Essentials Of Corporate Finance 8th Edition By Westerfield – Ross – Test Bank
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Sample Test
Chapter 03
Working with Financial Statements
Multiple Choice Questions
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1. |
Common-size financial statements
present all balance sheet account values as a percentage of:
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2. |
The ratios that are based on financial
statement values and used for comparison purposes are called:
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3. |
The DuPont identity can be totally
defined by which one of the following?
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4. |
Which one of the following is the
maximum growth rate that a firm can achieve without any additional external
financing?
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5. |
The sustainable growth rate is defined
as the maximum rate at which a firm can grow given which of the following
conditions?
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6. |
Which one of the following is the abbreviation
for the U.S. government coding system that classifies a firm by its specific
type of business operations?
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7. |
Builder’s Outlet just hired a new chief
financial officer. To get a feel for the company, she wants to compare the
firm’s sales and costs over the past three years to determine if any trends
are present and also determine where the firm might need to make changes.
Which one of the following statements will best suit her purposes?
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8. |
A common-size balance sheet helps
financial managers determine:
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9. |
High Tower Pharmacy pays out a fixed
percentage of its net income to its shareholders in the form of annual
dividends. Given this, the percentage shown on a common-size income statement
for the dividend account will:
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10. |
Which one of the following transactions
will increase the liquidity of a firm?
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11. |
Which one of the following actions will
increase the current ratio, all else constant? Assume the current ratio is
greater than 1.0.
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12. |
A firm has a current ratio of 1.4 and a
quick ratio of 0.9. Given this, you know for certain that the firm:
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13. |
Fred is the owner of a local feed
store. Which one of the following ratios should he compute if he wants to
know how long the store can pay its bills given the amount of cash the store
currently has?
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14. |
Which one of the following is a measure
of long-term solvency?
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15. |
The cash coverage ratio is used to
evaluate the:
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16. |
The equity multiplier is equal to:
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17. |
Blooming Gardens has an inventory
turnover of 16. This means the firm:
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18. |
Which one of the following best
indicates a firm is utilizing its assets more efficiently than it has in the
past?
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19. |
Kelso’s Pharmacy generates $2 in sales
for every $1 the firm has invested in total assets. Which one of the
following ratios would reflect this relationship?
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20. |
Which one of the following will
increase the profit margin of a firm, all else constant?
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21. |
You would like to borrow money three
years from now to build a new building. In preparation for applying for that
loan, you are in the process of developing target ratios for your firm. Which
set of ratios represents the best target mix considering that you want to
obtain outside financing in the relatively near future?
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22. |
All else constant, which one of the
following will decrease if a firm increases its net income?
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23. |
Which one of the following statements
is true concerning the price-earnings (PE) ratio?
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24. |
New Century Products is a company that
was founded last year. While the outlook for the company is positive, it
currently has negative earnings. If you wanted to measure the progress of
this firm, which one of the following ratios would probably be best to
monitor given the firm’s current situation?
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25. |
The DuPont identity can be used to help
a financial manager determine the: I. degree of financial leverage used by a firm.
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26. |
The T-shirt Hut successfully managed to
reduce its general and administrative costs this year. This cost improvement
will increase which of the following ratios? I. Profit margin
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27. |
Martha’s Sweet Shop reduced its fixed
assets this year without affecting the shop’s operations, sales, or equity.
This reduction will increase which of the following ratios? I. Capital intensity ratio
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28. |
Donovan Brothers, Inc. would like to
increase its internal rate of growth. Decreasing which one of the following
will help the firm achieve its goal?
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29. |
If a firm has a 100 percent dividend
payout ratio, then the internal growth rate of the firm is:
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30. |
Which of the following are determinants
of a firm’s sustainable rate of growth? I. Amount of sales generated from each dollar invested in
assets
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31. |
Which of the following will increase
the sustainable rate of growth for a firm? I. Decreasing the profit margin
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32. |
Financial statement analysis:
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33. |
Which one of the following statements
is correct?
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34. |
Tom’s Hardware has inventory of
$318,000, equity of $421,800, total assets of $647,700, and sales of
$687,400. What is the common-size percentage for the inventory account?
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35. |
A firm has inventory of $11,400,
accounts payable of $9,800, cash of $850, net fixed assets of $12,150,
long-term debt of $9,500, accounts receivable of $6,600, and total equity of
$11,700. What is the common-size percentage for the net fixed assets?
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36. |
International Travel Services has net
income of $48,400, total assets of $219,000, total equity of $154,800, and
total sales of $411,700. What is the common-size percentage for the net
income?
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37. |
Delmont Movers has a profit margin of
6.2 percent and net income of $48,900. What is the common-size percentage for
the cost of goods sold if that expense amounted to $379,000 for the year?
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38. |
A firm has sales of $529,000 for the
year. The profit margin is 3.4 percent and the retention ratio is 60 percent.
What is the common-size percentage for the dividends paid?
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39. |
Peter’s Motor Works has total assets of
$689,400, long-term debt of $299,500, total equity of $275,000, net fixed
assets of $497,800, and sales of $721,500. The profit margin is 4.6 percent.
What is the current ratio?
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40. |
Earth Fare Foods has total assets of
$229,800, net fixed assets of $71,500, long-term debt of $52,000, and total
debt of $78,700. If inventory is $45,000, what is the current ratio?
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41. |
A firm has net working capital of
$3,800 and current assets of $11,700. What is the current ratio?
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42. |
Gently Used Goods has cash of $2,950,
inventory of $28,470, fixed assets of $9,860, accounts payable of $11,900,
and accounts receivable of $4,660. What is the cash ratio?
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43. |
You are analyzing a company that has
cash of $11,200, accounts receivable of $27,800, fixed assets of $124,600,
accounts payable of $31,300, and inventory of $56,900. What is the quick
ratio?
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44. |
Eric & Jared’s Department Store has
current liabilities of $7,630, net working capital of $2,180, inventory of
$2,750, and sales of $51,800. What is the quick ratio?
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45. |
Tressler Dry Cleaners has inventory of
$1,700, accounts payable of $4,200, cash of $1,950, and accounts receivable
of $3,680. What is the cash ratio?
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46. |
Your firm has cash of $3,800, accounts
receivable of $8,600, inventory of $33,100, and net working capital of
$1,100. What is the cash ratio?
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47. |
Wilson’s Realty has total assets of
$46,800, net fixed assets of $37,400, current liabilities of $6,100, and long-term
liabilities of $24,600. What is the total debt ratio?
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48. |
Denbo’s, Inc. has total equity of
$389,600, long-term debt of $116,400, net working capital of $1,600, and
total assets of $627,600. What is the total debt ratio?
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49. |
A firm has total assets of $523,100,
current assets of $186,500, current liabilities of $141,000, and total debt
of $215,000. What is the debt-equity ratio?
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50. |
The Undergrounds Coffee Shop has total
assets of $85,300 and an equity multiplier of 1.53. What is the debt-equity
ratio?
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51. |
Underwood Homes Sales has total assets
of $589,900 and total debt of $318,000. What is the equity multiplier?
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52. |
A firm has an equity multiplier of 1.5.
This means that the firm has a:
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53. |
Fresh Foods has sales of $213,600,
total assets of $198,700, a debt-equity ratio of 1.7, and a profit margin of
2.4 percent. What is the equity multiplier?
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54. |
Friendly Skies Airline has earnings
before interest and taxes of $21,680 and net income of $12,542. The tax rate
is 35 percent. What is the times interest earned ratio?
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55. |
The Berry Patch has sales of $438,000,
cost of goods sold of $369,000, depreciation of $37,400, and interest expense
of $13,800. The tax rate is 35 percent. What is the times interest earned
ratio?
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56. |
A firm has net income of $6,850 and
interest expense of $2,130. The tax rate is 34 percent. What is the firm’s
times interest earned ratio?
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57. |
A firm has net income of $31,300,
depreciation of $5,100, taxes of $14,600, and interest paid of $3,100. What
is the cash coverage ratio?
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58. |
Blue Water Cafe has $28,700 in total
assets, depreciation of $3,100, and interest of $1,400. The total asset turnover
rate is 1.2. Earnings before interest and taxes are equal to 28 percent of
sales. What is the cash coverage ratio?
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59. |
The Universal Network has sales of
$496,500, cost of goods sold of $264,900, and inventory of $87,100. What is
the inventory turnover rate?
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60. |
The Space and Rocket Center takes an
average of 55 days to sell its inventory and an average of 2.5 days to
collect payment on its sales. What is the inventory turnover rate?
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61. |
Galaxy Sales has sales of $746,700,
cost of goods sold of $603,200, and inventory of $94,300. How long on average
does it take the firm to sell its inventory?
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62. |
Phil’s Hardware sells its inventory in
75 days, on average. Costs of goods sold for the year are $631,800. What is
the average value of the firm’s inventory?
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63. |
Kessler, Inc. has accounts receivable
of $31,600, total assets of $311,500, cost of goods sold of $208,400, and a
capital intensity ratio of 1.08. What is the accounts receivable turnover
rate?
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64. |
It takes The Crossroads Boutique an
average of 61 days to sell its inventory and 30 days to collect its accounts
receivable. The firm has sales of $568,700 and costs of goods sold of
$398,800. What is the accounts receivable turnover rate?
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65. |
Textile Mills has sales of $923,000,
cost of goods sold of $748,000, and accounts receivable of $106,700. How long
on average does it take the firm’s customers to pay for their purchases?
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66. |
A firm has $42,900 in receivables and
$211,800 in total assets. The total asset turnover rate is 1.40 and the
profit margin is 5.2 percent. How long on average does it take the firm to
collect its receivables?
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67. |
Aardvaark & Co. has sales of
$291,200, cost of goods sold of $163,300, net profit of $11,360, net fixed
assets of $154,500, and current assets of $89,500. What is the total asset
turnover rate?
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68. |
Whitt’s BBQ has sales of $348,000, a
profit margin of 8.1 percent, and a capital intensity ratio of 0.70. What is
the total asset turnover rate?
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69. |
Martha’s Fabric House has sales of $137,200,
total equity of $74,400, and a debt-equity ratio of 0.45. What is the capital
intensity ratio?
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70. |
Circle K Stores has net income of
$41,000, a profit margin of 3.7 percent, and a return on assets of 9 percent.
What is the capital intensity ratio?
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71. |
Tally Ho Inn has annual sales of
$737,000. Earnings before interest and taxes is equal to 21 percent of sales.
For the period, the firm paid $7,900 in interest. What is the profit margin
if the tax rate is 35 percent?
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72. |
The Medicine Shoppe has a return on
equity of 19.2 percent, a profit margin of 11.6 percent, and total equity of
$738,000. What is the net income?
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73. |
The After Life has sales of $428,300,
total assets of $389,100, and a profit margin of 7.2 percent. What is the
return on assets?
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74. |
Goshen Industrial Sales has sales of
$828,900, total equity of $539,200, a profit margin of 4.6 percent, and a
debt-equity ratio of 0.55. What is the return on assets?
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75. |
Larry’s Gun Shop has sales of $189,000,
a profit margin of 5.6 percent, and a capital intensity ratio of 0.79. What
is the return on assets?
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76. |
Freedom Health Centers has total equity
of $861,300, sales of $1.48 million, and a profit margin of 5.2 percent. What
is the return on equity?
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77. |
The Rainbow Company has total sales of
$713,200 and a profit margin of 8.5 percent. Currently, the firm has 12,500
shares outstanding. What are the earnings per share?
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78. |
Baxter & Baxter has total assets of
$710,000. There are 45,000 shares of stock outstanding with a market value of
$28 a share. The firm has a profit margin of 7.1 percent and a total asset
turnover of 1.29. What is the price-earnings ratio?
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79. |
Children’s Place has a market-to-book
ratio of 2.9, net income of $68,400, a book value per share of $37, and
45,000 shares of stock outstanding. What is the price-earnings ratio?
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80. |
The Green House has a profit margin of
5.6 percent on sales of $311,200. The firm currently has 15,000 shares of
stock outstanding at a market price of $11.60 per share. What is the
price-earnings ratio?
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81. |
A firm has sales of $311,000 and net
income of $31,600. Currently, there are 28,000 shares outstanding at a market
price of $36 per share. What is the price-sales ratio?
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82. |
The common stock of The Burger Hut is
selling for $16.25 a share. The company has earnings per share of $0.42 and a
book value per share of $9.28. What is the market-to-book ratio?
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83. |
Whole Foods has a book value per share
of $13.50, earnings per share of $1.21, and a price-earnings ratio of 17.6.
What is the market-to-book ratio?
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84. |
The Inside Door has total debt of
$78,600, total equity of $214,000, and a return on equity of 14.5 percent.
What is the return on assets?
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85. |
Mike’s Place has total assets of
$123,800, a debt-equity ratio of 0.75, and net income of $7,100. What is the
return on equity?
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86. |
Computer Geeks has sales of $521,000, a
profit margin of 14.8 percent, a total asset turnover rate of 2.16, and an
equity multiplier of 1.30. What is the return on equity?
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87. |
Waldale Pools has total equity of $289,100
and net income of $64,500. The debt-equity ratio is 0.55 and the total asset
turnover is 1.6. What is the profit margin?
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88. |
A firm has net income of $114,000, a
return on assets of 12.6 percent, and a debt-equity ratio of 0.60. What is
the return on equity?
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89. |
The Blue Lagoon has a return on equity
of 18.9 percent, an equity multiplier of 1.9, and a total asset turnover of
1.45. What is the profit margin?
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90. |
The Saw Mill has a return on assets of
6.1 percent, a total asset turnover rate of 1.8, and a debt-equity ratio of
1.6. What is the return on equity?
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91. |
Baugh & Essary has net income of
$149,200, sales of $936,800, a capital intensity ratio of 0.74, and an equity
multiplier of 1.5. What is the return on equity?
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92. |
New Steel Products has total assets of
$991,000, a total asset turnover rate of 1.1, a debt-equity ratio of 0.6, and
a return on equity of 8.7 percent. What is the firm’s net income?
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93. |
Western Hardwood Sales has total equity
of $79,000, a profit margin of 4.8 percent, an equity multiplier of 1.5, and
a total asset turnover of 1.3. What is the amount of the firm’s sales?
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94. |
Tessler Farms has a return on equity of
12.71 percent, a debt-equity ratio of 0.75, and a total asset turnover of
0.9. What is the return on assets?
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95. |
A firm earns $0.18 in profit for every
$1 of equity in the firm. The company borrows $0.60 for every $1 of equity.
What is the firm’s return on assets?
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96. |
The Veggie Hut has net income of
$26,400, total equity of $102,700, and total assets of $189,500. The dividend
payout ratio is 0.30. What is the internal growth rate?
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97. |
Fried Foods has sales of $238,900,
total assets of $217,000, total equity of $121,300, net income of $18,700,
and dividends paid of $7,000. What is the internal growth rate?
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98. |
A firm has adopted a policy whereby it
will not seek any additional external financing. Given this, what is the
maximum growth rate for the firm if it has net income of $12,100, total
equity of $94,000, total assets of $156,000, and a 40 percent dividend payout
ratio?
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99. |
Undertaker Enterprises earns $0.17 in
profit on every $1 of sales and has $0.67 in assets for every $1 of sales.
The firm pays out 20 percent of its profits to its shareholders. What is the
internal growth rate?
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100. |
Joshua’s Antiques has a total asset
turnover rate of 1.2, an equity multiplier of 1.4, a profit margin of 5
percent, a retention ratio of 0.8, and total assets of $120,000. What is the sustainable
growth rate?
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101. |
A firm has a return on equity of 16
percent, a return on assets of 11 percent, and a 30 percent dividend payout
ratio. What is the sustainable growth rate?
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102. |
Valentino’s maintains a constant
debt-equity ratio of 0.45. The firm had net income of $11,800 for the year
and paid $6,500 in dividends. The firm has total assets of $92,000. What is
the sustainable growth rate?
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103. |
The Donut Hut has sales of $68,000,
current assets of $11,300, net income of $5,100, net fixed assets of $54,900,
total debt of $23,800, and dividends of $800. What is the sustainable growth
rate?
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104. |
Last year, a firm earned $31,200 in net
income on sales of $217,600. The company paid $8,500 in dividends. What is
the dividend payout ratio?
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