FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 3: Financial Analysis

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 21

Multiple Choice

Review LaterAdd Note

Review Later

Which of the following statements is CORRECT?

A) A reduction in inventories held would have no effect on the current ratio.
B) An increase in inventories would have no effect on the current ratio.
C) If a firm increases its sales while holding its inventories constant, then, other things held constant, its inventory turnover ratio will increase.
D) A reduction in the inventory turnover ratio will generally lead to an increase in the ROE.
E) If a firm increases its sales while holding its inventories constant, then, other things held constant, its inventory turnover ratio will decrease.

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

Correct Answer

verified

Show Answer

Question 22

Multiple Choice

Review LaterAdd Note

Review Later

Which of the following statements is CORRECT?

A) The use of debt financing will tend to lower the basic earning power ratio, other things held constant.
B) A firm that employs financial leverage will have a higher equity multiplier than an otherwise identical firm that has no debt in its capital structure.
C) If two firms have identical sales, interest rates paid, operating costs, and assets, but differ in the way they are financed, the firm with less debt will generally have the higher expected ROE.
D) Holding bonds is better than holding stock for investors because income from bonds is taxed on a more favorable basis than income from stock.
E) All else equal, increasing the debt ratio will increase the ROA.

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

Correct Answer

verified

Show Answer

Question 23

Multiple Choice

Review LaterAdd Note

year Swensen Corp.had sales of $303,225, operating costs of $267,500, and year-end assets of $195,000.The debt-to-total-assets ratio was 27%, the interest rate on the debt was 8.2%, and the firm's tax rate was 37%.The new CFO wants to see how the ROE would have been affected if the firm had used a 45% debt ratio.Assume that sales and total assets would not be affected, and that the interest rate and tax rate would both remain constant.By how much would the ROE change in response to the change in the capital structure?

Suppose Firms A and B have the same amount of assets, pay the same interest rate on their debt, have the same basic earning power (BEP), and have the same tax rate.However, Firm A has a higher debt ratio.If BEP is greater than the interest rate on debt, Firm A will have a higher ROE as a result of its higher debt ratio.

Which of the following statements is CORRECT?

Firms A and B have the same current ratio, 0.75, the same amount of sales, and the same amount of current liabilities.However, Firm A has a higher inventory turnover ratio than B.Therefore, we can conclude that A's quick ratio must be smaller than B's.

is the firm's book value per share?

is the firm's BEP?

Bonner Corp.'s sales last year were $415,000, and its year-end total assets were $355,000.The average firm in the industry has a total assets turnover ratio (TATO) of 2.4.Bonner's new CFO believes the firm has excess assets that can be sold so as to bring the TATO down to the industry average without affecting sales.By how much must the assets be reduced to bring the TATO to the industry average, holding sales constant?

Chambliss Corp.'s total assets at the end of last year were $305,000 and its EBIT was 62,500.What was its basic earning power (BEP) ?

Which of the following statements is CORRECT?

a bank loan officer were considering a company's request for a loan, which of the following statements would you consider to be CORRECT?

year Central Chemicals had sales of $205,000, assets of $127,500, a profit margin of 5.3%, and an equity multiplier of 1.2.The CFO believes that the company could reduce its assets by $21,000 without affecting either sales or costs.Had it reduced its assets in this amount, and had the debt ratio, sales, and costs remained constant, by how much would the ROE have changed?

Determining whether a firm's financial position is improving or deteriorating requires analyzing more than the ratios for a given year.Trend analysis is one method of measuring changes in a firm's performance over time.

Safeco's current assets total to $20 million versus $10 million of current liabilities, while Risco's current assets are $10 million versus $20 million of current liabilities.Both firms would like to "window dress" their end-of-year financial statements, and to do so they tentatively plan to borrow $10 million on a short-term basis and to then hold the borrowed funds in their cash accounts.Which of the statements below best describes the results of these transactions?

is the firm's days sales outstanding? Assume a 360-day year for this calculation.

Branch Corp.'s total assets at the end of last year were $315,000 and its net income after taxes was $22,750.What was its return on total assets?

is the firm's equity multiplier?

Northwest Lumber had a profit margin of 5.25%, a total assets turnover of 1.5, and an equity multiplier of 1.8.What was the firm's ROE?

Heaton Corp.sells on terms that allow customers 45 days to pay for merchandise.Its sales last year were $425,000, and its year-end receivables were $60,000.If its DSO is less than the 45-day credit period, then customers are paying on time.Otherwise, they are paying late.By how much are customers paying early or late? Base your answer on this equation: DSO - Credit period = days early or late, and use a 365-day year when calculating the DSO.A positive answer indicates late payments, while a negative answer indicates early payments.