Assignment
Question 1
Based on the information in Table 1, the acid-test ratio is
1.17.
1.33.
1.39.
2.15.
Question 2
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?
Markets are inefficient and fail to recognize the benefits of leverage.
The increased debt resulted in interest payments that made HighLev's operating income drop even though return on equity increased.
Shareholders are not interested in return on equity.
the high levels of debt increased the riskiness of HighLev relative to its competitors.
Question 3
Based on the information in Table 1, the return on equity is
19.33%.
18.47%.
16.66%.
15.65%.
Question 4
Which of the following represents an attempt to measure the net results of the firm's operations (revenues versus expenses) over a given time period?
balance sheet
statement of cash flows
income statement
sources and uses of funds statement
Question 5
The current ratio of a firm would equal its quick ratio whenever
the firm has no inventory.
the firm's inventory is equal to its other current assets.
the firm's inventory is equal to its current liabilities.
the firm's current ratio is equal to one.
Question 6
A firm's financing costs include
depreciation expense.
interest exposure.
costs of goods sold.
both depreciation expense and interest exposure
Question 7
TSW Inc. had the following data for last year: Net income = $800; Net operating profit after taxes (NOPAT) = $700; Total assets = $3,000; and Total operating capital = $2,000. Information for the just-completed year is as follows: Net income = $1,000; Net operating profit after taxes (NOPAT) = $925; Total assets = $2,600; and Total operating capital = $2,500. How much free cash flow did the firm generate during the just-completed year?
$383
$425
$468
$514
$566
Question 8
Based on the information in Table 1, and assuming the company's stock price is $50 per share, the P/E ratio is
Table 1
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Drummond Company
Balance Sheet
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|
Assets:
|
|
|
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Cash and marketable securities
|
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$400,000
|
|
Accounts receivable
|
|
1,415,000
|
|
Inventories
|
|
1,847,500
|
|
Prepaid expenses
|
|
24,000
|
|
Total current assets
|
|
3,686,500
|
|
Fixed assets
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2,800,000
|
|
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Less: accum. depr.
|
(1,087,500)
|
|
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Net fixed assets
|
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1,712,500
|
|
Total assets
|
|
$5,399,000
|
|
Liabilities:
|
|
|
|
Accounts payable
|
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$600,000
|
|
Notes payable
|
|
875,000
|
|
Accrued taxes
|
|
92,000
|
|
Total current liabilities
|
|
$1,567,000
|
|
Long-term debt
|
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900,000
|
|
Common Stock (100,000 shares)
|
|
700,000
|
|
Retained Earnings
|
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2,232,000
|
|
Total liabilities and owner's equity
|
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$5,399,000
|
|
Net sales (all credit)
|
|
$6,375,000
|
|
Less: Cost of goods sold
|
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(4,375,000)
|
|
Selling and administrative expense
|
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(1,000,000)
|
|
Depreciation expense
|
|
(135,000)
|
|
Interest expense
|
|
(100,000)
|
|
Earnings before taxes
|
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$765,000
|
|
Income taxes
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(306,000)
|
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Net income
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|
$459,000
|
10.89.
14.33.
24.44.
27.50.
Question 9
Based on the information in Table 1, the DSO is
70 days.
81 days.
89 days.
127 days.
Question 10
Other things held constant, which of the following actions would increase the amount of cash on a company's balance sheet?
The company purchases a new piece of equipment.
The company repurchases common stock.
The company pays a dividend.
The company issues new common stock.
The company gives customers more time to pay their bills.