%
c.
2
d.
None of the above