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Comparability problems arise because


A) firms may use different generally accepted accounting principles.
B) inflation may affect firms differently due to accounting conventions used.
C) financial analysts do not know how to compare financial statements.
D) firms may use different generally accepted accounting principles, and inflation may affect firms differently due to accounting conventions used.
E) firms may use different generally accepted accounting principles, and financial analysts do not know how to compare financial statements.

F) A) and B)
G) A) and C)

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A firm has an ROA of 14%, a debt/equity ratio of 0.8, a tax rate of 35%, and the interest rate on the debt is 10%. The firm's ROE is


A) 11.18%.
B) 8.97%.
C) 11.54%.
D) 12.62%.

E) None of the above
F) B) and C)

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The financial statements of Midwest Tours are given below.| The financial statements of Midwest Tours are given below.| Note: The common shares are trading in the stock market for $36 each. Refer to the financial statements of Midwest Tours. The firm's times interest earned ratio for 2009 is A) 2.897. B) 2.719. C) 3.375. D) 3.462. Note: The common shares are trading in the stock market for $36 each. Refer to the financial statements of Midwest Tours. The firm's times interest earned ratio for 2009 is


A) 2.897.
B) 2.719.
C) 3.375.
D) 3.462.

E) All of the above
F) C) and D)

Correct Answer

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What best explains why a firm's ratio of long-term debt/total capital is lower than the industry average, while the ratio of income before interest and taxes/debt interest charges is higher than the industry average?


A) The firm pays lower interest on long-term debt than the average firm.
B) The firm has more short-term debt than average.
C) The firm has a high ratio of current assets/current liabilities.
D) The firm has a high ratio of total cash flow/long term debt.
E) None of the options are correct.

F) A) and C)
G) B) and E)

Correct Answer

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FOX Company has a ratio of (total debt/total assets) that is above the industry average, and a ratio of (long term debt/equity) that is below the industry average. These ratios suggest that the firm


A) utilizes assets effectively.
B) has too much equity in the capital structure.
C) has relatively high current liabilities.
D) has a relatively low dividend-payout ratio.
E) None of the options are correct.

F) All of the above
G) D) and E)

Correct Answer

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The financial statements of Black Barn Company are given below. The financial statements of Black Barn Company are given below. Note: The common shares are trading in the stock market for $40 each. Refer to the financial statements of Black Barn Company. The firm's average collection period for 2009 is A) 59.31. B) 55.05. C) 61.31. D) 49.05. E) None of the options are correct. Note: The common shares are trading in the stock market for $40 each. Refer to the financial statements of Black Barn Company. The firm's average collection period for 2009 is


A) 59.31.
B) 55.05.
C) 61.31.
D) 49.05.
E) None of the options are correct.

F) A) and E)
G) C) and D)

Correct Answer

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The financial statements of Black Barn Company are given below. The financial statements of Black Barn Company are given below. Note: The common shares are trading in the stock market for $40 each. Refer to the financial statements of Black Barn Company. The firm's times interest earned ratio for 2009 is A) 8.86. B) 7.17. C) 9.66. D) 6.86. E) None of the options are correct. Note: The common shares are trading in the stock market for $40 each. Refer to the financial statements of Black Barn Company. The firm's times interest earned ratio for 2009 is


A) 8.86.
B) 7.17.
C) 9.66.
D) 6.86.
E) None of the options are correct.

F) A) and C)
G) D) and E)

Correct Answer

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If the interest rate on debt is higher than ROA, a firm will __________ by increasing the use of debt in the capital structure.


A) increase the ROE
B) not change the ROE
C) decrease the ROE
D) change the ROE in an indeterminable manner

E) B) and C)
F) A) and C)

Correct Answer

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The financial statements of Snapit Company are given below. The financial statements of Snapit Company are given below. Note: The common shares are trading in the stock market for $100 each. Refer to the financial statements of Snapit Company. The firm's return on sales ratio for 2009 is A) 0.0133. B) 0.1325. C) 1.325. D) 1.260. Note: The common shares are trading in the stock market for $100 each. Refer to the financial statements of Snapit Company. The firm's return on sales ratio for 2009 is


A) 0.0133.
B) 0.1325.
C) 1.325.
D) 1.260.

E) None of the above
F) B) and C)

Correct Answer

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A firm has a lower asset turnover ratio than the industry average, which implies


A) the firm has a lower P/E ratio than other firms in the industry.
B) the firm is less likely to avoid insolvency in the short run than other firms in the industry.
C) the firm is less profitable than other firms in the industry.
D) the firm is utilizing assets less efficiently than other firms in the industry.
E) the firm has lower spending on new fixed assets than other firms in the industry.

F) B) and D)
G) A) and C)

Correct Answer

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