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Fundamentals of Corporate Finance, 4/c/e

Fundamentals of Corporate Finance, 4/e

Stephen A. Ross, Massachusetts Institute of Technology
Randolph W. Westerfield, University of Southern California
Bradford D. Jordan, University of Kentucky
Gordon S. Roberts, York University

Working with Financial Statements

Quick Quiz 2

After taking this quiz, click 'Submit Answers' for graded results. You'll also have the option of emailing the results to your instructor and/or yourself.


1	A __________ standardizes items on the income statement and balance sheet as a percentage of total sales and total assets, respectively.
		A)	tax reconciliation statement
		B)	statement of standardization
		C)	common-size statement
		D)	common-base year statement
		E)	statement of cash flows


2	The cash ratio is measured as:
		A)	Cash on hand divided by current liabilities.
		B)	Current assets minus cash on hand, divided by current liabilities.
		C)	Current liabilities plus current assets, divided by cash on hand.
		D)	Cash on hand plus inventory, divided by current liabilities.
		E)	Current assets divided by current liabilities.


3	The financial ratio measured as the firm's long-term debt divided by its total capitalization is:
		A)	The equity multiplier.
		B)	The interval measure.
		C)	The total debt ratio.
		D)	The long-term debt ratio.
		E)	The debt-equity ratio.


4	Ratios that measure how efficiently a firm's management uses its assets in operations to generate bottomline net income are known as:
		A)	Asset management ratios.
		B)	Long-term solvency ratios.
		C)	Short-term solvency ratios.
		D)	Market value ratios.
		E)	Profitability ratios.


5	Sources of cash include all of the following EXCEPT:
		A)	An increase in accounts payable.
		B)	An increase in common stock.
		C)	An increase in retained earnings.
		D)	A decrease in inventory.
		E)	A decrease in long term debt.


6	Problems with financial statement analysis include all of the following EXCEPT
		A)	Many firms are conglomerates whose combined operations don't fit any neat industry classification.
		B)	The financial statements of firms outside Canada do not necessarily conform to GAAP, making it difficult to compare them to Canadian firms.
		C)	Firms may use different accounting procedures for inventory, making it difficult to compare them using standard financial ratios.
		D)	Comparison of data for several years for the firm itself is meaningless since it does not indicate how well the firm is performing relative to its competitors.
		E)	If two firms with seasonal operations end their fiscal years at different times, their financial statements may be difficult to compare.


7	Atlasta Limo Corp. has an average collection period of 36.5 days. Sales are $300,000. What is the average investment in receivables?
		A)	$36,500
		B)	$30,000
		C)	$10,000
		D)	$8,219
		E)	$4,441


8	Assume a firm's current ratio equals 3.5. Which of the following actions would increase it?
		A)	Paying off a short-term bank loan with the proceeds from new long-term debt
		B)	Receiving full payment on an account receivable
		C)	Discarding and writing off spoiled inventory
		D)	Purchasing new fixed assets using the proceeds from a new stock issue
		E)	Buying inventory on credit, thereby increasing accounts payable


9	A firm has an ROA of 8%, sales of $100, and total assets of $75. What is its profit margin?
		A)	1.3%
		B)	4.3%
		C)	6.0%
		D)	10.7%
		E)	16.7%


10	Computronics, Inc. has a current ratio of 1.5. This implies that if the firm liquidates its current assets in order to pay off its current liabilities, it can sell the current assets for as little as
		A)	15% of book value
		B)	25% of book value
		C)	33% of book value
		D)	67% of book value
		E)	150% of book value

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