Question 1

Which of the following is not one of the three key financial statements available to investors in publicly traded firms?

Accepted Answer

A)   income statement
B)   balance sheet
C)   statement of operating earnings
D)   statement of cash flowsE) None of the above
F) B) and D)

Question 2

A firm has an ROA of 8% and a debt/equity ratio of 0.5; its ROE is ________.

Accepted Answer

A)   4%
B)   6%
C)   8%
D)   12%E) None of the above
F) A) and B)

Question 3

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

Accepted Answer

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

Question 4

The financial statements of Burnaby Mountain Trading Company are shown below.

Note: The common shares are trading in the stock market for $27 each.
Refer to the financial statements of Burnaby Mountain Trading Company. The firm's current ratio for 2017 is ________.

Accepted Answer

A)   1.3
B)   1.5
C)   1.69
D)   2.83E) None of the above
F) C) and D)

Question 5

The financial statements of Burnaby Mountain Trading Company are shown below.

Note: The common shares are trading in the stock market for $27 each.
Refer to the financial statements of Burnaby Mountain Trading Company. The firm's quick ratio for 2017 is ________.

Accepted Answer

A)   1.3
B)   1.5
C)   1.69
D)   2.83E) A) and B)
F) B) and C)

Question 6

The tax burden of the firm is 0.4, 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)   12.2%
D)   13.33%E) B) and D)
F) A) and B)

Question 7

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

Accepted Answer

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

Question 8

The practice of "selling" large quantities of goods to customers in order to get quarterly sales up while allowing these customers to return the goods next quarter is termed ________.

Accepted Answer

A)   channel stuffing
B)   clogging the network
C)   spamming the johns
D)   artificial salesE) C) and D)
F) B) and C)

Question 9

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) B) and C)
F) All of the above

Question 10

The highest possible value for the interest-burden ratio is ________, and this occurs when the firm ________.

Accepted Answer

A)   0; uses as much debt as possible
B)   1; uses debt to the point where ROA = interest cost of debt
C)   1; uses no interest-bearing debt
D)   -1; pays down its existing debtsE) A) and B)
F) C) and D)

Question 11

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

Accepted Answer

A)   the firm has no interest payments
B)   the firm uses less debt as a percentage of financing
C)   the firm's interest payments are equal to the firm's pretax profits
D)   the firm's debt has a positive contribution to the firm's ROAE) None of the above
F) B) and C)

Question 12

A firm has an ROA of 19%, a debt/equity ratio of 1.8, and 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)   40.6%E) A) and D)
F) B) and D)

Question 13

In 2017 Huge-Packing repurchased shares of common stock worth $5,241 million and made dividend payments of $894 million. Other financing activities raised $196 million, and Huge-Packing's total cash flow from financing was -$6,077 million. How much did the long-term debt accounts of Huge-Packing change?

Accepted Answer

A)   increased $138 million
B)   decreased $138 million
C)   increased $836 million
D)   decreased $836 millionE) B) and C)
F) All of the above

Question 14

The financial statements of Flathead Lake Manufacturing Company are shown below.

Note: The common shares are trading in the stock market for $15 per share.
Refer to the financial statements of Flathead Lake Manufacturing Company. The firm's inventory turnover ratio is ________. (Please keep in mind that when a ratio involves both income statement and balance sheet numbers, the balance sheet numbers for the beginning and end of the year must be averaged.)

Accepted Answer

A)   11.6
B)   10.2
C)   9.5
D)   7.7E) C) and D)
F) A) and D)

Question 15

A firm increases its financial leverage when its ROA is greater than the cost of debt. Everything else equal, this change will probably increase the firm's:
I. Beta
II. Earnings variability over the business cycle
III. ROE
IV. Stock price

Accepted Answer

A)   I and II only
B)   III and IV only
C)   I, III, and IV only
D)   I, II, and III onlyE) A) and C)
F) C) and D)

Question 16

Which of the following will result 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)   an increase in accounts payableE) A) and C)
F) None of the above

Question 17

If a firm's borrowing rate exceeds its ROA, then ROE will ________.

Accepted Answer

A)   increase by an amount that depends on the equity/debt ratio.
B)   increase by an amount that depends on the debt/equity ratio.
C)   decline by an amount that depends on the equity/debt ratio.
D)   decline by an amount that depends on the debt/equity ratio.E) A) and B)
F) A) and C)

Question 18

A firm purchases goods on credit worth $150. 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 $300 to pay for the purchase. What is the change in net cash provided by operations?

Accepted Answer

A)   $50 increase
B)   $100 increase
C)   $150 increase
D)   $250 increaseE) B) and C)
F) C) and D)

Question 19

The financial statements of Burnaby Mountain Trading Company are shown below.

Note: The common shares are trading in the stock market for $27 each.
Refer to the financial statements of Burnaby Mountain Trading Company. The firm's leverage ratio for 2017 is ________.

Accepted Answer

A)   1.3
B)   1.5
C)   1.69
D)   2.83E) A) and B)
F) None of the above

Question 20

A firm has a P/E ratio of 24 and an ROE of 12%. Its market-to-book-value ratio is ________.

Accepted Answer

A)   2.88
B)   2
C)   1.75
D)   0.69E) A) and B)
F) B) and C)

Exam 14: Financial Statement Analysis

The financial statements of Burnaby Mountain Trading Company are shown below. Note: The common shares are trading in the stock market for $27 each. Refer to the financial statements of Burnaby Mountain Trading Company. The firm's current ratio for 2017 is ________.

Correct Answer
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The highest possible value for the interest-burden ratio is , and this occurs when the firm .

Correct Answer
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The practice of "selling" large quantities of goods to customers in order to get quarterly sales up while allowing these customers to return the goods next quarter is termed ________.

Correct Answer
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Correct Answer
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The tax burden of the firm is 0.4, 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 Answer
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The financial statements of Burnaby Mountain Trading Company are shown below. Note: The common shares are trading in the stock market for $27 each. Refer to the financial statements of Burnaby Mountain Trading Company. The firm's leverage ratio for 2017 is ________.

Correct Answer
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A firm has an ROA of 8% and a debt/equity ratio of 0.5; its ROE is ________.

Correct Answer
verified

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

Correct Answer
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The financial statements of Burnaby Mountain Trading Company are shown below. Note: The common shares are trading in the stock market for $27 each. Refer to the financial statements of Burnaby Mountain Trading Company. The firm's quick ratio for 2017 is ________.

Correct Answer
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If a firm's borrowing rate exceeds its ROA, then ROE will ________.

Correct Answer
verified

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
verified

A firm has a P/E ratio of 24 and an ROE of 12%. Its market-to-book-value ratio is ________.

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

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

Correct Answer
verified

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

Correct Answer
verified

A firm purchases goods on credit worth $150. 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 $300 to pay for the purchase. What is the change in net cash provided by operations?

Correct Answer
verified

Which of the following will result in an increase in cash to the firm?

Correct Answer
verified

Which of the following is not one of the three key financial statements available to investors in publicly traded firms?

Correct Answer
verified

A firm increases its financial leverage when its ROA is greater than the cost of debt. Everything else equal, this change will probably increase the firm's: I. Beta II. Earnings variability over the business cycle III. ROE IV. Stock price

Correct Answer
verified

Exam 14: Financial Statement Analysis

The financial statements of Burnaby Mountain Trading Company are shown below. Note: The common shares are trading in the stock market for $27 each. Refer to the financial statements of Burnaby Mountain Trading Company. The firm's current ratio for 2017 is ________.

Correct AnswerverifiedShow Answer

The highest possible value for the interest-burden ratio is ________, and this occurs when the firm ________.

Correct AnswerverifiedShow Answer

The practice of "selling" large quantities of goods to customers in order to get quarterly sales up while allowing these customers to return the goods next quarter is termed ________.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The tax burden of the firm is 0.4, 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

The financial statements of Burnaby Mountain Trading Company are shown below. Note: The common shares are trading in the stock market for $27 each. Refer to the financial statements of Burnaby Mountain Trading Company. The firm's leverage ratio for 2017 is ________.

Correct AnswerverifiedShow Answer

A firm has an ROA of 8% and a debt/equity ratio of 0.5; its ROE is ________.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The financial statements of Burnaby Mountain Trading Company are shown below. Note: The common shares are trading in the stock market for $27 each. Refer to the financial statements of Burnaby Mountain Trading Company. The firm's quick ratio for 2017 is ________.

Correct AnswerverifiedShow Answer

If a firm's borrowing rate exceeds its ROA, then ROE will ________.

Correct AnswerverifiedShow Answer

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

A firm has a P/E ratio of 24 and an ROE of 12%. Its market-to-book-value ratio is ________.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A firm purchases goods on credit worth $150. 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 $300 to pay for the purchase. What is the change in net cash provided by operations?

Correct AnswerverifiedShow Answer

Which of the following will result in an increase in cash to the firm?

Correct AnswerverifiedShow Answer

Which of the following is not one of the three key financial statements available to investors in publicly traded firms?

Correct AnswerverifiedShow Answer

A firm increases its financial leverage when its ROA is greater than the cost of debt. Everything else equal, this change will probably increase the firm's: I. Beta II. Earnings variability over the business cycle III. ROE IV. Stock price

Correct AnswerverifiedShow Answer

Correct Answer
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The highest possible value for the interest-burden ratio is , and this occurs when the firm .

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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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
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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