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Financial Management 2017 - Quiz and Case Study Guides -Foundations of Finance, 9e (Keown/Martin/Petty) - Quiz - Chapter 4

Financial Management 2016 - 2017

FINANCIAL MANAGEMENT 2017 - QUIZ AND CASE STUDY GUIDES

Foundations of Finance, 9e (Keown/Martin/Petty)

Chapter 4   Evaluating a Firm's Financial Performance

 

 

Foundations of Finance, 9e (Keown/Martin/Petty)

Chapter 4   Evaluating a Firm's Financial Performance

 

Learning Objective 4.1

 

1) When the present financial ratios of a firm are compared with similar ratios for another firm in the same industry it is called trend analysis.

Answer:  FALSE

Diff: 1      Page Ref: 107

Keywords:  Trend Analysis, Bases of Comparison

Learning Obj.:  L.O. 4.1

AACSB:  Reflective Thinking

 

2) Theoretically, market values of assets are better for evaluating the creation of shareholder wealth than accounting numbers, but accounting numbers are used because they are more readily available.

Answer:  TRUE

Diff: 1      Page Ref: 106, 107

Keywords:  Shareholder Value, Market Value, Accounting Information

Learning Obj.:  L.O. 4.1

AACSB:  Reflective Thinking

 

3) Financial ratios are often reported by industry or line of business because differences in the type of business can make ratio comparisons uninformative or even misleading.

Answer:  TRUE

Diff: 1      Page Ref: 107

Keywords:  Ratio Analysis

Learning Obj.:  L.O. 4.1

AACSB:  Reflective Thinking

 

4) Financial ratios are useful for evaluating performance but should not be used for making financial projections.

Answer:  FALSE

Diff: 1      Page Ref: 107

Keywords:  Ratio Analysis, Financial Projections

Learning Obj.:  L.O. 4.1

AACSB:  Reflective Thinking

 

5) Financial ratios are used by managers inside the company and by lenders, credit-rating agencies, and investors outside of the company.

Answer:  TRUE

Diff: 1      Page Ref: 107, 108

Keywords:  Ratio Analysis, Usefulness

Learning Obj.:  L.O. 4.1

AACSB:  Reflective Thinking

 

 

6) Financial ratios cannot be used to evaluate the creation of shareholder wealth because they are based on accounting numbers that reflect historical cost and not current market values.

Answer:  FALSE

Diff: 1      Page Ref: 107

Keywords:  Ratio Analysis, Shareholder Wealth

Learning Obj.:  L.O. 4.1

AACSB:  Reflective Thinking

7) Common stockholders may use financial ratios to monitor manager actions to help lessen agency problems.

Answer:  TRUE

Diff: 1      Page Ref: 108

Keywords:  Agency Problems, Use of Ratio Analysis

Learning Obj.:  L.O. 4.1

AACSB:  Reflective Thinking

 

 

8) Accounting information is used in financial ratio analysis because it is theoretically the best data to guide financial decision-making.

Answer:  FALSE

Diff: 1      Page Ref: 107

Keywords:  Ratio Analysis, Market Value, Historical Cost

Learning Obj.:  L.O. 4.1

AACSB:  Reflective Thinking

 

9) Ratios of almost all companies are easily comparable because all public companies prepare their financial reports based upon generally accepted accounting principles.

Answer:  FALSE

Diff: 1      Page Ref: 107

Keywords:  Ratio Comparability, GAAP

Learning Obj.:  L.O. 4.1

AACSB:  Reflective Thinking

 

10) Common-size balance sheets are balance sheets of companies with almost identical total assets (within 2% of each other).

Answer:  FALSE

Diff: 1      Page Ref: 107

Keywords:  Common-Sized Balance Sheet

Learning Obj.:  L.O. 4.1

AACSB:  Reflective Thinking

 

11) Financial ratios that are higher than industry averages may indicate problems that are as detrimental to the firm as ratios that are too low.

Answer:  TRUE

Diff: 1      Page Ref: 107

Keywords:  Ratio Analysis, Interpretation of Ratios

Learning Obj.:  L.O. 4.1

AACSB:  Analytical Thinking

 

 

12) Ratios are used to standardize financial information, thereby making it easier to interpret.

Answer:  TRUE

Diff: 1      Page Ref: 107

Keywords:  Ratio Analysis

Learning Obj.:  L.O. 4.1

AACSB:  Reflective Thinking

 

13) Trend analysis is the forecasting of the firm's financial ratios for a future time period by using its own ratios from previous periods.

Answer:  FALSE

Diff: 1      Page Ref: 107

Keywords:  Trend Analysis

Learning Obj.:  L.O. 4.1

AACSB:  Reflective Thinking

14) How managers choose to finance the business affects the company's risk, and as a result, the rate of return stockholders receive on their investments.

Answer:  TRUE

Diff: 1      Page Ref: 107

Keywords:  Risk Requires a Reward, Risk-Return Trade-off

Learning Obj.:  L.O. 4.1

AACSB:  Analytical Thinking

 

15) Financial analysis

  1. A) uses historical financial statements and is thus useful only to assess past performance.
  2. B) relies on generally accepted accounting principles to make comparisons between companies valid.
  3. C) uses historical financial statements to measure a company's performance and in making financial projections of future performance.
  4. D) is accounting record-keeping using generally accepted accounting principles.

Answer:  C

Diff: 1      Page Ref: 107

Keywords:  Financial Analysis, Financial Performance, Financial Projections

Learning Obj.:  L.O. 4.1

AACSB:  Reflective Thinking

 

16) Common-sized balance sheets

  1. A) show data for companies in the same industry.
  2. B) show data for companies with approximately the same amount of assets.
  3. C) show each balance sheet account as a percentage of total sales.
  4. D) show each balance sheet account as a percentage of total assets.

Answer:  D

Diff: 1      Page Ref: 107

Keywords:  Common-Sized Balance Sheet

Learning Obj.:  L.O. 4.1

AACSB:  Reflective Thinking

 

 

17) Common-sized income statements

  1. A) assist in the comparison of companies of different sizes.
  2. B) show each income statement account as a percentage of total assets.
  3. C) compare companies with the same level of total sales.
  4. D) compare companies with the same level of net income.

Answer:  A

Diff: 2      Page Ref: 107

Keywords:  Common-Sized Income Statement

Learning Obj.:  L.O. 4.1

AACSB:  Reflective Thinking

 

18) In an ideal world, which of the following would be used to evaluate firm performance?

  1. A) book value of assets
  2. B) corporate retained earnings from the day of incorporation
  3. C) accounting assets and profits
  4. D) market value of assets

Answer:  D

Diff: 1      Page Ref: 106

Keywords:  Financial Analysis, Market Value

Learning Obj.:  L.O. 4.1

AACSB:  Reflective Thinking

19) How does a firm use financial ratios? Who else might use financial ratios and why?

Answer:  Financial analysis is not just a tool for financial managers but also can be used effectively by investors, lenders, suppliers, employees, and customers.

Within the firm, managers use financial ratios to: Identify deficiencies in the firm's performance and take corrective action; Evaluate employee performance and determine incentive compensation; Compare the financial performance of the firm's different divisions; Prepare, at both the firm and division levels, financial projections, such as those associated with the launch of a new product; Understand the financial performance of the firm's competitors; Evaluate the financial condition of a major supplier.

Outside the company, financial ratios can be used by: Lenders to decide whether or not to make a loan to the company; Credit-rating agencies to determine the firm's creditworthiness; Investors to decide whether or not to invest in a company; Major suppliers to decide whether or not to grant credit terms to a company.

Diff: 2      Page Ref: 108, 109

Keywords:  Ratio Analysis

Learning Obj.:  L.O. 4.1

AACSB:  Reflective Thinking

 

Learning Objective 4.2

 

1) A company with a current ratio higher than industry average must also have a quick ratio higher than industry average because both ratios measure liquidity.

Answer:  FALSE

Diff: 1      Page Ref: 111

Keywords:  Liquidity, Current Ratio, Quick Ratio

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

2) Return on equity is driven by (1) the spread between the operating return on assets and the interest rate, and (2) changes in the debt ratio.

Answer:  TRUE

Diff: 2      Page Ref: 126

Keywords:  Return on Equity, Operating Return on Assets, Debt Ratio

Learning Obj.:  L.O. 4.2

AACSB:  Reflective Thinking

 

3) Borrowing money causes a corporation's return on operating assets to decrease because of the interest that must be paid.

Answer:  FALSE

Diff: 2      Page Ref: 117

Keywords:  Operating Return on Assets, Debt

Learning Obj.:  L.O. 4.2

AACSB:  Reflective Thinking

 

4) Borrowing more money will always increase a company's return on equity because the company is using financial leverage, but it also adds to the riskiness of the company.

Answer:  FALSE

Diff: 2      Page Ref: 126

Keywords:  Return on equity, Financial Leverage

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

5) Operating return on assets is equal to the operating profit margin times total asset turnover.

Answer:  TRUE

Diff: 1      Page Ref: 117

Keywords:  Operating Return on Assets, Operating Profit Margin, Total Asset Turnover

Learning Obj.:  L.O. 4.2

AACSB:  Reflective Thinking

 

6) Total asset turnover is equal to accounts receivable turnover plus inventory turnover plus fixed asset turnover.

Answer:  FALSE

Diff: 1      Page Ref: 119

Keywords:  Total Asset Turnover, Accounts Receivable Turnover, Inventory Turnover, Fixed Asset Turnover

Learning Obj.:  L.O. 4.2

AACSB:  Reflective Thinking

 

7) Financial ratios are useful for measuring performance because maximizing the return on equity for common shareholders is the primary goal of financial managers.

Answer:  FALSE

Diff: 1      Page Ref: 126

Keywords:  Ratio Analysis, Goal of the Firm, ROE

Learning Obj.:  L.O. 4.2

AACSB:  Reflective Thinking

 

 

8) If company A has a lower average collection period than company B, then company A will have a higher accounts receivable turnover.

Answer:  TRUE

Diff: 2      Page Ref: 112

Keywords:  Average Collection Period, Accounts Receivable Turnover, Liquidity

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

9) Net income is the best measure to use for evaluating a firm's profits on assets because it includes the effect of financing as well as the effect of operations.

Answer:  FALSE

Diff: 1      Page Ref: 119

Keywords:  Net Income, Asset Management

Learning Obj.:  L.O. 4.2

AACSB:  Reflective Thinking

 

10) Operating profits or EBIT is used to measure a firm's profits on assets because it does not include the firm's cost of debt financing.

Answer:  TRUE

Diff: 1      Page Ref: 118

Keywords:  Operating Profits, Asset Management

Learning Obj.:  L.O. 4.2

AACSB:  Reflective Thinking

11) Operating return on assets (OROA) is equal to operating profit margin times fixed assets turnover.

Answer:  FALSE

Diff: 1      Page Ref: 117

Keywords:  Operating Return on Assets, Operating Profit Margin, Total Asset Turnover

Learning Obj.:  L.O. 4.2

AACSB:  Reflective Thinking

 

12) Lower asset turnover ratios are generally indicative of more efficient asset management.

Answer:  FALSE

Diff: 1      Page Ref: 119

Keywords:  Asset Turnover Ratios, Asset Management

Learning Obj.:  L.O. 4.2

AACSB:  Reflective Thinking

 

13) A high debt ratio can be favorable because higher leverage may result in a higher return on equity.

Answer:  TRUE

Diff: 1      Page Ref: 123

Keywords:  Debt Ratio, Leverage, Return on Equity

Learning Obj.:  L.O. 4.2

AACSB:  Reflective Thinking

 

 

14) A common method of evaluating a firm's financial ratios is to compare the current values of the firm's ratios to its own ratios from prior periods. This is referred to as trend analysis.

Answer:  TRUE

Diff: 1      Page Ref: 110

Keywords:  Trend Analysis

Learning Obj.:  L.O. 4.2

AACSB:  Reflective Thinking

 

15) The current ratio and the acid test ratio both measure financial leverage.

Answer:  FALSE

Diff: 1      Page Ref: 111

Keywords:  Current Ratio, Quick Ratio

Learning Obj.:  L.O. 4.2

AACSB:  Reflective Thinking

 

16) Ratios that examine profit relative to investment are useful in evaluating the overall effectiveness of the firm's management.

Answer:  TRUE

Diff: 1      Page Ref: 110

Keywords:  Ratio Analysis

Learning Obj.:  L.O. 4.2

AACSB:  Reflective Thinking

 

17) The astute financial manager will seek to attain the highest current ratio possible.

Answer:  FALSE

Diff: 1      Page Ref: 111

Keywords:  Current Ratio

Learning Obj.:  L.O. 4.2

AACSB:  Ethical understanding and reasoning

18) One weakness of the times interest earned ratio is that it includes only the annual interest expense as a finance expense and ignores other financing items such as lease payments that must be paid.

Answer:  TRUE

Diff: 1      Page Ref: 124

Keywords:  Times Interest Earned

Learning Obj.:  L.O. 4.2

AACSB:  Reflective Thinking

 

19) DuPont analysis indicates that the return on equity may be boosted above the return on assets by using leverage (debt).

Answer:  TRUE

Diff: 2      Page Ref: 123

Keywords:  DuPont Analysis, Return on Equity, Return on Assets

Learning Obj.:  L.O. 4.2

AACSB:  Reflective Thinking

 

 

20) Economic Value Added attempts to measure a firm's economic profit rather than its accounting profit.

Answer:  TRUE

Diff: 1      Page Ref: 133

Keywords:  Economic Value Added

Learning Obj.:  L.O. 4.2

AACSB:  Reflective Thinking

 

21) Economic value added includes a charge for the cost of equity that is not included on financial statements prepared according to GAAP.

Answer:  TRUE

Diff: 1      Page Ref: 133

Keywords:  Economic Value Added, Cost of Equity

Learning Obj.:  L.O. 4.2

AACSB:  Reflective Thinking

 

22) Economic value added is calculated by taking (net income less the cost of all capital) times total assets.

Answer:  FALSE

Diff: 2      Page Ref: 133

Keywords:  Economic Value Added

Learning Obj.:  L.O. 4.2

AACSB:  Reflective Thinking

 

23) How managers choose to finance the business does not affect the rate of return to shareholders because the rate of return is based on how the company uses the assets it has, not whether or not they paid for the assets with debt or equity.

Answer:  FALSE

Diff: 2      Page Ref: 126

Keywords:  Risk Requires a Reward, Risk-Return Trade-off

Learning Obj.:  L.O. 4.2

AACSB:  Reflective Thinking

24) The computation of return on equity, or ROE, does not include retained earnings as part of common equity because retained earnings includes all net income for the company since its inception and analysts are trying to calculate the return for just the current year.

Answer:  FALSE

Diff: 2      Page Ref: 126

Keywords:  Return on Equity, Retained Earnings

Learning Obj.:  L.O. 4.2

AACSB:  Reflective Thinking

 

25) Operating return on assets captures the effect of taxes and financing costs, and hence provides the broadest possible measure of profitability.

Answer:  FALSE

Diff: 1      Page Ref: 117

Keywords:  Operating Return on Assets

Learning Obj.:  L.O. 4.2

AACSB:  Reflective Thinking

 

 

26) The goal of most financial managers is to reduce the amount of long-term debt to zero, thus maximizing shareholder wealth.

Answer:  FALSE

Diff: 2      Page Ref: 123

Keywords:  Debt Ratio, Financial Leverage

Learning Obj.:  L.O. 4.2

AACSB:  Reflective Thinking

 

27) Ratio analysis enhances our understanding of three basic attributes of performance: liquidity, profitability, and the ability to create shareholder value.

Answer:  TRUE

Diff: 1      Page Ref: 110

Keywords:  Ratio Analysis, Liquidity, Profitability, Shareholder Value

Learning Obj.:  L.O. 4.2

AACSB:  Reflective Thinking

 

28) Which of the following transactions will increase a corporation's operating return on assets?

  1. A) sell stock and use the money to pay off some long-term debt
  2. B) sell 10-year bonds and use the money to pay off current liabilities
  3. C) negotiate a new contract that lowers raw material costs by 10%
  4. D) increase sales by 10%

Answer:  C

Diff: 2      Page Ref: 117

Keywords:  Operating Return on Assets

Learning Obj.:  L.O. 4.2

AACSB:  Reflective Thinking

29) Asset efficiency ratios for Fischer, Inc. are given in the table below. Based on this information, Fischer, Inc.'s fixed asset turnover ratio is likely to be ________.

 

 

Fischer, Inc.

Peer Group

Total Asset Turnover

  1.58X

  2.05X

Accounts Receivable Turnover

17.55X

14.35X

Inventory Turnover

  6.34X

  5.22X

Fixed Asset Turnover

?????

  3.50X

 

  1. A) equal to 3.50
  2. B) less than 3.50
  3. C) greater than 3.50
  4. D) negative

Answer:  B

Diff: 2      Page Ref: 118, 119

Keywords:  Asset Efficiency Ratios, Fixed Asset Turnover

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

 

30) An analyst is evaluating two companies, A and B. Company A has a debt ratio of 50% and Company B has a debt ratio of 25%. In his report, the analyst is concerned about Company B's debt level, but not about Company A's debt level. Which of the following would best explain this position?

  1. A) Company B has much higher operating income than Company A.
  2. B) Company A has a lower times interest earned ratio and thus the analyst is not worried about the amount of debt.
  3. C) Company B has a higher operating return on assets than Company A, but Company A has a higher return on equity than Company B.
  4. D) Company B has more total assets than Company A.

Answer:  C

Diff: 2      Page Ref: 123

Keywords:  Operating Return on Assets, Debt Ratio, Return on Equity

Learning Obj.:  L.O. 4.2

AACSB:  Reflective Thinking

 

31) Smith Corporation has earned a return on capital invested of 10% for the past two years, but an investment analyst reviewing the company has stated the company is not creating shareholder value. This may be due to the fact that

  1. A) the risk-free rate of interest is 3%.
  2. B) the corporation's inventory turnover is high.
  3. C) investors' required rate of return is 8%.
  4. D) investors' required rate of return is 12%.

Answer:  D

Diff: 2      Page Ref: 136

Keywords:  Economic Value Added, Required Return

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

32) All of the following measure liquidity EXCEPT

  1. A) current ratio.
  2. B) inventory turnover.
  3. C) acid-test ratio.
  4. D) operating return on assets.

Answer:  D

Diff: 1      Page Ref: 111

Keywords:  Liquidity, Current Ratio, Acid-test Ratio, Inventory Turnover

Learning Obj.:  L.O. 4.2

AACSB:  Reflective Thinking

 

 

33) Baker Corp. is required by a debt agreement to maintain a current ratio of at least 2.5, and Baker's current ratio now is 3. Baker wants to purchase additional inventory for its upcoming Christmas season, and will pay for the inventory with short-term debt. How much inventory can Baker purchase without violating its debt agreement if their total current assets equal $15 million?

  1. A) $0.50 million
  2. B) $1.67 million
  3. C) $4.50 million
  4. D) $6.00 million

Answer:  B

Diff: 2      Page Ref: 111

Keywords:  Current Ratio, Debt Covenant

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

34) Williams Inc. has a current ratio equal to 3, a quick ratio equal to 1.8, and total current assets of $6 million. Williams' inventory balance is

  1. A) $2,000,000.
  2. B) $2,400,000.
  3. C) $4,000,000.
  4. D) $4,800,000.

Answer:  B

Diff: 2      Page Ref: 111

Keywords:  Current Ratio, Quick Ratio

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

35) Jones, Inc. has a current ratio equal to 1.40. Which of the following transactions will increase the company's current ratio?

  1. A) The company collects $500,000 of its accounts receivable.
  2. B) The company sells $1 million of inventory on credit.
  3. C) The company pays back $50,000 of its long-term debt.
  4. D) The company writes a $30,000 check to pay off some existing accounts payable.

Answer:  D

Diff: 2      Page Ref: 111

Keywords:  Current Ratio

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

36) For a retailer with inventory to sell, the acid-test ratio will be

  1. A) less than the current ratio, thus providing a more stringent measure of liquidity.
  2. B) greater than the current ratio, thus providing a more stringent measure of liquidity.
  3. C) greater than the current ratio, thus providing a less stringent measure of liquidity.
  4. D) unimportant because it doesn't include inventory.

Answer:  A

Diff: 2      Page Ref: 112

Keywords:  Acid-test Ratio, Current Ratio, Inventory

Learning Obj.:  L.O. 4.2

AACSB:  Reflective Thinking

 

37) Company A has a higher days sales outstanding ratio than Company B. Therefore,

  1. A) Company A sells more on credit than Company B.
  2. B) Company A has a higher percentage of cash to credit sales than Company B.
  3. C) Company A must be collecting its accounts receivable faster than Company B, on average.
  4. D) other things being equal, Company B has a cash flow advantage over Company A.

Answer:  D

Diff: 2      Page Ref: 112

Keywords:  Days Sales Outstanding, Credit Policy

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

38) When comparing inventory turnover ratios, other things being equal,

  1. A) a lower inventory turnover is preferred in order to keep inventory costs low.
  2. B) a higher inventory turnover is preferred to improve liquidity.
  3. C) higher inventory turnover results from old or obsolete inventory increasing the inventory balance on the balance sheet.
  4. D) higher inventory turnover results from an increase in the selling price of the product.

Answer:  B

Diff: 2      Page Ref: 114

Keywords:  Inventory Turnover, Liquidity

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

39) Company A and Company B have the same gross profit margin and the same total asset turnover, but company A has a higher return on equity. This may result from

  1. A) Company B has more common stock.
  2. B) Company A has a lower debt ratio.
  3. C) Company A has lower selling and administrative expenses, resulting in a higher net profit margin.
  4. D) Company A has lower cost of goods sold, resulting in a higher net profit margin.

Answer:  C

Diff: 2      Page Ref: 119

Keywords:  Return on Equity, Profit Margin, Total Asset Turnover, Leverage

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

40) Nelson Industries has a higher debt ratio than Butler, Inc., and Nelson also has a higher times interest earned ratio than Butler. If Nelson and Butler both have the same amount of total assets, then

  1. A) Nelson must have higher operating income than Butler.
  2. B) if both companies have the same operating income, Butler must be paying a higher interest rate on its long-term debt than Nelson is paying.
  3. C) Nelson may have more non-interest bearing liabilities, such as accounts payable, than Butler has.
  4. D) if both companies have the same operating income, a mistake was made in the calculations because the company with a higher debt ratio must have a lower times interest earned ratio.

Answer:  C

Diff: 2      Page Ref: 123

Keywords:  Debt Ratio, Times Interest Earned Ratio

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

41) HighLev Incorporated borrows heavily and uses the leverage to boost its return on equity to 30% this year, nearly 10% higher than the industry average. However, HighLev's stock price decreases relative to its industry counterparts. How is this possible?

  1. A) Markets are inefficient and fail to recognize the benefits of leverage.
  2. B) The increased debt resulted in interest payments that made HighLev's operating income drop even though return on equity increased.
  3. C) Shareholders are not interested in return on equity.
  4. D) The high levels of debt increased the riskiness of HighLev relative to its competitors.

Answer:  D

Diff: 2      Page Ref: 123

Keywords:  Leverage, Return on Equity

Learning Obj.:  L.O. 4.2

AACSB:  Reflective Thinking

 

42) Benkart Corporation has sales of $5,000,000, net income of $800,000, total assets of $2,000,000, and 100,000 shares of common stock outstanding. If Benkart's P/E ratio is 12, what is the company's current stock price?

  1. A) $60 per share
  2. B) $96 per share
  3. C) $240 per share
  4. D) $360 per share

Answer:  B

Diff: 2      Page Ref: 131

Keywords:  P/E Ratio, Earnings Per Share

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

43) Which of the following statements concerning Economic Value Added (EVA) is MOST correct?

  1. A) The higher the cost of capital, the higher the EVA, other things being held constant.
  2. B) EVA can be negative even if operating profits are positive.
  3. C) A company with positive net income will have positive EVA.
  4. D) Higher operating return on assets will result in lower EVA for a company with a debt ratio over 50%.

Answer:  B

Diff: 2      Page Ref: 133

Keywords:  Economic Value Added

Learning Obj.:  L.O. 4.2

AACSB:  Reflective Thinking

 

44) The acid-test ratio of a firm would be unaffected by which of the following?

  1. A) Accounts payable are reduced by obtaining a short-term loan.
  2. B) Common stock is sold and the money is invested in marketable securities.
  3. C) Inventories are sold for cash.
  4. D) Inventories are sold on a short-term credit basis.

Answer:  A

Diff: 2      Page Ref: 112

Keywords:  Acid-test Ratio

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

45) The acid-test ratio of a firm would be unaffected by which of the following?

  1. A) Several short-term loans are consolidated and paid off using long-term debt.
  2. B) Equipment is purchased, financed by a long-term debt issue.
  3. C) Additional inventory is purchased for cash.
  4. D) Large accounts receivable balances are collected.

Answer:  A

Diff: 2      Page Ref: 112

Keywords:  Quick Ratio

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

46) The current ratio of a firm would be increased by which of the following?

  1. A) Land held for investment is sold for cash.
  2. B) Equipment is purchased, financed by a long-term debt issue.
  3. C) Inventories are sold for cash.
  4. D) Inventories are sold on a credit basis.

Answer:  A

Diff: 2      Page Ref: 111

Keywords:  Current Ratio

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

47) The current ratio of a firm would be decreased by which of the following?

  1. A) Land held for investment is sold for cash.
  2. B) Equipment is purchased, financed by a long-term debt issue.
  3. C) Inventories are sold for cash.
  4. D) Inventories are sold on a long-term credit basis.

Answer:  D

Diff: 2      Page Ref: 111

Keywords:  Current Ratio

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

48) The current ratio of a firm would equal its quick ratio whenever

  1. A) the firm has no inventory.
  2. B) the firm's inventory is equal to its other current assets.
  3. C) the firm's inventory is equal to its current liabilities.
  4. D) the firm's current ratio is equal to one.

Answer:  A

Diff: 2      Page Ref: 111

Keywords:  Current Ratio, Quick Ratio

Learning Obj.:  L.O. 4.2

AACSB:  Reflective Thinking

 

 

49) Given an accounts receivable turnover of 10 and annual credit sales of $900,000, the average collection period is

  1. A) 18.25 days.
  2. B) 36.50 days.
  3. C) 90 days.
  4. D) 40.56 days.

Answer:  B

Diff: 2      Page Ref: 112

Keywords:  Accounts Receivable Turnover, Average Collection Period

Learning Obj.:  L.O. 4.2

AACSB:  Reflective Thinking


Please refer to Table 4-1 for the following questions.

 

Table 4-1

                                                 Stewart Company

                                                     Balance Sheet

Assets:

 

 

Cash and marketable securities

 

$600,000

Accounts receivable

 

900,000

Inventories 

 

1,500,000

Prepaid expenses

 

75,000

Total current assets

 

$3,075,000

Fixed assets  

8,000,000

 

Less: accum. depr.

(2,075,000)

 

Net fixed assets

 

$5,925,000

Total assets

 

$9,000,000

 

 

 

Liabilities:

 

 

Accounts payable

 

$800,000

Notes payable

700,000

Accrued taxes

 

50,000

Total current liabilities

 

$1,550,000

Long-term debt

 

2,500,000

Owner's equity (1 million shares of common stock outstanding)

 

4,950,000

Total liabilities and owner's equity

 

$9,000,000

 

 

 

Net sales (all credit)

 

$10,000,000

Less: Cost of goods sold

 

(3,000,000)

Selling and administrative expense

 

(2,000,000)

Depreciation expense

 

(250,000)

Interest expense

 

(200,000)

Earnings before taxes

 

4,550,000

Income taxes

 

(1,820,000)

Net income

 

$2,730,000

 

50) Based on the information in Table 4-1, the current ratio is

  1. A) 1.92.
  2. B) 1.98.
  3. C) 2.86.
  4. D) 2.88.

Answer:  B

Diff: 1      Page Ref: 111

Keywords:  Current Ratio

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

51) Based on the information in Table 4-1, the acid-test ratio is

  1. A) 1.71.
  2. B) 1.67.
  3. C) 1.02.
  4. D) 0.98.

Answer:  C

Diff: 2      Page Ref: 112

Keywords:  Acid-test Ratio, Quick Ratio

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

52) Based on the information in Table 4-1, the average collection period is

  1. A) 36.50 days.
  2. B) 32.85 days.
  3. C) 46.34 days.
  4. D) 29.85 days.

Answer:  B

Diff: 2      Page Ref: 112

Keywords:  Average Collection Period

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

53) Based on the information in Table 4-1, the accounts receivable turnover is

  1. A) 10.00.
  2. B) 11.11.
  3. C) 8.11.
  4. D) 9.50.

Answer:  B

Diff: 1      Page Ref: 112

Keywords:  Accounts Receivable Turnover

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

54) Based on the information in Table 4-1, the debt ratio is

  1. A) 24.1%.
  2. B) 32.6%.
  3. C) 45.0%.
  4. D) 55.2%.

Answer:  C

Diff: 2      Page Ref: 123

Keywords:  Debt Ratio

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

55) Based on the information in Table 4-1, the OROA is

  1. A) 24.73%.
  2. B) 39.50%.
  3. C) 46.54%.
  4. D) 52.78%.

Answer:  D

Diff: 2      Page Ref: 117

Keywords:  Operating Return on Assets

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

56) Based on the information in Table 4-1, the times interest earned ratio is

  1. A) 32.33 times.
  2. B) 23.75 times.
  3. C) 19.00 times.
  4. D) 12.33 times.

Answer:  B

Diff: 2      Page Ref: 124

Keywords:  Times Interest Earned Ratio

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

57) Based on the information in Table 4-1, assuming that no preferred dividends were paid, the return on common equity is

  1. A) 55.15%.
  2. B) 44.86%.
  3. C) 38.83%.
  4. D) 17.56%.

Answer:  A

Diff: 2      Page Ref: 126

Keywords:  Return on Equity

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

58) Based on the information in Table 4-1, the fixed asset turnover ratio is

  1. A) 1.69.
  2. B) 2.17.
  3. C) 4.39.
  4. D) 4.80.

Answer:  A

Diff: 2      Page Ref: 119

Keywords:  Fixed Asset Turnover Ratio

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

59) Based on the information in Table 4-1, the total asset turnover ratio is

  1. A) 1.11.
  2. B) 1.41.
  3. C) 2.33.
  4. D) 4.45.

Answer:  A

Diff: 1      Page Ref: 119

Keywords:  Total Asset Turnover

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

60) Based on the information in Table 4-1, the operating profit margin is

  1. A) 47.5%.
  2. B) 37.5%.
  3. C) 26.4%.
  4. D) 32.8%.

Answer:  A

Diff: 2      Page Ref: 118

Keywords:  Operating Profit Margin

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

61) Based on the information in Table 4-1, and assuming the company's stock price is $30 per share, the P/E ratio is

  1. A) 3.09.
  2. B) 4.83.
  3. C) 9.85.
  4. D) 10.99.

Answer:  D

Diff: 2      Page Ref: 131

Keywords:  Price/Earnings Ratio

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

62) Based on the information in Table 4-1, the inventory turnover ratio is

  1. A) 1.3 times.
  2. B) 2.0 times.
  3. C) 2.5 times.
  4. D) 2.9 times.

Answer:  B

Diff: 2      Page Ref: 136

Keywords:  Inventory Turnover Ratio

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

63) XYZ Corporation has a P/E ratio of 20 and EFG Corporation has a P/E ratio of 10. It is likely that

  1. A) XYZ's earnings per share are twice the earnings per share of EFG.
  2. B) investors expect XYZ's earnings to grow faster than EFG's earnings.
  3. C) investors believe that for the same level of earnings growth, XYZ is a higher risk company.
  4. D) investors believe XYZ stock is overvalued.

Answer:  B

Diff: 2      Page Ref: 131

Keywords:  P/E Ratio

Learning Obj.:  L.O. 4.2

AACSB:  Reflective Thinking


Please refer to Table 4-2 for the following questions.

 

Table 4-2

                                           Drummond Company

                                                   Balance Sheet

Assets:

 

 

Cash and marketable securities

 

$400,000

Accounts receivable

 

1,415,000

Inventories   

 

1,847,500

Prepaid expenses

 

24,000

Total current assets

 

3,686,500

Fixed assets       

2,800,000 

 

Less: accum. depr.

(1,087,500)

 

Net fixed assets

 

1,712,500

Total assets

 

$5,399,000

 

 

 

Liabilities:

 

 

Accounts payable

 

$600,000

Notes payable  

875,000

Accrued taxes

 

92,000

Total current liabilities

 

$1,567,000

Long-term debt

 

900,000

Common Stock (100,000 shares)

 

700,000

Retained Earnings

 

2,232,000

Total liabilities and owner's equity

 

$5,399,000

 

 

 

Net sales (all credit)

 

$6,375,000

Less: Cost of goods sold

 

(4,375,000)

Selling and administrative expense

 

(1,000,000)

Depreciation expense

 

(135,000)

Interest expense

 

(100,000)

Earnings before taxes

 

$765,000

Income taxes

 

(306,000)

Net income

 

$459,000

 

64) Based on the information in Table 4-2, the current ratio is

  1. A) 2.97.
  2. B) 2.46.
  3. C) 2.35.
  4. D) 2.23.

Answer:  C

Diff: 1      Page Ref: 111

Keywords:  Current Ratio

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

65) Based on the information in Table 4-2, the acid-test ratio is

  1. A) 1.17.
  2. B) 1.33.
  3. C) 1.39.
  4. D) 2.15.

Answer:  A

Diff: 2      Page Ref: 112

Keywords:  Acid-test Ratio, Quick Ratio

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

66) Based on the information in Table 4-2, the average collection period is

  1. A) 70 days.
  2. B) 81 days.
  3. C) 89 days.
  4. D) 127 days.

Answer:  B

Diff: 2      Page Ref: 112

Keywords:  Average Collection Period

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

67) Based on the information in Table 4-2, the debt ratio is

  1. A) 28.12%.
  2. B) 34.74%.
  3. C) 45.69%.
  4. D) 42.03%.

Answer:  C

Diff: 2      Page Ref: 123

Keywords:  Debt Ratio

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

68) Based on the information in Table 4-2, the return on equity is

  1. A) 19.33%.
  2. B) 18.47%.
  3. C) 16.66%.
  4. D) 15.65%.

Answer:  D

Diff: 2      Page Ref: 126

Keywords:  Return on Equity/ Common Equity

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

69) Based on the information in Table 4-2, and assuming the company's stock price is $50 per share, the P/E ratio is

  1. A) 10.89.
  2. B) 14.33.
  3. C) 24.44.
  4. D) 27.50.

Answer:  A

Diff: 2      Page Ref: 131

Keywords:  Price/Earnings Ratio

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

70) Based on the information in Table 4-2, the times interest earned ratio is

  1. A) 11.48.
  2. B) 5.25.
  3. C) 4.88.
  4. D) 8.65.

Answer:  D

Diff: 2      Page Ref: 124

Keywords:  Times Interest Earned Ratio, Operating Income

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

71) Based on the information in Table 4-2, the inventory turnover ratio is

  1. A) 1.29 times.
  2. B) 2.37 times.
  3. C) 4.43 times.
  4. D) 2.99 times.

Answer:  B

Diff: 2      Page Ref: 136

Keywords:  Inventory Turnover Ratio

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking


Please refer to Table 4-3 for the following questions.

 

Table 4-3

 

                                                                   Emery Corporation

                               Balance Sheet                                                      Income Statement

Assets:

 

 

 

 

Cash

$250,000

 

Sales (all credit)

$8,000,000

Accounts receivable

450,000

 

Cost of goods sold

(4,000,000)

Inventory

500,000

 

Operating expense

(2,900,000)

Net fixed assets

2,100,000

 

Interest expense

(150,000)

Total assets

$3,300,000

 

Income taxes

(380,000)

 

 

 

Net income

$570,000

Liabilities and owners' equity:

 

 

 

 

Accounts payable

$100,000

 

 

 

Notes payable   

450,000

 

 

 

Long-term debt

1,050,000

 

 

 

 

 

 

 

 

Owners' Equity

1,700,000

 

 

 

Total liabilities and owner's equity

$3,300,000

 

 

 

 

72) Based on the information in Table 4-3, the average collection period is

  1. A) 38.01 days.
  2. B) 27.36 days.
  3. C) 20.53 days.
  4. D) 17.49 days.

Answer:  C

Diff: 2      Page Ref: 112

Keywords:  Average Collection Period

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

73) Based on the information in Table 4-3, the operating return on total assets is

  1. A) 55.62%.
  2. B) 10.06%.
  3. C) 44.74%.
  4. D) 33.33%.

Answer:  D

Diff: 2      Page Ref: 117

Keywords:  Operating Return on Assets, EBIT

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

74) Based on the information in Table 4-3, the operating profit margin is

  1. A) 13.75%.
  2. B) 18.59%.
  3. C) 25.80%.
  4. D) 33.33%.

Answer:  A

Diff: 2      Page Ref: 118

Keywords:  Operating Profit Margin, EBIT

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

75) Based on the information in Table 4-3, the total asset turnover is

  1. A) 2.10 times.
  2. B) 2.42 times.
  3. C) 2.87 times.
  4. D) 3.25 times.

Answer:  B

Diff: 2      Page Ref: 119

Keywords:  Total Asset Turnover

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

76) Based on the information in Table 4-3, the debt ratio is

  1. A) 18.38%.
  2. B) 40.24%.
  3. C) 48.48%.
  4. D) 53.43%.

Answer:  C

Diff: 2      Page Ref: 123

Keywords:  Debt Ratio

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

77) Based on the information in Table 4-3, the current and acid-test ratios are, respectively,

  1. A) 2.37 and 1.39.
  2. B) 2.37 and 1.27.
  3. C) 2.18 and 1.39.
  4. D) 2.18 and 1.27.

Answer:  D

Diff: 2      Page Ref: 111, 112

Keywords:  Current Ratio, Quick Ratio

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

78) Based on the information in Table 4-3, assuming that the firm has no preferred stock, and paid $300,000 in common dividends, the firm's return on equity was

  1. A) 79.43%.
  2. B) 61.89%.
  3. C) 43.34%.
  4. D) 33.53%.

Answer:  D

Diff: 2      Page Ref: 126

Keywords:  Return on Equity

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

79) Which of the following financial ratios is the best measure of the operating effectiveness of a firm's management?

  1. A) times interest earned
  2. B) net profit margin
  3. C) operating return on assets
  4. D) operating efficiency quotient

Answer:  C

Diff: 2      Page Ref: 117

Keywords:  Operating Return on Assets

Learning Obj.:  L.O. 4.2

AACSB:  Reflective Thinking


Please refer to Table 4-4 for the following questions.

 

Table 4-4

                                                      Wes Donnell, Inc.

                                                          Balance Sheet

 

2009

 

2010

Cash

$2,500

 

$?????

Accounts receivable

6,000

 

7,000

Inventories

8,500

 

9,000

Land

7,000

 

7,000

Other fixed assets

15,000

 

15,500

Accumulated depreciation

(5,000)

 

(6,000)

Total assets

$34,000

 

$?????

 

 

 

 

Accounts payable

$4,000

 

$5,000

Bonds

6,000

 

6,500

Common stock

15,000

 

15,000

Retained earnings

9,000

 

?????

Liabilities & Equity

$34,000

 

$?????

 

                          Wes Donnell, Inc.

                         Income Statement

        For the year ended December 31, 2010

 

Sales

$100,000

Cost of goods sold

(70,000)

Gross profit

30,000

Operating expenses

(16,000)

Depreciation

(1,000)

EBIT

13,000

Interest expense

(500)

EBT

12,500

Taxes

(1,900)

Net Income

$10,600

 

80) In addition to the information contained in Table 4-4, you know that the current ratio for 2010 is 4 and that the corporation paid $11,600 in dividends in 2010. What is Wes Donnell's retained earnings balance for 2010?

  1. A) $10,000
  2. B) $8,000
  3. C) $19,600
  4. D) $2,600

Answer:  B

Diff: 2      Page Ref: 111

Keywords:  Dividends, Retained Earnings

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

81) In addition to the information contained in Table 4-4, you know that the current ratio for 2010 is 4 and that the corporation paid $11,600 in dividends in 2010. What is Wes Donnell's inventory turnover for 2010?

  1. A) 0.13
  2. B) 11.1
  3. C) 9.3
  4. D) 7.78

Answer:  D

Diff: 2      Page Ref: 114

Keywords:  Inventory Turnover

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

82) In addition to the information contained in Table 4-4, you know that the current ratio for 2010 is 4 and that the corporation paid $11,600 in dividends in 2010. What is Wes Donnell's total asset balance for 2010?

  1. A) $42,500
  2. B) $36,500
  3. C) $38,500
  4. D) $26,900

Answer:  B

Diff: 2      Page Ref: 111

Keywords:  Total Assets, Balance Sheet Equation, Current Ratio

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

83) In addition to the information contained in Table 4-4, you know that the current ratio for 2010 is 4 and that the corporation paid $11,600 in dividends in 2010. What is Wes Donnell's cash balance for 2010?

  1. A) $2,500
  2. B) $13,600
  3. C) $4,000
  4. D) $6,500

Answer:  C

Diff: 2      Page Ref: 111

Keywords:  Cash, Balance Sheet Equation, Current Ratio

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

84) Apollo Corp. reported the following balance sheet:

 

Cash

$28,000

 

Accounts payable

$5,000

Accounts receivable

15,000

 

Notes Payable

12,000

Inventory

45,000

 

Accruals

17,000

Net Fixed Assets

122,000

 

Long-Terms Debt

45,000

 

 

 

Common Stock

10,000

 

 

 

Retained Earnings

121,000

Total assets

$210,000

 

Total Liab. & Equity

$210,000

 

Apollo Corp.'s current ratio is

  1. A) 2.59.
  2. B) 2.74.
  3. C) 2.98.
  4. D) 3.88.

Answer:  A

Diff: 3      Page Ref: 111

Keywords:  Current Ratio, Current Assets, Current Liabilities

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

85) Apollo Corp. reported the following balance sheet:

 

Cash

$28,000

 

Accounts payable

$5,000

Accounts receivable

15,000

 

Notes Payable

12,000

Inventory

45,000

 

Accruals

17,000

Net Fixed Assets

122,000

 

Long-Terms Debt

45,000

 

 

 

Common Stock

10,000

 

 

 

Retained Earnings

121,000

Total assets

$210,000

 

Total Liab. & Equity

$210,000

 

Apollo Corp.'s debt ratio is

  1. A) 32.17%.
  2. B) 37.62%.
  3. C) 39.45%.
  4. D) 42.95%.

Answer:  B

Diff: 2      Page Ref: 123

Keywords:  Debt Ratio, Total Liabilities

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

86) Apollo Corp. reported the following balance sheet:

 

Cash

$28,000

 

Accounts payable

$5,000

Accounts receivable

15,000

 

Notes Payable

12,000

Inventory

45,000

 

Accruals

17,000

Net Fixed Assets

122,000

 

Long-Terms Debt

45,000

 

 

 

Common Stock

10,000

 

 

 

Retained Earnings

121,000

Total assets

$210,000

 

Total Liab. & Equity

$210,000

                                                         

Apollo has sales of $600,000 and net income of $50,000. Apollo's return on equity is

  1. A) 5.00%.
  2. B) 50.00%.
  3. C) 38.17%.
  4. D) 41.13%.

Answer:  C

Diff: 2      Page Ref: 126

Keywords:  Return on Equity, Total Common Equity

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

87) Which of the following ratios would be the poorest indicator of how rapidly the firm's credit accounts are being collected?

  1. A) times interest earned
  2. B) average collection period
  3. C) accounts receivable turnover ratio
  4. D) cash conversion cycle

Answer:  A

Diff: 1      Page Ref: 124

Keywords:  Credit Policy, Cash Conversion Cycle, Average Collection Period, Accounts Receivable Turnover

Learning Obj.:  L.O. 4.2

AACSB:  Reflective Thinking

 

88) Septon Inc. has an average collection period of 74 days. What is the accounts receivable turnover ratio for Septon Inc.?

  1. A) 4.93
  2. B) 2.47
  3. C) 2.66
  4. D) 1.74

Answer:  A

Diff: 2      Page Ref: 112

Keywords:  Accounts Receivable Turnover, Average Collection Period

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

89) High Inc. has an accounts receivable turnover ratio of 7.3. Low Company has an accounts receivable turnover ratio of 5. Assuming that High and Low have the same sales level, which of the following statements is correct?

  1. A) High's average collection period is less than Low's.
  2. B) Low's average collection period is less than High's.
  3. C) High has a higher accounts receivable balance on average than does Low Company.
  4. D) Low Company has (on average) a lower accounts receivable balance than does High.

Answer:  A

Diff: 2      Page Ref: 112

Keywords:  Accounts Receivable Turnover, Average Collection Period

Learning Obj.:  L.O. 4.2

AACSB:  Reflective Thinking

 

90) Jeter Industries has an accounts receivable turnover ratio of 4.5. If Jeter has an accounts receivable balance of $100,000, what is Jeter's average daily credit sales?

  1. A) $745.23
  2. B) $1,232.88
  3. C) $22,222.22
  4. D) $1,893.45

Answer:  B

Diff: 3      Page Ref: 112

Keywords:  Accounts Receivable Turnover, Daily Credit Sales, Accounts Receivable

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

91) Acme Incorporated has a debt ratio of .42, noncurrent liabilities of $20,000 and total assets of $70,000. What is Acme's level of current liabilities?

  1. A) $8,400
  2. B) $9,400
  3. C) $12,348
  4. D) $10,600

Answer:  B

Diff: 3      Page Ref: 123

Keywords:  Debt Ratio, Balance Sheet Equation, Current Liabilities

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

92) WRJ has a debt ratio of .4, current liabilities of $18,000, and total assets of $120,000. What is the level of WRJ's total liabilities?

  1. A) $22,000
  2. B) $48,000
  3. C) $58,000
  4. D) $63,934

Answer:  B

Diff: 2      Page Ref: 123

Keywords:  Debt Ratio, Balance Sheet Equation, Total Liabilities

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

93) John Box Inc. has an annual interest expense of $30,000 and pays income tax equal to 40 percent of taxable income (EBT). John Box's times-interest-earned ratio is 4.2. What is John Box's net income?

  1. A) $96,000
  2. B) $57,000
  3. C) $126,000
  4. D) $57,600

Answer:  D

Diff: 3      Page Ref: 124

Keywords:  Net Income, Times Interest Earned Ratio

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

94) Standard Inc. has an annual interest expense of $40,000. If Standard's times-interest-earned ratio is 3.0, what is Standard's Earnings Before Taxes (EBT)?

  1. A) $47,000
  2. B) $80,000
  3. C) $120,000
  4. D) $160,000

Answer:  B

Diff: 3      Page Ref: 124

Keywords:  Times Interest Earned Ratio, Earnings Before Taxes

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking


Please refer to Table 4-5 for the following questions.

 

Table 4-5

                                                              Yen Inc.

                                                         Balance Sheet

 

2009

 

2010

Cash

$8,000  

 

$12,200

Accounts receivable

12,000

 

13,000

Inventories

9,000

 

10,000

Land

20,000

 

20,000

Other fixed assets

16,000

 

19,800    

Accumulated depreciation

(4,000)

 

(5,000)

Total assets

$61,000

 

$70,000

 

 

 

 

Accounts payable

$11,000

 

$12,000

Long-term Bonds

24,000

 

24,000

Common stock

14,000

 

14,000

Retained earnings

12,000

 

20,000

Liabilities & Equity

$61,000

 

$70,000

 

                                Yen Inc.

                       Income Statement

      For the year ended December 31, 2010

Sales

$196,000 

Cost of goods sold

(140,000)

Gross profit

$56,000

Operating expenses

                   (26,000)

Depreciation

(2,000)

EBIT

28,000

Interest expense

(2,000)

EBT

26,000

Taxes

(9,000)

Net Income

$17,000

 

95) Based on the information contained in Tables 4-5, what was the total amount of Yen's common stock dividend for 2010?

  1. A) $17,000
  2. B) $12,800
  3. C) $9,000
  4. D) $8,000

Answer:  C

Diff: 2      Page Ref: 126

Keywords:  Common Stock Dividends, Retained Earnings

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

96) Based on the information contained in Tables 4-5, what was Yen's quick ratio at the end of 2010?

  1. A) 2.10
  2. B) 1.43
  3. C) 2.93
  4. D) 1.79

Answer:  A

Diff: 2      Page Ref: 112

Keywords:  Quick Ratio

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

97) Based on the information contained in Tables 4-5, what was Yen's return on common equity for 2010?

  1. A) 50.0%
  2. B) 85.0%
  3. C) 121.4%
  4. D) 24.3%

Answer:  A

Diff: 2      Page Ref: 126

Keywords:  Return on Equity

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

98) Based on the information contained in Tables 4-5, what was Yen's operating profit margin for 2010?

  1. A) 26.50%
  2. B) 21.34%
  3. C) 14.29%
  4. D) 11.67%

Answer:  C

Diff: 2      Page Ref: 118

Keywords:  Operating Profit Margin

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

99) Which of the following does NOT provide an indication of liquidity?

  1. A) quick ratio
  2. B) debt ratio
  3. C) inventory turnover
  4. D) average collection period

Answer:  B

Diff: 1      Page Ref: 111

Keywords:  Liquidity, Quick Ratio, Inventory Turnover, Average Collection Period

Learning Obj.:  L.O. 4.2

AACSB:  Reflective Thinking

 

100) WPM, Inc. has current assets of $8,000,000, current liabilities of $4,000,000, inventory of $1,320,000, and sales of $12,000,000. What is the acid test ratio?

  1. A) 2.0
  2. B) 1.67
  3. C) 0.22
  4. D) 0.1

Answer:  B

Diff: 2      Page Ref: 112

Keywords:  Acid-test Ratio

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

101) An inventory turnover ratio of 7.2 compared to an industry average of 5.1 is likely to indicate that

  1. A) the firm has higher sales than the industry average.
  2. B) the firm is selling a product mix that includes more high margin items.
  3. C) the firm is managing its inventory inefficiently.
  4. D) the firm's products are in inventory for fewer days before they are sold than is average for the industry.

Answer:  D

Diff: 2      Page Ref: 114

Keywords:  Inventory Turnover Ratio

Learning Obj.:  L.O. 4.2

AACSB:  Reflective Thinking

 

102) A firm that wants to know if it has enough cash to meet its bills would be most likely to use which kind of ratio?

  1. A) liquidity
  2. B) leverage
  3. C) efficiency
  4. D) profitability

Answer:  A

Diff: 1      Page Ref: 111

Keywords:  Liquidity Ratios

Learning Obj.:  L.O. 4.2

AACSB:  Reflective Thinking

 

103) Which of the following ratios would be the most useful to assess the risk associated with a firm being able to pay off its short-term line of credit?

  1. A) return on equity
  2. B) the acid test ratio
  3. C) the operating profit margin
  4. D) the fixed asset turnover

Answer:  B

Diff: 2      Page Ref: 112

Keywords:  Liquidity, Acid Test Ratio

Learning Obj.:  L.O. 4.2

AACSB:  Reflective Thinking

 

104) During the past year the growth corporation increased its sales from $1,000,000 to $2,000,000 and its EBIT from $250,000 to $400,000. The result of this growth will be

  1. A) a higher operating profit margin and higher net income.
  2. B) a lower operating profit margin and lower net income.
  3. C) a lower operating profit margin and higher net income.
  4. D) a higher P/E ratio.

Answer:  C

Diff: 2      Page Ref: 118

Keywords:  Operating Profit Margin, Net Income

Learning Obj.:  L.O. 4.2

AACSB:  Reflective Thinking

 

105) RBW Corp. has cash of $48,000; short-term notes payable of $35,000, accounts receivable of $100,000; accounts payable of $120,000; inventories of $200,000; and accruals of $90,000. What is RBW's current ratio?

  1. A) 1.57
  2. B) 2.71
  3. C) 1.42
  4. D) 0.64

Answer:  C

Diff: 2      Page Ref: 111

Keywords:  Current Ratio, Current Assets, Current Liabilities

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

106) Which of the following ratios would be the best way to determine how customers are paying for their purchases?

  1. A) inventory turnover
  2. B) total asset turnover
  3. C) current ratio
  4. D) average collection period

Answer:  D

Diff: 1      Page Ref: 112

Keywords:  Average Collection Period

Learning Obj.:  L.O. 4.2

AACSB:  Reflective Thinking

 

107) Rural Hydroponics has total equity of $560,000; sales of $2,250,000; current assets of $700,000; and total liabilities of $435,000. What is Rural Hydroponics' total asset turnover?

  1. A) 4.02
  2. B) 3.21
  3. C) 2.26
  4. D) 5.51

Answer:  C

Diff: 2      Page Ref: 119

Keywords:  Total Asset Turnover, Balance Sheet Equation

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

108) TransSystems Inc. has a total equity of $560,000; sales of $2,250,000; total assets of $995,000; and current liabilities of $310,000. What is TransSystems Inc.'s debt ratio?

  1. A) 55.4%
  2. B) 43.7%
  3. C) 31.2%
  4. D) 66.7%

Answer:  B

Diff: 2      Page Ref: 123

Keywords:  Debt Ratio, Balance Sheet Equation

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

109) SNL has sales of $2,250,000; a gross profit of $825,000; total operating costs of $620,000; income taxes of $74,800; total assets of $995,000; and interest expense of $18,000. What is SNL's times-interest-earned ratio?

  1. A) 1.3
  2. B) 11.4
  3. C) 8.1
  4. D) 45.8

Answer:  B

Diff: 2      Page Ref: 124

Keywords:  Times Interest Earned, EBIT

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

110) Which of the following has the most significant influence on return on equity?

  1. A) common dividends
  2. B) principal payments
  3. C) accruals
  4. D) operating income

Answer:  D

Diff: 1      Page Ref: 126

Keywords:  Return on Equity

Learning Obj.:  L.O. 4.2

AACSB:  Reflective Thinking

 

111) Denver Systems has total assets of $1,000,000; common equity of $400,000; a gross profit of $800,000; total operating expenses of $620,000; interest expense of $20,000; income taxes of $74,000; and preferred dividends of $30,000. What is Denver Systems' return on equity?

  1. A) 7.5%
  2. B) 20.0%
  3. C) 21.5%
  4. D) 14.0%

Answer:  D

Diff: 2      Page Ref: 126

Keywords:  Return on Equity, Income Statement, Net Income

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

112) Assume that a firm issues a six-month note to purchase inventory. Which of the following is true if the current ratio before the purchase is 1.0?

  1. A) The firm's current ratio must decrease.
  2. B) The firm's quick ratio will stay the same.
  3. C) The firm's current ratio will increase.
  4. D) The firm's quick ratio might decrease.

Answer:  D

Diff: 2      Page Ref: 111

Keywords:  Current Ratio, Quick Ratio

Learning Obj.:  L.O. 4.2

AACSB:  Reflective Thinking

 

113) Which of the following is true if a firm wishes to collect its accounts faster by imposing stricter credit terms on its customers?

  1. A) The firm's average collection period is likely to fall.
  2. B) The firm's accounts receivable turnover might rise.
  3. C) The firm's sales might decrease.
  4. D) all of the above

Answer:  D

Diff: 2      Page Ref: 112

Keywords:  Credit Policy, Accounts Receivable Turnover, Average Collection Period

Learning Obj.:  L.O. 4.2

AACSB:  Reflective Thinking

 

114) Bill's Bike Shop has a return on assets of 12%. Anton's assets = $100 while Anton's owner's equity = $40 and its debt equals $60. What is Bill's return on equity?

  1. A) 18%
  2. B) 20%
  3. C) 30%
  4. D) 12%

Answer:  C

Diff: 2      Page Ref: 126

Keywords:  Return on Equity, Return on Assets

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

115) All of the following will improve a firm's liquidity position EXCEPT

  1. A) increase accounts receivable turnover.
  2. B) increase inventory turnover.
  3. C) increase the average collection period.
  4. D) increase long-term debt and invest the money in marketable securities.

Answer:  C

Diff: 2      Page Ref: 112

Keywords:  Liquidity, Average Collection Period

Learning Obj.:  L.O. 4.2

AACSB:  Reflective Thinking

 

116) A company borrows $10,000 and puts the money into its checking account. This transaction will increase the company's current ratio if prior to the transaction the company's current ratio was

  1. A) equal to one.
  2. B) greater than one.
  3. C) less than one.
  4. D) greater than or less than one, but not equal to one.

Answer:  C

Diff: 2      Page Ref: 111

Keywords:  Current Ratio

Learning Obj.:  L.O. 4.2

AACSB:  Reflective Thinking

 

117) Blanton Corporation increased its financial leverage during 2010 by taking out a loan and using the proceeds to buy back common stock. At the end of 2010, the corporation reported higher earnings per share and higher return on equity. However, its stock price declined. Discuss why this may happen.

Answer:  Financial leverage is a double-edged sword. While it may result in an increase in ROE and EPS, it may also increase the riskiness of the company. Given the principal of a risk-return trade-off, the increase in return may not be sufficient to offset the increase in risk, and the price may decrease. Also, stock prices are determined by many factors beyond accounting information, such as competitors' actions, the level of interest rates, consumer confidence, etc. Therefore, even if the financial leverage by itself had a positive impact on the stock price, other unidentified factors may have caused the price to go down.

Diff: 2      Page Ref: 126

Keywords:  Return on Equity

Learning Obj.:  L.O. 4.2

AACSB:  Reflective Thinking


Please refer to Table 4-6 for the following question.

 

Table 4-6

Financial Data for Springfield Power Co. as of December 31, 2010:

 

Inventory

$300,000

Long-term debt

500,000

Interest expense

25,000

Accumulated depreciation

450,000

Cash

280,000

Net sales (all credit)

1,800,000

Common stock

900,000

Accounts receivable

325,000

Operating expense (incl. depr. exp. and taxes)

625,000

Notes payable-current

200,000

Cost of goods sold

1,100,000

Plant and equipment

1,400,000

Accounts payable

180,000

Marketable securities

80,000

Accrued wages

45,000

Retained earnings

190,000

 

118) From the information presented in Table 4-6, calculate the following ratios for the Springfield Power Co.

  1. current ratio
  2. acid test ratio

iii.    average collection period

  1. inventory turnover
  2. gross profit margin
  3. operating profit margin

vii.   net profit margin

viii.  total asset turnover

Answer: 

  1. Current ratio = (300 + 280 + 325 + 80)/(200 + 180 + 45) = 2.32
  2. Acid test ratio = (280 + 325 + 80)/(200 + 180 +465) = 1.61

iii.     Average collection period = 325,000/(1,800,000/365 days) = 65.9 days

  1. Inventory turnover = 1,100,000/300,000 =3.67
  2. Gross profit margin = (1,800,000 —1,100,000)/1,800,000 = 0.389
  3. Operating profit margin = (1,800,000 — 1,100,000 — 625,000 )/1,800,000 = $75,000/$1,800,000 = 0.042

vii.    Net profit margin = (1,800,000 — 1,100,000 — 625,000 — 25,000)/1,800,000 =        $50,000/$1,800,000 = 0.028

viii.   Total asset turnover = $1,800,000/$2,385,000 = 0.755

Diff: 2      Page Ref: 111-119

Keywords:  Ratio Analysis

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

Please refer to Table 4-7 for the following question.

 

Table 4-7

                        Hokie Corporation Comparative Balance Sheet

                      For the Years Ending December 31, 2009 and 2010

                                                (Millions of Dollars)

Assets

2009

 

2010

Current Assets:

 

 

 

Cash

$2

 

$10

Accounts receivable

16

 

12

Inventory

22

 

26

Total current assets

$40

 

$48

 

 

 

 

Gross fixed assets:

$120

 

$124

Less accumulated depreciation

(60)

 

(64)

Net fixed assets

60

 

60

Total assets

$100

 

$108

 

 

 

 

Liabilities and owners' equity:

 

 

 

Current liabilities:

 

 

 

Accounts payable

$16

 

$18

Notes payable

10

 

10

Total current liabilities

$26

 

$28

 

 

 

 

Long-term debt

20

 

18

 

 

 

 

Owners' equity:

 

 

 

Common stock

40

 

40

Retained earnings

14

 

22

 

 

 

 

Total liabilities and owners' equity

$100

 

$108

 

Hokie had net income of $28 million for 2010 and paid total cash dividends of $20 million to their common stockholders.

 

119) Calculate the following 2010 financial ratios of Aggie Corporation using the information given in Table 4-7:

  1. current ratio
  2. acid test ratio

iii.   debt ratio

  1. return on total assets
  2. return on common equity

 

Answer: 

  1. Current ratio = $48/$28 = 1.71
  2. Acid Test ratio = $22/$28 = 0.79

iii.   Debt ratio = $46/$108 = 0.426

  1. Return on total assets = $28/$108 = 0.259
  2. Return on Common Equity = $28/$62 = 0.45

Diff: 2      Page Ref: 111-128

Keywords:  Ratio Analysis

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

120) Beverly Corp. had total sales of $1,200,000 in 2010 (80 percent of its sales are credit). The company's gross profit margin is 25 percent, its ending inventory is $150,000, and its accounts receivable balance is $90,000. What additional amount of cash could the firm have generated if it had increased its inventory turnover ratio to 9.0 and reduced its average collection period to 28.21875 days?

Answer:  Currently, cost of goods sold is $900,000 and inventory turnover is 6. To increase inventory turnover to 9, the inventory balance would need to decrease to $100,000, or a decrease of $50,000, resulting in additional cash of $50,000.

Diff: 3      Page Ref: 112-114

Keywords:  Inventory Turnover Ratio, Average Collection Period, Cash

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

121) Complete the following balance sheet using the information given. Round account balances to the nearest dollar.

 

Balance Sheet

 

 

Income Statement

 

 

 

 

 

 

Cash

 

 

Sales (All Credit)

$20,000

Accounts receivable

 

 

Cost of goods sold

10,000

Inventory

 

 

Operating expenses

6,000

Net fixed assets

 

 

Interest expense

100

Total assets

 

 

Taxes

1,365

 

 

 

Net income

$2,535

Accounts payable

 

 

 

 

Short-term notes payable

$1,425

 

Ratios:

 

Long-term debt

 

 

Profit Margin =

12.675%

Common stock

$5,000

 

Return on Equity =

15%

Retained earnings

 

 

Quick Ratio =

1.2

Total Liabilities and equity

 

 

Return on Total Assets =

10%

 

 

 

Fixed Asset Turnover =

1.6

 

 

 

Current Ratio =

2

 

 

 

Days Sales Outstanding =

45

 

Answer: 

  1. Solve for common equity using ROE: Common Equity = $16,900
  2. Retained Earnings = Common Equity — Common Stock = $11,900
  3. Solve for total assets using ROA: Total Assets = $25,350
  4. Total Liabilities & Equity = Total Assets = $25,350
  5. Solve for net fixed assets using fixed asset turnover: NFA = $12,500
  6. Current Assets = Total Assets — Net Fixed Assets = $12,850
  7. Solve for current liabilities using the current ratio: Current Liabilities = $6,425
  8. Accounts Payable = Current Liabilities — Short-term Notes Payable = $5,000
  9. Plug Long-term Debt: $2,025
  10. Use the quick ratio to find inventory: Inventory = $5,140
  11. Use the days sales outstanding ratio to find accounts receivable: AR = $2,466
  12. Plug the cash figure: Cash = $5,244

Diff: 3      Page Ref: 136

Keywords:  Ratio Analysis, Balance Sheet Equation

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

122) Complete the following balance sheet using the information given. Round account balances to the nearest dollar.

 

Balance Sheet

 

 

Income Statement

 

 

 

 

 

 

Cash

 

 

Sales (All Credit)

$16,000

Accounts receivable

 

 

Cost of goods sold

11,000

Inventory

 

 

Operating expenses

1,000

Net fixed assets

 

 

Interest expense

200

Total assets

$20,000

 

Taxes

1,000

 

 

 

Net income

$2,800

Accounts payable

 

 

 

 

Short-term notes payable

$1,000

 

Ratios:

 

Long-term debt

 

 

Operating Profit Margin =

25%

Common stock

$1,500

 

Return on Equity =

20%

Retained earnings

 

 

Quick Ratio =

31.9375

Total Liabilities and equity

 

 

Fixed Asset Turnover =

2

 

 

 

Current Ratio =

5

 

 

 

Days Sales Outstanding =

2

 

Answer: 

  1. Use the return on equity to calculate common equity: CE = $14,000
  2. Retained earnings = common equity - common stock = $12,500
  3. Use fixed asset turnover to calculate fixed assets: FA = $8,000
  4. Total liabilities and equity = total assets = $20,000
  5. Use the inventory turnover ratio to find inventory: INV = $2,200
  6. Use average collection period to calculate accounts receivable: A/R = $1,400
  7. Plug cash = $8,400
  8. Current assets = cash + accounts receivable + inventory = $12,000
  9. Use the current ratio to solve for current liabilities: CL = $6,000
  10. Accounts payable = current liabilities - short-term notes payable = $5,000
  11. Plug long-term debt = $0

Diff: 2      Page Ref: 136

Keywords:  Ratio Analysis, Balance Sheet Equation

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

123) a. Using the financial statements for GMT Enterprises for 2010 (given below), calculate the return on equity, the debt ratio, and the times interest earned ratio.

  1. Suppose the industry average debt ratio is 50%. Give one reason why the debt ratio for GMT Enterprises may be considered favorable, and give one reason why the debt ratio for GMT Enterprises may be considered unfavorable.

 

                        GMT Enterprises

                 2010 Financial Statements

           

Income Statement ($)

 

 

 

Sales

10,000

Operating expenses

8,200

EBIT

1,800

Interest expense

100

EBT

1,700

Taxes (40%)

680

Net income

1,020

 

 

Balance Sheet ($)

 

 

 

Current assets

1,500

Fixed assets

4,000

Total assets

5,500

 

 

Accounts payable

900

Accruals

600

Long-term debt

400

Common stock

2,100

Retained earnings

1,500

Total liabilities & equity

5,500

 

Answer: 

a.

ROE = $1,020/$3,600 = 28.33%

Debt Ratio = $1,900/$5,500 = .345

Times Interest Earned = $1,800/$100 = 18

 

b.

Favorable: lower debt means lower fixed payments, lower risk, more flexibility, and higher value; Unfavorable: lower debt means less leverage and lower return on equity

Diff: 2      Page Ref: 136

Keywords:  Return on Equity, Debt Ratio, Times Interest Earned, Leverage, Risk-Return Tradeoff

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

124) The balance sheet and income statement for Johnson and Breakwater is presented below.

 

Balance Sheet (000)

 

Cash

$500

Accounts receivable

1,500

Inventories

500

Current assets

2,500

Net fixed assets

5,000

Total Assets

7,500

 

 

Accounts payable

1,200

Bank note

300

Total current liabilities

1,500

long-term debt

4,000

Common stock

300

Retained earnings

1,700

Total liabilities and owners' equity

$7,500

 

 

Income Statement (000)

 

Net sales

$8,500

Cost of goods sold

(3,400)

Gross profit

5,100

Operating expenses

(2,900)

Net operating income

2,200

Interest expense

(580)

Earnings before taxes

1,620

Income tax (34%)

(551)

Net income

$1,069

 

  1. Compute the following ratios: Current ratio, Acid test ratio, Debt ratio, Total asset turnover, Operating profit margin, Return on total investments, Times interest earned, Inventory turnover.
  2. All other things equal, compute the dollar amount of sales needed to achieve an 18% return on total assets for the coming year.
  3. Given Johnson's inventory turnover ratio, find a way of computing the current level of inventory given this ratio and assuming the current level of inventories is unknown. Set up but do not solve.

Answer: 

  1. Current ratio 0.67

       Acid test ratio                              1.33

       Debt ratio                                     0.73

       Total asset turnover                   1.13

       Operating profit margin            0.26

       Return on total assets                0.14

       Times interest earned                3.79

       Inventory turnover                     6.80

 

  1. .18 = .13 × sales/7500

       1.3846 = sales/7500

       sales = $10,384,620

 

  1. 6.8 = 3400/inventories

Diff: 2      Page Ref: 136

Keywords:  Ratio Analysis

Learning Obj.:  L.O. 4.2

AACSB:  Analytical Thinking

 

Learning Objective 4.3

 

1) Financial ratios are used by personnel in marketing, human resources, and other groups within a firm, not just by the finance and accounting personnel.

Answer:  TRUE

Diff: 1      Page Ref: 138

Keywords:  Ratio Analysis, Usefulness

Learning Obj.:  L.O. 4.3

AACSB:  Reflective Thinking

 

2) It is commonly accepted that the industry average for a ratio is the ideal goal for a financial manager to achieve.

Answer:  FALSE

Diff: 1      Page Ref: 138

Keywords:  Ratio Analysis, Industry Average

Learning Obj.:  L.O. 4.3

AACSB:  Reflective Thinking

 

3) Seasonality causes comparability problems in ratio analysis. A common solution is to use an average account balance as opposed to an ending account balance.

Answer:  TRUE

Diff: 1      Page Ref: 138

Keywords:  Seasonality, Ratio Analysis

Learning Obj.:  L.O. 4.3

AACSB:  Reflective Thinking

 

4) Seasonality is introduced into financial ratios by averaging monthly account balances, and thus it is recommended that ending account balances be used.

Answer:  FALSE

Diff: 1      Page Ref: 138

Keywords:  Seasonality, Ratio Analysis

Learning Obj.:  L.O. 4.3

AACSB:  Reflective Thinking

 

 

5) Discuss five limitations to ratio analysis.

Answer:  There are six limitations discussed in the text:

  1. Industry identification is difficult.
  2. Industry averages are only approximations.
  3. Accounting practices differ widely among firms.
  4. Financial ratios can be too high or too low (e.g. current ratio).
  5. The industry average may not be ideal.
  6. Seasonality in firm operations causes ratios to vary with seasons.

Diff: 1      Page Ref: 138

Keywords:  Ratio Analysis, Limitations

Learning Obj.:  L.O. 4.3

AACSB:  Reflective Thinking

6) How could an analyst determine whether a company's ratio is good or bad?

Answer:  Two common benchmarks provide comparisons for determining whether a ratio is good or bad, relatively speaking. They are:

 

  1. Comparing a firm's ratios against its own ratios over time. This provides a means to determine what trends might be present.
  2. Comparing a firm against an industry average may provide a comparison of the firm's ratios against peer firms.

 

A firm's ratios may also be compared to targets or goals stated by the firm's management, such as "we expect to increase or return on equity to 15% next year."

Diff: 1      Page Ref: 138

Keywords:  Ratio Analysis, Benchmarks, Trend Analysis

Learning Obj.:  L.O. 4.3

AACSB:  Reflective Thinking

 

 

7) When comparing a firm to its peers, why is it difficult to determine the industry to which the firm belongs? Why should you be careful when comparing a firm with industry norms?

Answer: 

  1. It is sometimes difficult to determine the industry to which a firm belongs when the firm engages in multiple lines of business. In this case, you must select your own set of peer firms and construct your own norms.
  2. Published peer group or industry averages are only approximations. They provide the user with general guidelines, rather than scientifically determined averages of the ratios for all, or even a representative sample, of the firms within an industry.
  3. An industry average is not necessarily a desirable target ratio or norm. There is nothing magical about an industry norm. At best, an industry average provides an indication as to the financial position of the average firm within the industry. It does not mean it is the ideal or best value for the ratio. For various reasons, a well-managed company might be above the average, whereas another equally good firm might choose to be below the average.
  4. Accounting practices differ widely among firms. For example, different firms choose different methods to depreciate their fixed assets. Differences such as these can make the computed ratios of different firms difficult to compare.

Diff: 3      Page Ref: 138

Keywords:  Ratio Analysis, Industry Average

Learning Obj.:  L.O. 4.3

AACSB:  Reflective Thinking

 

8) Why do differences in the accounting practices of firms limit the usefulness of financial ratios?

Answer: 

  1. Accounting practices differ widely among firms. For example, different firms choose different methods to depreciate their fixed assets. Differences such as these can make the computed ratios of different firms difficult to compare.
  2. Financial ratios can be too high or too low relative to the industry average for a reason.
  3. Many firms experience seasonal changes in their operations. As a result, their balance sheet entries and their corresponding ratios will vary with the time of year the statements are prepared. To avoid this problem, an average account balance should be used (one calculated on the basis of several months or quarters during the year) rather than the year-end account balance.

Diff: 3      Page Ref: 138

Keywords:  Ratio Analysis, Limitations

Learning Obj.:  L.O. 4.3

AACSB:  Reflective Thinking

 

 

 

 

 

 

 

 

 

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Key Contents: Financial Management and Corporate Finance
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Financial Management: Core Concepts, 3rd Edition, 2016, Raymond Brooks, Oregon State University
Financial Management: Concepts and Applications, 2015, Stephen Foerster, Richard Ivey School of Business, University of Western Ontario
Financial Management: Principles and Applications, 12th Edition, 2015, Sheridan Titman, Arthur J. Keown
International Financial Management, 2nd Edition, 2012, Geert J Bekaert, Columbia University, Robert J. Hodrick, Columbia University
------
Corporate Finance, 4th Edition, 2017, Jonathan Berk, Stanford University, Peter DeMarzo, Stanford University
Corporate Finance: The Core, 4th Edition, 2017, Jonathan Berk, Stanford University, Peter DeMarzo, Stanford University
Excel Modeling in Corporate Finance, 5th Edition, 2015, Craig W. Holden, Indiana University
Fundamentals of Corporate Finance, 3rd Edition, 2015, Jonathan Berk, Stanford University, Peter DeMarzo, Stanford University, Jarrad Harford, University of Washington

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Fundamentals of Investing, 13th Edition, Scott B. Smart, Lawrence J. Gitman, Michael D. Joehnk, 2017
Multinational Business Finance, 14th Edition, David K. Eiteman, Arthur I. Stonehill, Michael H. Moffett, 2016
Personal Finance, 6th Edition, 2017, Jeff Madura, Emeritus Professor of Finance; Florida Atlantic University
Personal Finance: Turning Money into Wealth, 7th Edition, 2016, Arthur J. Keown, Virginia Polytechnic Instit. and State University
Foundations of Finance, 9th Edition, 2017, Arthur J. Keown, John H. Martin
Principles of Managerial Finance, 14th Edition, 2015, Lawrence J. Gitman, Chad J. Zutter
------
Part 1: Fundamental Concepts and Basic Tools of Finance
1. Financial Management
2. Financial Statements
3. The Time Value of Money (Part 1)
4. The Time Value of Money (Part 2)
5. Interest Rates
Part 2: Valuing Stocks and Bonds and Understanding Risk and Return
6. Financial Management Bonds and Bond Valuation
7. Stocks and Stock Valuation
8. Risk and Return
Part 3: Capital Budgeting
9: Capital Budgeting Decision Models
10: Cash Flow Estimation
11: The Cost of Capital
Part 4: Financial Planning and Evaluating Performance
12. Forecasting and Short-Term Financial Planning
13. Working Capital Management
14. Financial Ratios and Firm Performance
Part 5: Other Selected Finance Topics
15. Raising Capital
16. Capital Structure
17. Dividends, Dividend Policy, and Stock Splits
18. International Financial Management
Appendix 1 Future Value Interest Factors
Appendix 2 Present Value Interest Factors
Appendix 3 Future Value Interest Factors of an Annuity
Appendix 4 Present Value Interest Factors of an Annuity
Appendix 5 Answers to Prepping for Exam Questions
------
1. Overview of Financial Management
2. Sizing Up a Business: A Non-Financial Perspective
3. Understanding Financial Statements
4. Measuring Financial Performance
5. Managing Day-To-Day Cash Flow
6. Projecting Financial Requirements and Managing Growth
7. Time Value of Money Basics and Applications
8. Making Investment Decisions
9. Overview of Capital Markets: Long-Term Financing Instruments
10. Assessing the Cost of Capital: What Investors Require
11. Understanding Financing and Payout Decisions
12. Designing an Optimal Capital Structure
13. Measuring and Creating Value
14. Comprehensive Case Study: Wal-Mart Stores, Inc.

1. Overview of Financial Management
• 1.1: Financial Management and the Cash Flow Cycle
• 1.2: The Role of Financial Managers
• 1.3: A Non-Financial Perspective of Financial Management
• 1.4: Financial Management’s Relationship with Accounting and Other Disciplines
• 1.5: Types of Firms
• 1.6: A Financial Management Framework
• 1.7: Relevance for Managers
• 1.8: Summary
• 1.9: Additional Readings
• 1.10: End of Chapter Problems
2. Sizing Up a Business: A Non-Financial Perspective
• 2.1: Sizing Up The Overall Economy
o 2.1.1: GDP Components
o 2.1.2: Sector-Related Fluctuations
o 2.1.3: Inflation and Interest Rates
o 2.1.4: Capital Markets
o 2.1.5: Economic Size-Up Checklist
• 2.2: Sizing Up the Industry
o 2.2.1: Industry Life Cycles
o 2.2.2: The Competitive Environment
o 2.2.3: Opportunities and Risks
o 2.2.4: Industry Size-up Checklist
• 2.3: Sizing Up Operations Management and Supply Risk
• 2.4: Sizing Up Marketing Management and Demand Risk
• 2.5: Sizing Up Human Resource Management and Strategy
• 2.6: Sizing Up Home Depot: An Example
• 2.7: Relevance for Managers
• 2.8 Summary
• 2.9: Additional Readings and Information
• 2.10: End of Chapter Problems
3. Understanding Financial Statements
• 3.1: Understanding Balance Sheets
o 3.1.1: Understanding Assets
o 3.1.2: Understanding Liabilities
o 3.1.3: Understanding Equity
• 3.2: Understanding Income Statements
o 3.2.1: Understanding Revenues, Costs, Expenses, and Profits
o 3.2.2: Connecting a Firm’s Income Statement and Balance Sheet
• 3.3: Understanding Cash Flow Statements
o 3.3.1: Cash Flows Related to Operating Activities
o 3.3.2: Cash Flows from Investing Activities
o 3.3.3: Cash Flows from Financing Activities
• 3.4: Relevance for Managers
• 3.5: Summary
• 3.6: Additional Readings and Sources of Information
• 3.7: End of Chapter Problems
4. Measuring Financial Performance
• 4.1: Performance Measures
o 4.1.1: Return on Equity
o 4.1.2: Profitability Measures
o 4.1.3: Resource Management Measures
o 4.1.4: Liquidity Measures
o 4.1.5: Leverage Measures
o 4.1.6: Application: Home Depot
• 4.2: Reading Annual Reports
• 4.3: Relevance for Managers
• 4.4: Summary
• 4.5: Additional Readings and Sources of Information
• 4.6: End of Chapter Problems
5. Managing Day-To-Day Cash Flow
• 5.1: Cash Flow Cycles
• 5.2: Working Capital Management
o 5.2.1: Managing Inventory
o 5.2.2: Managing Accounts Receivable
o 5.2.3: Managing Accounts Payable
o 5.2.4: Application: Home Depot
• 5.2.4.1: Orange Computers and Little Orange Computers
• 5.2.4.2: Home Depot
• 5.3: Short-Term Financing
o 5.3.1: Bank Loans
o 5.3.2: Commercial Paper
o 5.3.3: Banker’s Acceptance
• 5.4: Relevance for Managers
• 5.5: Summary
• 5.6: Additional Readings
• 5.7: End of Chapter Problems

6. Projecting Financial Requirements and Managing Growth
• 6.1: Generating Pro Forma Income Statements
o 6.1.1: Establishing the Cost of Goods Sold and Gross Profit
o 6.1.2: Establishing Expenses
o 6.1.3: Establishing Earnings
• 6.2: Generating Pro Forma Balance Sheets
o 6.2.1: Establishing Assets
o 6.2.2: Establishing Liabilities and Equity
• 6.3: Generating Pro Forma Cash Budgets
o 6.3.1: Establishing Cash Inflows
o 6.3.2: Establishing Cash Outflows
o 6.3.3: Establishing Net Cash Flows
• 6.4: Performing Sensitivity Analysis
o 6.4.1: Sales Sensitivity
o 6.4.1: Interest Rate Sensitivity
o 6.4.3: Working Capital Sensitivity
• 6.5: Understanding Sustainable Growth and Managing Growth
• 6.6: Relevance for Managers
• 6.7: Summary
• 6.8: Additional Readings and Resources
• 6.9: Problems

7. Time Value of Money Basics and Applications
• 7.1: Exploring Time Value of Money Concepts
o 7.1.1: Future Values
o 7.1.2: Present Values
o 7.1.3: Annuities
o 7.1.4: Perpetuities
• 7.2: Applying Time Value of Money Concepts to Financial Securities
o 7.2.1: Bonds
o 7.2.2: Preferred Shares
o 7.2.3: Common Equity
• 7.3: Relevance for Managers
• 7.4: Summary
• 7.5: Additional Readings
• 7.6: End of Chapter Problems

8. Making Investment Decisions
• 8.1: Understanding the Decision-Making Process
• 8.2: Capital Budgeting Techniques
o 8.2.1: Payback
• 8.2.1.1: Strengths and Weaknesses of the Payback Method
o 8.2.2: Net Present Value
• 8.2.2.1: Strengths and Weaknesses of the Net Present Value Method
o 8.2.3: Internal Rate of Return
• 8.2.3.1: Strengths and Weaknesses of the Internal Rate of Return Method
• 8.2.3.2: Modified Internal Rate of Return
• 8.3: Capital Budgeting Extensions
o 8.3.1: Profitability Index
o 8.3.2: Equivalent Annual Cost and Project Lengths
o 8.3.3: Mutually Exclusive Projects and Capital Rationing
• 8.4: Relevance for Managers
• 8.5: Summary
• 8.6: Additional Readings
• 8.7: End of Chapter Problems

9. Overview of Capital Markets: Long-Term Financing Instruments
• 9.1: Bonds
o 9.1.1: Changing Bond Yields
o 9.1.2: Bond Features
o 9.1.3: Bond Ratings
• 9.2: Preferred Shares
• 9.3: Common Shares
o 9.3.1: Historical Returns
• 9.4: Capital Markets Overview
o 9.4.1: Private versus Public Markets
o 9.4.2: Venture Capital and Private Equity
o 9.4.3: Initial Offerings versus Seasoned Issues
o 9.4.4: Organized Exchanges versus Over-The-Counter Markets
o 9.4.5: Role of Intermediaries
• 9.5: Market Efficiency
o 9.5.1: Weak Form
o 9.5.2: Semi-strong Form
o 9.5.3: Strong Form
o 9.5.4: U.S. Stock Market Efficiency
• 9.6: Relevance for Managers
• Appendix: Understanding Bond and Stock Investment Information
• 9.7: Summary
• 9.8: Additional Readings
• 9.9: End of Chapter Problems

10. Assessing the Cost of Capital: What Investors Require
• 10.1: Understanding the Cost of Capital: An Example
• 10.2: Understanding the Implications of the Cost of Capital
• 10.3: Defining Risk
• 10.4: Estimating the Cost of Debt
• 10.5: Estimating the Cost of Preferred Shares
• 10.6: Estimating the Cost of Equity
o 10.6.1: Dividend Model Approach
o 10.6.2: Capital Asset Pricing Model
• 10.6.2.1: Risk-Free Rate
• 10.6.2.2: Market Risk Premium
• 10.6.2.3: Beta
• 10.7: Estimating Component Weights
• 10.8: Home Depot Application
• 10.9: Hurdle Rates
• 10.10: Relevance for Managers
• 10.11: Summary
• 10.12: Additional Readings
• 10.13: Problems
11. Understanding Financing and Payout Decisions
• 11.1: Capital Structure Overview
• 11.2: Understanding the Modigliani-Miller Argument: Why Capital Structure Does Not Matter
• 11.3: Relaxing the Assumptions: Why Capital Structure Does Matter
o 11.3.1: Understanding the Impact of Corporate Taxes
o 11.3.2: Understanding the Impact of Financial Distress
o 11.3.3: Combining Corporate Taxes and Financial Distress Costs
o 11.3.4: Impact of Asymmetric Information
• 11.4: Understanding Payout Policies
o 11.4.1: Paying Dividends
o 11.4.2: Repurchasing Shares
o 11.4.3: Do Dividend Policies Matter?
• 11.5: Relevance for Managers
• 11.6: Summary
• 11.7: Additional Resources
• 11.8: End of Chapter Problems
• Appendix: Why Dividend Policy Doesn’t Matter: Example

12. Designing an Optimal Capital Structure
• 12.1: Factor Affecting Financing Decisions: The FIRST Approach
o 12.1.1: Maximizing Flexibility
o 12.1.2: Impact on EPS: Minimizing Cost
• 12.1.2.1: A Simple Valuation Model
• 12.1.2.2: Earnings before Interest and Taxes Break-Even: What Leverage Really Means
• 12.1.2.3: Does Issuing Equity Dilute the Value of Existing Shares?
o 12.1.3: Minimizing Risk
o 12.1.4: Maintaining Shareholder Control
o 12.1.5: Optimal Training
• 12.2: Tradeoff Assessment: Evaluating FIRST Criteria
• 12.3: Relevance for Managers
• 12.4: Summary
• 12.5: Additional Resource
• 12.6: End of Chapter Problems

13. Measuring and Creating Value
• 13.1: An Overview of Measuring and Creating Value
• 13.2: Measuring Value: The Book Value Plus Adjustments Method
o 13.2.1: Pros and Cons of the Book Value of Equity Plus Adjustments Method
• 13.3: Measuring Value: The Discount Cash Flow Analysis Method
o 13.3.1: Estimating Free Cash Flows
o 13.3.2: Estimating the Cost of Capital
o 13.3.3: Estimating the Present Value of Free Cash Flows
o 13.3.4: Estimating the Terminal Value
o 13.3.5: Estimating the Value of Equity
o 13.3.6: Pros and Cons of the Free Cash Flow to the Firm Approach
• 13.4: Measuring Value: Relative Valuations and Comparable Analysis
o 13.4.1: The Price-Earnings Method
• 13.4.1.1: Pros and Cons of the Price-Earnings Approach
o 13.4.2: The Enterprise Value-to-EBITDA Method
• 13.4.2.1: Pros and Cons of the EV/EBITDA Approach
• 13.5: Creating Value and Value-Based Management
• 13.6: Valuing Mergers and Acquisitions
o 13.6.1: Valuing Comparable M&A Transactions
• 13.7: Relevance for Managers
• 13.8: Summary
• 13.9: Additional Readings
• 13.10: End of Chapter Problems

14. Comprehensive Case Study: Wal-Mart Stores, Inc.
• 14.1: Sizing Up Wal-Mart
o 14.1.1: Analyzing the Economy
o 14.1.2: Analyzing the Industry
o 14.1.3: Analyzing Walmart’s Strengths and Weaknesses in Operations, Marketing, Management, and Strategy
• 14.1.3.1: Analyzing Walmart’s Operations
• 14.1.3.2: Analyzing Walmart’s Marketing
• 14.1.3.3: Analyzing Walmart’s Management and Strategy
o 14.1.4: Analyzing Walmart’s Financial Health
• 14.2: Projecting Walmart’s Future Performance
o 14.2.1: Projecting Walmart’s Income Statement
o 14.2.2: Projecting Walmart’s Balance Sheet
o 14.2.3: Examining Alternate Scenarios
• 14.3: Assessing Walmart’s Long-Term Investing and Financing
o 14.3.1: Assessing Walmart’s Investments
o 14.3.2: Assessing Walmart’s Capital Raising and the Cost of Capital
• 14.4: Valuing Walmart
o 14.4.1: Measuring Walmart’s Economic Value Added
o 14.4.2: Estimating Walmart’s Intrinsic Value: The DCF Approach
o 14.4.3: Estimating Walmart’s Intrinsic Value: Comparable Analysis
o 14.4.4: Creating Value and Overall Assessment of Walmart
• 14.5: Relevance for Managers and Final Comments
• 14.6: Additional Readings and Sources of Information
• 14.7: End of Chapter Problems
------
Part 1: Introduction to Financial Management
Chapter 1: Getting Started - Principles of Finance
Chapter 2: Firms and the Financial Market
Chapter 3: Understanding Financial Statements, Taxes, and Cash Flows
Chapter 4: Financial Analysis - Sizing Up Firm Performance
Part 2: Valuation of Financial Assets
Chapter 5: Time Value of Money - The Basics
Chapter 6: The Time Value of Money - Annuities and Other Topics
Chapter 7: An Introduction to Risk and Return - History of Financial Market Returns
Chapter 8: Risk and Return - Capital Market Theory
Chapter 9: Debt Valuation and Interest Rates
Chapter 10: Stock Valuation
Part 3: Capital Budgeting
Chapter 11: Investment Decision Criteria
Chapter 12: Analyzing Project Cash Flows
Chapter 13: Risk Analysis and Project Evaluation
Chapter 14: The Cost of Capital
Part 4: Capital Structure & Dividend Policy
Chapter 15: Capital Structure Policy
Chapter 16: Dividend Policy
Part 5: Liquidity Management & Special Topics in Finance
Chapter 17: Financial Forecasting and Planning
Chapter 18: Working Capital Management
Chapter 19: International Business Finance
Chapter 20: Corporate Risk Management
------
PART I: INTRODUCTION TO FOREIGN EXCHANGE MARKETS AND RISKS
Chapter 1: Globalization and the Multinational Corporation
Chapter 2: The Foreign Exchange Market
Chapter 3: Forward Markets and Transaction Exchange Risk
Chapter 4: The Balance of Payments
Chapter 5: Exchange Rate Systems
PART II: INTERNATIONAL PARITY CONDITIONS AND EXCHANGE RATE DETERMINATION
Chapter 6: Interest Rate Parity
Chapter 7: Speculation and Risk in the Foreign Exchange Market
Chapter 8: Purchasing Power Parity and Real Exchange Rates
Chapter 9: Measuring and Managing Real Exchange Risk
Chapter 10: Exchange Rate Determination and Forecasting

PART III: INTERNATIONAL CAPITAL MARKETS
Chapter 11: International Debt Financing
Chapter 12: International Equity Financing
Chapter 13: International Capital Market Equilibrium
Chapter 14: Political and Country Risk

PART IV: INTERNATIONAL CORPORATE FINANCE
Chapter 15: International Capital Budgeting
Chapter 16: Additional Topics in International Capital Budgeting
Chapter 17: Risk Management and the Foreign Currency Hedging Decision
Chapter 18: Financing International Trade
Chapter 19: Managing Net Working Capital

PART V: FOREIGN CURRENCY DERIVATIVES
Chapter 20: Foreign Currency Futures and Options
Chapter 21: Interest Rate and Foreign Currency Swaps
------
PART 1: INTRODUCTION
1. The Corporation
2. Introduction to Financial Statement Analysis
3. Financial Decision Making and the Law of One Price
PART 2: TIME, MONEY, AND INTEREST RATES
4. The Time Value of Money
5. Interest Rates
6. Valuing Bonds
PART 3: VALUING PROJECTS AND FIRMS
7. Investment Decision Rules
8. Fundamentals of Capital Budgeting
9. Valuing Stocks
PART 4: RISK AND RETURN
10. Capital Markets and the Pricing of Risk
11. Optimal Portfolio Choice and the Capital Asset Pricing Model
12. Estimating the Cost of Capital
13. Investor Behavior and Capital Market Efficiency
PART 5: CAPITAL STRUCTURE
14. Capital Structure in a Perfect Market
15. Debt and Taxes
16. Financial Distress, Managerial Incentives, and Information
17. Payout Policy
PART 6: ADVANCED VALUATION
18. Capital Budgeting and Valuation with Leverage
19. Valuation and Financial Modeling: A Case Study
PART 7: OPTIONS
20. Financial Options
21. Option Valuation
22. Real Options

PART 8: LONG-TERM FINANCING
23. Raising Equity Capital
24. Debt Financing
25. Leasing
PART 9: SHORT-TERM FINANCING
26. Working Capital Management
27. Short-Term Financial Planning
PART 10: SPECIAL TOPICS
28. Mergers and Acquisitions
29. Corporate Governance
30. Risk Management
31. International Corporate Finance
------
PART 1: INTRODUCTION
1. The Corporation
2. Introduction to Financial Statement Analysis
3. Financial Decision Making and the Law of One Price
PART 2: TIME, MONEY, AND INTEREST RATES
4. The Time Value of Money
5. Interest Rates
6. Valuing Bonds
PART 3: VALUING PROJECTS AND FIRMS
7. Investment Decision Rules
8. Fundamentals of Capital Budgeting
9. Valuing Stocks
PART 4: RISK AND RETURN
10. Capital Markets and the Pricing of Risk
11. Optimal Portfolio Choice and the Capital Asset Pricing Model
12. Estimating the Cost of Capital
13. Investor Behavior and Capital Market Efficiency
PART 5: CAPITAL STRUCTURE
14. Capital Structure in a Perfect Market
15. Debt and Taxes
16. Financial Distress, Managerial Incentives, and Information
17. Payout Policy
PART 6: ADVANCED VALUATION
18. Capital Budgeting and Valuation with Leverage
19. Valuation and Financial Modeling: A Case Study
------
------
PART 1 INTRODUCTION
Chapter 1 Corporate Finance and the Financial Manager
Chapter 2 Introduction to Financial Statement Analysis
PART 2 INTEREST RATES AND VALUING CASH FLOWS
Chapter 3 Time Value of Money: An Introduction
Chapter 4 Time Value of Money: Valuing Cash Flow Streams
Chapter 5 Interest Rates
Chapter 6 Bonds
Chapter 7 Stock Valuation
PART 3 VALUATION AND THE FIRM
Chapter 8 Investment Decision Rules
Chapter 9 Fundamentals of Capital Budgeting
Chapter 10 Stock Valuation: A Second Look
PART 4 RISK AND RETURN
Chapter 11 Risk and Return in Capital Markets
Chapter 12 Systematic Risk and the Equity Risk Premium
Chapter 13 The Cost of Capital
PART 5 LONG-TERM FINANCING
Chapter 14 Raising Equity Capital
Chapter 15 Debt Financing
PART 6 CAPITAL STRUCTURE AND PAYOUT POLICY
Chapter 16 Capital Structure
Chapter 17 Payout Policy
PART 7 FINANCIAL PLANNING AND FORECASTING
Chapter 18 Financial Modeling and Pro Forma Analysis
Chapter 19 Working Capital Management
Chapter 20 Short-Term Financial Planning
PART 8 Special Topics
Chapter 21 Option Applications and Corporate Finance
Chapter 22 Mergers and Acquisitions
Chapter 23 International Corporate Finance  

------

FINANCIAL MANAGEMENT AND CORPORATE FINANCE - COLLECTION 2017 (FREE DOWNLOAD)

Financial Management: Core Concepts, 3rd Edition, 2016, Raymond Brooks, Oregon State University
Free download - PPT - Link
Free donwload - PPT - Link


Financial Management: Concepts and Applications, 2015, Stephen Foerster, Richard Ivey School of Business
Free download - PPT - Link

International Financial Management, 2nd Edition, 2012, Geert J Bekaert, Columbia University, Robert J. Hodrick
Free download - PPT 1 - Link
Free download - PPT 2 - Link

Corporate Finance, 4th Edition, 2017, Jonathan Berk, Stanford University, Peter DeMarzo, Stanford University
Free download - PPT 1 - Link
Free download - PPT 2 - Link
Free download - PPT 3 - Link

Free download Link - Core 4

Excel Modeling in Corporate Finance, 5th Edition, 2015, Craig W. Holden, Indiana University
Fundamentals of Corporate Finance, 3rd Edition, 2015, Jonathan Berk, Stanford University, Peter DeMarzo, 
Financial Management: Principles and Applications, 12th Edition, 2015, Sheridan Titman, Arthur J. Keown

 

Fundamentals of Investing, 13th Edition, Scott B. Smart, Lawrence J. Gitman, Michael D. Joehnk, 2017
Free download - PPT  - Link


Multinational Business Finance, 14th Edition, David K. Eiteman, Arthur I. Stonehill, Michael H. Moffett, 2016
Free download - PPT  - Link


Personal Finance, 6th Edition, 2017, Jeff Madura, Emeritus Professor of Finance; Florida Atlantic University
Free download - PPT  - Link


Personal Finance: Turning Money into Wealth, 7th Edition, 2016, Arthur J. Keown, 
Free download - PPT  - Link


Foundations of Finance, 9th Edition, 2017, Arthur J. Keown, John H. Martin
Free download - PPT  - Link


Principles of Managerial Finance, 14th Edition, 2015, Lawrence J. Gitman, Chad J. Zutter
 Free download - PPT  - Link

 

DOWNLOAD ALL TEST BANKs & CASE STUDY GUIDES - 2017

Corporate Finance, 4th Edition, 2017, Jonathan Berk, Stanford University, Peter DeMarzo, Stanford University - Test bank

Financial Management: Concepts and Applications, 2015, Stephen Foerster, Richard Ivey School of Business - Test bank

Financial Management: Core Concepts, 3rd Edition, 2016, Raymond Brooks, Oregon State University - Test bank

International Financial Management, 2nd Edition, 2012, Geert J Bekaert, Columbia University, Robert J. Hodrick - Test bank

Financial Management: Principles and Applications, 12th Edition, 2015, Sheridan Titman, Arthur J. Keown - Test bank

Corporate Finance: The Core, 4th Edition, 2017, Jonathan Berk, Stanford University, Peter DeMarzo - Test bank

Fundamentals of Investing, 13th Edition, Scott B. Smart, Lawrence J. Gitman, Michael D. Joehnk, 2017 - Test bank

Multinational Business Finance, 14th Edition, David K. Eiteman, Arthur I. Stonehill, Michael H. Moffett, 2016 - Test bank

Personal Finance, 6th Edition, 2017, Jeff Madura, Emeritus Professor of Finance; Florida Atlantic University - Test bank

Personal Finance: Turning Money into Wealth, 7th Edition, 2016, Arthur J. Keown - Test bank

Foundations of Finance, 9th Edition, 2017, Arthur J. Keown, John H. Martin - Test bank

Principles of Managerial Finance, 14th Edition, 2015, Lawrence J. Gitman, Chad J. Zutter - Test bank


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