Question 1

The tax burden of the firm is .4, the interest burden is 0.65, the return on sales is 0.05, the asset turnover is 0.90, and the leverage ratio is 1.35. What is the ROE of the firm?

Accepted Answer

A)  1.58%
B)  5.68%
C)  12.20%
D)  13.33%E) None of the above
F) A) and B)

Question 2

Which of the following results in an increase in cash to the firm?

Accepted Answer

A)  Dividends paid
B)  A delay in collecting on accounts receivable
C)  Net new investments
D)  Increase in accounts payableE) B) and C)
F) A) and D)

Question 3

Another term for EVA is ________.

Accepted Answer

A)  net income
B)  operating income
C)  residual income
D)  market based incomeE) A) and D)
F) All of the above

Question 4

Which of the following is not a ratio used in the DuPont analysis?

Accepted Answer

A)  Interest burden
B)  Profit margin
C)  Asset turnover
D)  Earnings yield ratioE) All of the above
F) C) and D)

Question 5

A firm has a ROE equal to the industry average but its price-to-book ratio is below the industry average. You know that the firm's ________.

Accepted Answer

A)  earnings yield is above the industry average
B)  P/E ratio is above the industry average
C)  dividend payout ratio is too high
D)  interest burden must be below the industry averageE) B) and C)
F) A) and C) A

Question 6

If a firm has a positive tax rate, a positive operating ROA, and the interest rate on debt is the same as the operating ROA, then operating ROA will be ________.

Accepted Answer

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 ROEE) B) and D)
F) A) and D)

Question 7

All of the following ratios are related to efficiency except for ________.

Accepted Answer

A)  total asset turnover
B)  fixed asset turnover
C)  average collection period
D)  cash ratioE) All of the above
F) C) and D)

Question 8

Which of the following transactions will result in a decrease in cash flow from investments?

Accepted Answer

A)  Acquisition of another business
B)  Capital gain from sale of a subsidiary
C)  Decrease in net investments
D)  Sale of equipmentE) A) and D)
F) A) and C)

Question 9

Use the following cash flow data of Haven Hardware for the year ended 31 December 2013.  What is the net increase or decrease in cash for Haven Hardware for 2013?

Accepted Answer

A)  ($94 000) 
B)  ($88 000) 
C)  $88 000
D)  $188 000E) B) and C)
F) None of the above

Question 10

Common-size balance sheets are prepared by dividing all quantities by ________.

Accepted Answer

A)  total assets
B)  total liabilities
C)  shareholder's equity
D)  fixed assetsE) C) and D)
F) B) and D)

Question 11

Use the following cash flow data of Haven Hardware for the year ended 31 December 2013.  What is the cash at the end of 2013 for Haven Hardware?

Accepted Answer

A)  $6 000
B)  $94 000
C)  $736 000
D)  $188 000E) A) and D)
F) B) and C)

Question 12

The ABS company has a capital base of $100 million, an opportunity cost of capital (k)  of 15%, a return on assets (ROA)  of 9% and a return on equity (ROE)  of 18%. What is the economic value added (EVA)  for ABS?

Accepted Answer

A)  $8 million
B)  -$6 million
C)  $3 million
D)  -$4 millionE) B) and C)
F) C) and D)

Question 13

A firm purchases goods on credit worth $90. The same firm pays off $100 in old credit purchases. An investment is made via the purchase of a new facility and equity is issued in the amount of $180 to pay for the purchase. What is the change in net cash provided by investments?

Accepted Answer

A)  $10 decrease
B)  $90 decrease
C)  $180 decrease
D)  $190 decreaseE) B) and D)
F) B) and C)

Question 14

A firm has a compound leverage factor greater than 1 indicates that ________.

Accepted Answer

A)  this firm has no interest payments
B)  this firm uses less debt as a percentage of financing
C)  its interest payments are equal to the firm's pretax profits
D)  its debt has a positive contribution to the firm's ROAE) B) and C)
F) A) and D)

Question 15

Operating ROA is calculated as ________ while ROE is calculated as ________.

Accepted Answer

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 assetsE) A) and D)
F) A) and C)

Question 16

If a firm's ratio of (shareholders' equity/total assets)  is lower than the industry average and its ratio of (long-term debt/shareholders' equity)  is also lower than the industry average, this would suggest that the firm ________.

Accepted Answer

A)  has more current liabilities than the industry average
B)  has more leased assets than the industry average
C)  will be less profitable than the industry average
D)  has more current assets than the industry averageE) B) and C)
F) None of the above A

Question 17

A firm has an ROA of 19%, a debt/equity ratio of 1.8, a tax rate of 30%, and the interest rate on its debt is 7%. Its ROE is ________.

Accepted Answer

A)  15.12%
B)  28.42%
C)  37.24%
D)  40.60%E) A) and D)
F) B) and C)

Question 18

What ratio will definitely increase when a firm increases its annual sales with no corresponding increase in assets?

Accepted Answer

A)  Asset turnover
B)  Current ratio
C)  Liquidity ratio
D)  Quick ratioE) A) and D)
F) A) and B)

Question 19

If the interest rate on debt is higher than the ROA, then a firm's ROE will ________.

Accepted Answer

A)  decrease
B)  increase
C)  not change
D)  change but in an indeterminable mannerE) A) and D)
F) C) and D) A

Question 20

The level of real income of a firm can be distorted by the reporting of depreciation and interest expense. During periods of low inflation, the level of reported depreciation tends to ________ income, and the level of interest expense reported tends to ________ income.

Accepted Answer

A)  understate; overstate
B)  understate; understate
C)  overstate; understate
D)  overstate; overstateE) A) and B)
F) A) and C)

Exam 13: Financial Statement Analysis

The tax burden of the firm is .4, the interest burden is 0.65, the return on sales is 0.05, the asset turnover is 0.90, and the leverage ratio is 1.35. What is the ROE of the firm?

Correct AnswerverifiedShow Answer

Which of the following results in an increase in cash to the firm?

Correct AnswerverifiedShow Answer

Another term for EVA is ________.

Correct AnswerverifiedShow Answer

Which of the following is not a ratio used in the DuPont analysis?

Correct AnswerverifiedShow Answer

A firm has a ROE equal to the industry average but its price-to-book ratio is below the industry average. You know that the firm's ________.

Correct AnswerverifiedA

If a firm has a positive tax rate, a positive operating ROA, and the interest rate on debt is the same as the operating ROA, then operating ROA will be ________.

Correct AnswerverifiedShow Answer

All of the following ratios are related to efficiency except for ________.

Correct AnswerverifiedShow Answer

Which of the following transactions will result in a decrease in cash flow from investments?

Correct AnswerverifiedShow Answer

Use the following cash flow data of Haven Hardware for the year ended 31 December 2013. What is the net increase or decrease in cash for Haven Hardware for 2013?

Correct AnswerverifiedShow Answer

Common-size balance sheets are prepared by dividing all quantities by ________.

Correct AnswerverifiedShow Answer

Use the following cash flow data of Haven Hardware for the year ended 31 December 2013. What is the cash at the end of 2013 for Haven Hardware?

Correct AnswerverifiedShow Answer

The ABS company has a capital base of $100 million, an opportunity cost of capital (k) of 15%, a return on assets (ROA) of 9% and a return on equity (ROE) of 18%. What is the economic value added (EVA) for ABS?

Correct AnswerverifiedShow Answer

A firm purchases goods on credit worth $90. The same firm pays off $100 in old credit purchases. An investment is made via the purchase of a new facility and equity is issued in the amount of $180 to pay for the purchase. What is the change in net cash provided by investments?

Correct AnswerverifiedShow Answer

A firm has a compound leverage factor greater than 1 indicates that ________.

Correct AnswerverifiedShow Answer

Operating ROA is calculated as ________ while ROE is calculated as ________.

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If a firm's ratio of (shareholders' equity/total assets) is lower than the industry average and its ratio of (long-term debt/shareholders' equity) is also lower than the industry average, this would suggest that the firm ________.

Correct AnswerverifiedA

A firm has an ROA of 19%, a debt/equity ratio of 1.8, a tax rate of 30%, and the interest rate on its debt is 7%. Its ROE is ________.

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What ratio will definitely increase when a firm increases its annual sales with no corresponding increase in assets?

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If the interest rate on debt is higher than the ROA, then a firm's ROE will ________.

Correct AnswerverifiedA

The level of real income of a firm can be distorted by the reporting of depreciation and interest expense. During periods of low inflation, the level of reported depreciation tends to ________ income, and the level of interest expense reported tends to ________ income.

Correct AnswerverifiedShow Answer

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Operating ROA is calculated as while ROE is calculated as .

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The level of real income of a firm can be distorted by the reporting of depreciation and interest expense. During periods of low inflation, the level of reported depreciation tends to income, and the level of interest expense reported tends to income.

Correct Answer
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