Question 1

A firm has lower inventory turnover, a longer ACP, and a lower fixed-asset turnover than the industry averages. You should not be surprised to find that this firm has ________.
I. lower ATO than the industry average
II. lower ROA than the industry average
III. lower ROE than the industry average

Accepted Answer

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

Question 2

A firm has a (net profit/pretax profit)  ratio of 0.6, a leverage ratio of 1.5, a (pretax profit/EBIT)  of 0.7, an asset turnover ratio of 4, a current ratio of 2, and a return on sales ratio of 6%. Its ROE is ________.

Accepted Answer

A)  7.56%
B)  15.12%
C)  20.16%
D)  30.24%E) A) and D)
F) None of the above

Question 3

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

Accepted Answer

A)  I and II only
B)  III and IV only
C)  I, III and IV only
D)  I, II and III onlyE) A) and C)
F) All of the above

Question 4

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

Accepted Answer

A)  Increase in accounts receivable
B)  Decrease in inventories
C)  Decrease in taxes payable
D)  Decrease in bonds outstandingE) A) and B)
F) None of the above

Question 5

Which of the following statements is true concerning Economic Value Added?

Accepted Answer

A)  A growing number of firms tie managers' compensation to EVA.
B)  A profitable firm will always have a positive EVA.
C)  EVA recognises that the cost of capital is not a real cost.
D)  If a firm has positive present value of growth opportunities it will have positive EVA.E) A) and C)
F) A) and B)

Question 6

Firm A acquires Firm B when Firm B has a book value of assets of $155 million and a book value of liabilities of $35 million. Firm A actually pays $175 million for Firm B. This purchase would result in goodwill for Firm A equal to ________.

Accepted Answer

A)  $175 million
B)  $155 million
C)  $120 million
D)  $55 millionE) None of the above
F) A) and B)

Question 7

Use the following cash flow data of Haven Hardware for the year ended 31 December 2013.  What is the net cash provided by operating activities of Haven Hardware?

Accepted Answer

A)  ($30 000) 
B)  $220 000
C)  $320 000
D)  $780 000E) None of the above
F) A) and B)

Question 8

The financial statements of Burnaby Mountain Trading Company are given below.  Note: The common shares are trading in the share market for $27 each.
Refer to the financial statements of Burnaby Mountain Trading Company. The firm's leverage ratio for 2008 is ________.

Accepted Answer

A)  1.30
B)  1.50
C)  1.69
D)  2.83E) A) and C)
F) A) and B)

Question 9

Depreciation expense is in what broad category of expenditures?

Accepted Answer

A)  Cost of goods sold
B)  General and administrative expenses
C)  Debt interest expense
D)  Tax expendituresE) All of the above
F) A) and B)

Question 10

Many observers believe that firms 'manage' their Income Statements to ________.

Accepted Answer

A)  minimise taxes over time
B)  maximise expenditures
C)  smooth their earnings over time
D)  generate level salesE) C) and D)
F) A) and C)

Question 11

A firm purchases goods on credit worth $100. The same firm pays off $80 in old credit purchases. An investment is made via the purchase of a new facility and equity is issued in the amount of $200 to pay for the purchase. What is the change in net cash provided by financing?

Accepted Answer

A)  $20 increase
B)  $80 increase
C)  $100 increase
D)  $200 increaseE) A) and C)
F) A) and D)

Question 12

A firm purchases goods on credit worth $150. The same firm pays off $100 in old credit purchases. An investment is made via the purchase of a new facility and equity is issued in the amount of $300 to pay for the purchase. What is the change in net cash provided by operations?

Accepted Answer

A)  $50 increase
B)  $100 increase
C)  $150 increase
D)  $250 increaseE) C) and D)
F) None of the above

Question 13

Use the following cash flow data of Haven Hardware for the year ended 31 December 2013.  What is the net cash provided by or used in financing activities of Haven Hardware?

Accepted Answer

A)  ($10 000) 
B)  ($120 000) 
C)  $10 000
D)  $120 000E) B) and C)
F) None of the above

Question 14

Consider the following information relating to Interceptors Ltd.  Based on the cash flow data in the table, which of the following statements is/are correct?
I. This firm appears to be a good investment because of its steady growth in cash.
II. This firm has only been able to generate growing cash flows by borrowing or selling equity to offset declining operating cash flows.
III. Financing activities have been increasingly important for this firm's operations, at least in the short run.

Accepted Answer

A)  I only
B)  II and III only
C)  II only
D)  I and II onlyE) A) and B)
F) None of the above

Question 15

A high price-to-book ratio may indicate which one of the following?

Accepted Answer

A)  The firm expanded its plant and equipment in the past few years.
B)  The firm is doing a better job controlling its inventory expense than other related firms.
C)  Investors may believe that this firm has opportunities of earnings a rate of return in excess of the market capitalisation rate.
D)  The firm's P/E ratio is too high.E) A) and B)
F) B) and C)

Question 16

One of the biggest impediments to a global capital market is ________.

Accepted Answer

A)  volatile exchange rates
B)  the lack of common accounting standards
C)  lower disclosure standards in the US than abroad
D)  the lack of transparent reporting standards across the EUE) None of the above
F) A) and B)

Question 17

Consider the following information relating to Interceptors Ltd.  What must cash flow from financing have been in 2008 for Interceptors Ltd.?

Accepted Answer

A)  $5
B)  $28
C)  $30
D)  $33E) All of the above
F) C) and D)

Question 18

You find that a firm that uses debt has a compound leverage factor less than 1. This tells you that ________.

Accepted Answer

A)  the firm's use of financial leverage is positively contributing to ROE
B)  the firm's use of financial leverage is negatively contributing to ROE
C)  the firm's use of operating leverage is positively contributing to ROE
D)  the firm's use of operating leverage is negatively contributing to ROEE) All of the above
F) C) and D)

Question 19

When assessing sustainability of a firm's cash flows, analysts will prefer to see cash growth generated from which of the following sources?

Accepted Answer

A)  Cash flow from investment activities
B)  Cash flow from operating activities
C)  Cash flow from financing
D)  Cash flow from extraordinary eventsE) All of the above
F) C) and D)

Question 20

Cost of goods sold refers to ________.

Accepted Answer

A)  direct costs attributable to producing the product sold by the firm
B)  salaries, advertising and selling expenses
C)  payments to the firm's creditors
D)  payments to federal and local governmentsE) A) and B)
F) C) and D)

Exam 13: Financial Statement Analysis

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

Correct Answer
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When assessing sustainability of a firm's cash flows, analysts will prefer to see cash growth generated from which of the following sources?

Correct Answer
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One of the biggest impediments to a global capital market is ________.

Correct Answer
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Depreciation expense is in what broad category of expenditures?

Correct Answer
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Correct Answer
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Which of the following transactions will result in a decrease in cash flow from operations?

Correct Answer
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A firm has a (net profit/pretax profit) ratio of 0.6, a leverage ratio of 1.5, a (pretax profit/EBIT) of 0.7, an asset turnover ratio of 4, a current ratio of 2, and a return on sales ratio of 6%. Its ROE is ________.

Correct Answer
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A high price-to-book ratio may indicate which one of the following?

Correct Answer
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Consider the following information relating to Interceptors Ltd. What must cash flow from financing have been in 2008 for Interceptors Ltd.?

Correct Answer
verified

Cost of goods sold refers to ________.

Correct Answer
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Use the following cash flow data of Haven Hardware for the year ended 31 December 2013. What is the net cash provided by operating activities of Haven Hardware?

Correct Answer
verified

Many observers believe that firms 'manage' their Income Statements to ________.

Correct Answer
verified

The financial statements of Burnaby Mountain Trading Company are given below. Note: The common shares are trading in the share market for $27 each. Refer to the financial statements of Burnaby Mountain Trading Company. The firm's leverage ratio for 2008 is ________.

Correct Answer
verified

A firm purchases goods on credit worth $150. The same firm pays off $100 in old credit purchases. An investment is made via the purchase of a new facility and equity is issued in the amount of $300 to pay for the purchase. What is the change in net cash provided by operations?

Correct Answer
verified

Use the following cash flow data of Haven Hardware for the year ended 31 December 2013. What is the net cash provided by or used in financing activities of Haven Hardware?

Correct Answer
verified

A firm purchases goods on credit worth $100. The same firm pays off $80 in old credit purchases. An investment is made via the purchase of a new facility and equity is issued in the amount of $200 to pay for the purchase. What is the change in net cash provided by financing?

Correct Answer
verified

Firm A acquires Firm B when Firm B has a book value of assets of $155 million and a book value of liabilities of $35 million. Firm A actually pays $175 million for Firm B. This purchase would result in goodwill for Firm A equal to ________.

Correct Answer
verified

A firm has lower inventory turnover, a longer ACP, and a lower fixed-asset turnover than the industry averages. You should not be surprised to find that this firm has ________. I. lower ATO than the industry average II. lower ROA than the industry average III. lower ROE than the industry average

Correct Answer
verified

Which of the following statements is true concerning Economic Value Added?

Correct Answer
verified

You find that a firm that uses debt has a compound leverage factor less than 1. This tells you that ________.

Correct Answer
verified

Exam 13: Financial Statement Analysis

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

Correct AnswerverifiedShow Answer

When assessing sustainability of a firm's cash flows, analysts will prefer to see cash growth generated from which of the following sources?

Correct AnswerverifiedShow Answer

One of the biggest impediments to a global capital market is ________.

Correct AnswerverifiedShow Answer

Depreciation expense is in what broad category of expenditures?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A firm has a (net profit/pretax profit) ratio of 0.6, a leverage ratio of 1.5, a (pretax profit/EBIT) of 0.7, an asset turnover ratio of 4, a current ratio of 2, and a return on sales ratio of 6%. Its ROE is ________.

Correct AnswerverifiedShow Answer

A high price-to-book ratio may indicate which one of the following?

Correct AnswerverifiedShow Answer

Consider the following information relating to Interceptors Ltd. What must cash flow from financing have been in 2008 for Interceptors Ltd.?

Correct AnswerverifiedShow Answer

Cost of goods sold refers to ________.

Correct AnswerverifiedShow Answer

Use the following cash flow data of Haven Hardware for the year ended 31 December 2013. What is the net cash provided by operating activities of Haven Hardware?

Correct AnswerverifiedShow Answer

Many observers believe that firms 'manage' their Income Statements to ________.

Correct AnswerverifiedShow Answer

The financial statements of Burnaby Mountain Trading Company are given below. Note: The common shares are trading in the share market for $27 each. Refer to the financial statements of Burnaby Mountain Trading Company. The firm's leverage ratio for 2008 is ________.

Correct AnswerverifiedShow Answer

A firm purchases goods on credit worth $150. The same firm pays off $100 in old credit purchases. An investment is made via the purchase of a new facility and equity is issued in the amount of $300 to pay for the purchase. What is the change in net cash provided by operations?

Correct AnswerverifiedShow Answer

Use the following cash flow data of Haven Hardware for the year ended 31 December 2013. What is the net cash provided by or used in financing activities of Haven Hardware?

Correct AnswerverifiedShow Answer

A firm purchases goods on credit worth $100. The same firm pays off $80 in old credit purchases. An investment is made via the purchase of a new facility and equity is issued in the amount of $200 to pay for the purchase. What is the change in net cash provided by financing?

Correct AnswerverifiedShow Answer

Firm A acquires Firm B when Firm B has a book value of assets of $155 million and a book value of liabilities of $35 million. Firm A actually pays $175 million for Firm B. This purchase would result in goodwill for Firm A equal to ________.

Correct AnswerverifiedShow Answer

A firm has lower inventory turnover, a longer ACP, and a lower fixed-asset turnover than the industry averages. You should not be surprised to find that this firm has ________. I. lower ATO than the industry average II. lower ROA than the industry average III. lower ROE than the industry average

Correct AnswerverifiedShow Answer

Which of the following statements is true concerning Economic Value Added?

Correct AnswerverifiedShow Answer

You find that a firm that uses debt has a compound leverage factor less than 1. This tells you that ________.

Correct AnswerverifiedShow Answer

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