Deck 5: Risk Analysis

Question 1

Market equity beta measures the covariability of a firm's returns with the return's of

A) all industry competitors in the market.
B) risk free securities.
C) all securities in the market.
D) all firms of comparable market value.

Answer 1

C

Question 2

HighTech Company HighTech Company manufactures computer technology devices. Selected financial data for HighTech is presented below, use the information to answer the following questions:
$\begin{array}{lll}\text { Dec. } 31,2004&\text { As of Dec. } 31,2005&\text { Current Assets }\\\hline616,604 & \$ 1,267,038 & \text { Cash and short-term investments } \\665,828 & 490,816 & \text { Accounts Receivable (net) } \\487,505 & 338,599 & \text { Inventories } \\291,915&292,511&\text { Prepaid Expenses and other current asset: }\\\$2,061,852&\$2,388,964&\text { Total Current Assets }\\\\&&\text { Current Liabilities }\\\hline\$38,108 & \$ 25,190 & \text { Short-term borrowings } \\210,090 & 182,295 & \text { Current portion of long-term debt } \\334,247 & 296,307 & \text { Accounts payable } \\743,999 & 941,912 & \text { Accrued liabilities } \\239,793 & 203,049 & \text { Income taxes payable }\\1,566,237&1,648,753&\text { Total Curyent Liabilities }\end{array}$ $\text { SelectedIncome Statement Data - for the year ending December 31, 2005: }$
$\begin{array}{ll}\$ 4,885,340 & \text { Net Sales } \\2,542,353 & \text { Cost of GoodsSold } \\733,541 & \text { Operating Income } \\230.101 & \text { Net Income }\end{array}$ $\text { SelectedStatement of Cash Flow Data - for the year ending December 31, 2005: }$
$\$ 1,156,084$$\quad$$\quad$$\quad$ Cash Flows from Operations Days of other financing required by HighTech at the end of 2005 would be

A) 54.36 days
B) (54.36 days)
C) 102.94 days
D) (5.27 days)

Answer 2

54.36 days

Question 3

HighTech Company HighTech Company manufactures computer technology devices. Selected financial data for HighTech is presented below, use the information to answer the following questions:
$\begin{array}{lll}\text { Dec. } 31,2004&\text { As of Dec. } 31,2005&\text { Current Assets }\\\hline616,604 & \$ 1,267,038 & \text { Cash and short-term investments } \\665,828 & 490,816 & \text { Accounts Receivable (net) } \\487,505 & 338,599 & \text { Inventories } \\291,915&292,511&\text { Prepaid Expenses and other current asset: }\\\$2,061,852&\$2,388,964&\text { Total Current Assets }\\\\&&\text { Current Liabilities }\\\hline\$38,108 & \$ 25,190 & \text { Short-term borrowings } \\210,090 & 182,295 & \text { Current portion of long-term debt } \\334,247 & 296,307 & \text { Accounts payable } \\743,999 & 941,912 & \text { Accrued liabilities } \\239,793 & 203,049 & \text { Income taxes payable }\\1,566,237&1,648,753&\text { Total Curyent Liabilities }\end{array}$ $\text { SelectedIncome Statement Data - for the year ending December 31, } 2005$
$\begin{array}{ll}\$ 4,885,340 & \text { Net Sales } \\2,542,353 & \text { Cost of Goods Sold } \\733,541 & \text { Operating Income } \\230,101 & \text { Net Income }\end{array}$ SelectedStatement of Cash Flow Data - for the year ending December 31, 2005:
$\$ 1,156,084$$\quad$$\quad$$\quad$$\quad$ CashFlows from Operations HighTech's Operating Cash Flow to Current Liabilities ratio in 2005 was

A) .70
B) 1.39
C) 1.00
D) .72

Answer 3

.72

Question 4

Molitor Company currently has a current ratio of 1.1. The company decides to borrow $1,000,000 from City National Bank for a period of six months. After the borrowing Molitor's current ratio will be

A) greater than 1.1
B) 1.1
C) less than 1.1
D) unable to determine with out more information

Question 5

Which of the following states of financial distress would be considered the most troubling for an investor or creditor?

A) failing to make a required interest payment on time
B) paying an accounts payable after the billing date
C) restructuring debt
D) defaulting on a principal payment on debt

Question 6

HighTech Company HighTech Company manufactures computer technology devices. Selected financial data for HighTech is presented below, use the information to answer the following questions:
$\begin{array}{lll}\text { Dec. } 31,2004&\text { As of Dec. } 31,2005&\text { Current Assets }\\\hline616,604 & \$ 1,267,038 & \text { Cash and short-term investments } \\665,828 & 490,816 & \text { Accounts Receivable (net) } \\487,505 & 338,599 & \text { Inventories } \\291,915&292,511&\text { Prepaid Expenses and other current asset: }\\\$2,061,852&\$2,388,964&\text { Total Current Assets }\\\\&&\text { Current Liabilities }\\\hline\$38,108 & \$ 25,190 & \text { Short-term borrowings } \\210,090 & 182,295 & \text { Current portion of long-term debt } \\334,247 & 296,307 & \text { Accounts payable } \\743,999 & 941,912 & \text { Accrued liabilities } \\239,793 & 203,049 & \text { Income taxes payable }\\1,566,237&1,648,753&\text { Total Curyent Liabilities }\end{array}$ $\text { SelectedIncome Statement Data - for the year ending December 31, } 2005$
$\begin{array}{ll}\$ 4,885,340 & \text { Net Sales } \\2,542,353 & \text { Cost of Goods Sold } \\733,541 & \text { Operating Income } \\230,101 & \text { Net Income }\end{array}$ SelectedStatement of Cash Flow Data - for the year ending December 31, 2005:
$\$ 1,156,084$$\quad$$\quad$$\quad$$\quad$ CashFlows from Operations HighTech's days receivables outstanding at the end of 2005 was

A) 43.20 days
B) 40.50 days
C) 45.25 days
D) 8.50 days

Question 7

HighTech Company HighTech Company manufactures computer technology devices. Selected financial data for HighTech is presented below, use the information to answer the following questions:
$\begin{array}{lll}\text { Dec. } 31,2004&\text { As of Dec. } 31,2005&\text { Current Assets }\\\hline616,604 & \$ 1,267,038 & \text { Cash and short-term investments } \\665,828 & 490,816 & \text { Accounts Receivable (net) } \\487,505 & 338,599 & \text { Inventories } \\291,915&292,511&\text { Prepaid Expenses and other current asset: }\\\$2,061,852&\$2,388,964&\text { Total Current Assets }\\\\&&\text { Current Liabilities }\\\hline\$38,108 & \$ 25,190 & \text { Short-term borrowings } \\210,090 & 182,295 & \text { Current portion of long-term debt } \\334,247 & 296,307 & \text { Accounts payable } \\743,999 & 941,912 & \text { Accrued liabilities } \\239,793 & 203,049 & \text { Income taxes payable }\\1,566,237&1,648,753&\text { Total Curyent Liabilities }\end{array}$ $\text { SelectedIncome Statement Data - for the year ending December 31, } 2005$
$\begin{array}{ll}\$ 4,885,340 & \text { Net Sales } \\2,542,353 & \text { Cost of Goods Sold } \\733,541 & \text { Operating Income } \\230,101 & \text { Net Income }\end{array}$ SelectedStatement of Cash Flow Data - for the year ending December 31, 2005:
$\$ 1,156,084$$\quad$$\quad$$\quad$$\quad$ CashFlows from Operations HighTech's current ratio in 2005 was

A) 1.07
B) 1.45
C) 1
D) .69

Question 8

Bankruptcy prediction research has identified three broad factors influencing long-term solvency risk, which of the following is not one of the factors?

A) Investment factors
B) Financing factors
C) Operating factors
D) Credit factors

Question 9

The best indicator for assessing a firm's long-term solvency risk is its ability to generate what over a period of years?

A) Sales
B) Earnings
C) Positive cash flows
D) Income from continuing operations

Question 10

Economic theory teaches that differences in market returns must relate to differences in

A) book value
B) perceived risk
C) price-earnings ratio
D) bankruptcy risk

Question 11

Dallas Corp. has a current ratio of 6, under which of the following scenarios might this indicate a problem

A) inventories are increasing due to the introduction of a new product
B) the company is holding cash in expectation of making a large investment in equipment
C) receivables are increasing due to increasing sales
D) inventories are increasing and the industry in which Dallas Corp. operates is experiencing a recession

Question 12

Which of the following is not one of the three explanatory variables that determines a firm's market beta?

A) Degree of investing leverage.
B) Degree of operating leverage.
C) Degree of financial leverage.
D) Variability of sales.

Question 13

HighTech Company HighTech Company manufactures computer technology devices. Selected financial data for HighTech is presented below, use the information to answer the following questions:
$\begin{array}{lll}\text { Dec. } 31,2004&\text { As of Dec. } 31,2005&\text { Current Assets }\\\hline616,604 & \$ 1,267,038 & \text { Cash and short-term investments } \\665,828 & 490,816 & \text { Accounts Receivable (net) } \\487,505 & 338,599 & \text { Inventories } \\291,915&292,511&\text { Prepaid Expenses and other current asset: }\\\$2,061,852&\$2,388,964&\text { Total Current Assets }\\\\&&\text { Current Liabilities }\\\hline\$38,108 & \$ 25,190 & \text { Short-term borrowings } \\210,090 & 182,295 & \text { Current portion of long-term debt } \\334,247 & 296,307 & \text { Accounts payable } \\743,999 & 941,912 & \text { Accrued liabilities } \\239,793 & 203,049 & \text { Income taxes payable }\\1,566,237&1,648,753&\text { Total Curyent Liabilities }\end{array}$ $\text { SelectedIncome Statement Data - for the year ending December 31, 2005: }$
$\begin{array}{ll}\$ 4,885,340 & \text { Net Sales } \\2,542,353 & \text { Cost of GoodsSold } \\733,541 & \text { Operating Income } \\230.101 & \text { Net Income }\end{array}$ $\text { SelectedStatement of Cash Flow Data - for the year ending December 31, 2005: }$
$\$ 1,156,084$$\quad$$\quad$$\quad$ Cash Flows from Operations HighTech's days accounts payable outstanding at the end of 2005 is

A) 7.53 days
B) 48.09 days
C) 45.51 days
D) 50 days

Question 14

Which of the following ratios is not a measure of long-term solvency risk?

A) Debt /Equity Ratio
B) Interest Coverage Ratio
C) Operating Cash Flows to Current Liabilities Ratio
D) Liabilities to Assets Ratio

Question 15

Which of the following is a measure of market equity risk?

A) Bankruptcy
B) Beta
C) Overdue amounts
D) Defaults

Question 16

HighTech Company HighTech Company manufactures computer technology devices. Selected financial data for HighTech is presented below, use the information to answer the following questions:
$\begin{array}{lll}\text { Dec. } 31,2004&\text { As of Dec. } 31,2005&\text { Current Assets }\\\hline616,604 & \$ 1,267,038 & \text { Cash and short-term investments } \\665,828 & 490,816 & \text { Accounts Receivable (net) } \\487,505 & 338,599 & \text { Inventories } \\291,915&292,511&\text { Prepaid Expenses and other current asset: }\\\$2,061,852&\$2,388,964&\text { Total Current Assets }\\\\&&\text { Current Liabilities }\\\hline\$38,108 & \$ 25,190 & \text { Short-term borrowings } \\210,090 & 182,295 & \text { Current portion of long-term debt } \\334,247 & 296,307 & \text { Accounts payable } \\743,999 & 941,912 & \text { Accrued liabilities } \\239,793 & 203,049 & \text { Income taxes payable }\\1,566,237&1,648,753&\text { Total Curyent Liabilities }\end{array}$ $\text { SelectedIncome Statement Data - for the year ending December 31, 2005: }$
$\begin{array}{ll}\$ 4,885,340 & \text { Net Sales } \\2,542,353 & \text { Cost of GoodsSold } \\733,541 & \text { Operating Income } \\230.101 & \text { Net Income }\end{array}$ $\text { SelectedStatement of Cash Flow Data - for the year ending December 31, 2005: }$
$\$ 1,156,084$$\quad$$\quad$$\quad$ Cash Flows from Operations HighTech's 2005 Inventory Turnover ratio is

A) 7.46
B) 11.83
C) 6.16
D) 5.62

Question 17

One common problem with the current ratio is that it is susceptible to "window dressing". If prior to the end of the accounting period Streetwise Company has a current ratio of 1.5 and management wishes to boost its current ratio it may decide to

A) pay off accounts payable prior to year end.
B) purchase more inventory on account.
C) purchase short-term investments with cash.
D) purchase more inventory with cash.

Question 18

Univariate bankruptcy prediction models help identify factors related to bankruptcy, but they do not provide information about

A) specific ratios that are important.
B) the amount of Type I and Type II errors.
C) which specific company will go bankrupt.
D) the relative importance of individual financial statement ratios.

Question 19

You calculate the following from Midas Company's financial statements: Days in Receivables = 43
Days in Payables = 38
Days in Inventory = 31
How many days of working capital financing does Midas need to obtain from other sources?

A) 112 days
B) 36 days
C) 56 days
D) 26 days

Question 20

HighTech Company HighTech Company manufactures computer technology devices. Selected financial data for HighTech is presented below, use the information to answer the following questions:
$\begin{array}{lll}\text { Dec. } 31,2004&\text { As of Dec. } 31,2005&\text { Current Assets }\\\hline616,604 & \$ 1,267,038 & \text { Cash and short-term investments } \\665,828 & 490,816 & \text { Accounts Receivable (net) } \\487,505 & 338,599 & \text { Inventories } \\291,915&292,511&\text { Prepaid Expenses and other current asset: }\\\$2,061,852&\$2,388,964&\text { Total Current Assets }\\\\&&\text { Current Liabilities }\\\hline\$38,108 & \$ 25,190 & \text { Short-term borrowings } \\210,090 & 182,295 & \text { Current portion of long-term debt } \\334,247 & 296,307 & \text { Accounts payable } \\743,999 & 941,912 & \text { Accrued liabilities } \\239,793 & 203,049 & \text { Income taxes payable }\\1,566,237&1,648,753&\text { Total Curyent Liabilities }\end{array}$ $\text { SelectedIncome Statement Data - for the year ending December 31, } 2005$
$\begin{array}{ll}\$ 4,885,340 & \text { Net Sales } \\2,542,353 & \text { Cost of Goods Sold } \\733,541 & \text { Operating Income } \\230,101 & \text { Net Income }\end{array}$ SelectedStatement of Cash Flow Data - for the year ending December 31, 2005:
$\$ 1,156,084$$\quad$$\quad$$\quad$$\quad$ CashFlows from Operations HighTech's quick ratio improved by what percentage from 2004 to 2005?

A) 30%
B) 107%
C) 25%
D) 82%

Question 21

Below is selected information from DXI's 2007 financial statements: $\begin{array}{|l|l|l|}\hline \text { Dec. 31, 2006 } & \text { As of Dec.31, } 2007 & \\\hline \$ 745,800 & \$ 958,245 & \text { Cash and short-term investments } \\\hline 135,400 & 125,850 & \text { AccountsReceivable (net) } \\\hline 175,840 & 195,650 & \text { Inventories } \\\hline 30,860 & 45,300 & \text { Prepaid Expenses and other current assets } \\\hline \$ 1,087,900 & \$ 1,325,045 & \text { Total Current Assets } \\\hline 1,358,700 & 1,478,320 & \text { Plant, Property and Equipment, net } \\\hline 120,400 & 125,600 & \text { Intangible Assets } \\\hline \$ 2,567,000 & \$ 2,928,965 & \text { Total Assets } \\\hline\\\hline & & \\\hline 38,108 & \$ 25,190 & \text { Short-term borrowings } \\\hline 40,000 & 45,000 & \text { Current portion of long-term debt } \\\hline 325,900 & 285,400 & \text { Accounts payable } \\\hline 705,891 & 916,722 & \text { Acculed liabilities } \\\hline\\\hline 05,891 & \$ 16,722 & \text { Accued liablilties } \\\hline 115,600 & 125,400 & \text { Income taxes payable } \\\hline \$ 1,225,499 & \$ 1,397,712 & \text { Total Current Liabilities } \\\hline 430,000 & 450,000 & \text { Long-term Debt } \\\hline \$ 1,655,499 & \$ 1,847,712 & \text { Total Liabilities } \\\hline \$ 911,501 & \$ 1,081,253 & \text { Shareholders' Equity } \\\$ 2,567,000 & \$ 2,928,965 & \text { Total Liabilities and Shareholders Equity } \\\hline\end{array}$
$\text { Selected Income Statement Data - for the year ending December 31,2007: }$
$\begin{array}{|c|l|l|}\hline \quad\quad\quad\quad\quad\quad\quad&\$ 3,210,645 & \text { Net Sales } \\\hline&-2,310,210 & \text { Cost of GoodsSold } \\\hline &900,435 & \text { Pperating Income } \\\hline &324,850 & \text { Net Income } \\\hline\end{array}$
$\text { SelectedStatement of Cash Flow Data - for the year encling December 31,2007:}$
$\begin{array}{|l|l|l|}\hline \quad\quad\quad\quad\quad\quad\quad&\$ 584,750 & \text { Cash Flows from Operations } \\\hline &42,400 & \text { Interest Expense } \\\hline &114,200 & \text { Income Tax Expense } \\\hline\end{array}$ DXI's 2007 Long-term Debt to Shareholders' Equity ratio is

A) 31.4%
B) 29.4%
C) 34.0%
D) 45.8%

Question 22

Below is selected information from DXI's 2007 financial statements: $\begin{array}{|l|l|l|}\hline \text { Dec. 31, 2006 } & \text { As of Dec.31, } 2007 & \\\hline \$ 745,800 & \$ 958,245 & \text { Cash and short-term investments } \\\hline 135,400 & 125,850 & \text { AccountsReceivable (net) } \\\hline 175,840 & 195,650 & \text { Inventories } \\\hline 30,860 & 45,300 & \text { Prepaid Expenses and other current assets } \\\hline \$ 1,087,900 & \$ 1,325,045 & \text { Total Current Assets } \\\hline 1,358,700 & 1,478,320 & \text { Plant, Property and Equipment, net } \\\hline 120,400 & 125,600 & \text { Intangible Assets } \\\hline \$ 2,567,000 & \$ 2,928,965 & \text { Total Assets } \\\hline\\\hline & & \\\hline 38,108 & \$ 25,190 & \text { Short-term borrowings } \\\hline 40,000 & 45,000 & \text { Current portion of long-term debt } \\\hline 325,900 & 285,400 & \text { Accounts payable } \\\hline 705,891 & 916,722 & \text { Acculed liabilities } \\\hline\\\hline 05,891 & \$ 16,722 & \text { Accued liablilties } \\\hline 115,600 & 125,400 & \text { Income taxes payable } \\\hline \$ 1,225,499 & \$ 1,397,712 & \text { Total Current Liabilities } \\\hline 430,000 & 450,000 & \text { Long-term Debt } \\\hline \$ 1,655,499 & \$ 1,847,712 & \text { Total Liabilities } \\\hline \$ 911,501 & \$ 1,081,253 & \text { Shareholders' Equity } \\\$ 2,567,000 & \$ 2,928,965 & \text { Total Liabilities and Shareholders Equity } \\\hline\end{array}$
$\text { Selected Income Statement Data - for the year ending December 31,2007: }$
$\begin{array}{|c|l|l|}\hline \quad\quad\quad\quad\quad\quad\quad&\$ 3,210,645 & \text { Net Sales } \\\hline&-2,310,210 & \text { Cost of GoodsSold } \\\hline &900,435 & \text { Pperating Income } \\\hline &324,850 & \text { Net Income } \\\hline\end{array}$
$\text { SelectedStatement of Cash Flow Data - for the year encling December 31,2007:}$
$\begin{array}{|l|l|l|}\hline \quad\quad\quad\quad\quad\quad\quad&\$ 584,750 & \text { Cash Flows from Operations } \\\hline &42,400 & \text { Interest Expense } \\\hline &114,200 & \text { Income Tax Expense } \\\hline\end{array}$ DXI's 2007 Interest Coverage ratio is

A) 7.66
B) 1.00
C) 11.35
D) 4.35

Question 23

The source of risk related to technology, regulation and availability of raw materials is ____________________.

Question 24

The beta coefficient measures the ____________________ of a firm's returns with those of all shares traded in the market (in excess of the risk-free interest rate).

Question 25

Common shareholders benefit with increasing proportions of debt in the capital structure as long as the firm maintains an excess of ____________________ over the after-tax cost of debt

Question 26

By adding the number of days that inventory is held to the number of days that accounts receivable is outstanding an analyst can calculate the number of days of _____________________________________________ the firm requires.

Question 27

The source of risk related to political unrest and exchange rate changes are _________________________.

Question 28

One problem with debt ratios is that they provide no information about the ability of the firm to generate ________________________________________ to service debt.

Question 29

Below is selected information from DXI's 2007 financial statements: $\begin{array}{|l|l|l|}\hline \text { Dec. 31, 2006 } & \text { As of Dec.31, } 2007 & \\\hline \$ 745,800 & \$ 958,245 & \text { Cash and short-term investments } \\\hline 135,400 & 125,850 & \text { AccountsReceivable (net) } \\\hline 175,840 & 195,650 & \text { Inventories } \\\hline 30,860 & 45,300 & \text { Prepaid Expenses and other current assets } \\\hline \$ 1,087,900 & \$ 1,325,045 & \text { Total Current Assets } \\\hline 1,358,700 & 1,478,320 & \text { Plant, Property and Equipment, net } \\\hline 120,400 & 125,600 & \text { Intangible Assets } \\\hline \$ 2,567,000 & \$ 2,928,965 & \text { Total Assets } \\\hline\\\hline & & \\\hline 38,108 & \$ 25,190 & \text { Short-term borrowings } \\\hline 40,000 & 45,000 & \text { Current portion of long-term debt } \\\hline 325,900 & 285,400 & \text { Accounts payable } \\\hline 705,891 & 916,722 & \text { Acculed liabilities } \\\hline\\\hline 05,891 & \$ 16,722 & \text { Accued liablilties } \\\hline 115,600 & 125,400 & \text { Income taxes payable } \\\hline \$ 1,225,499 & \$ 1,397,712 & \text { Total Current Liabilities } \\\hline 430,000 & 450,000 & \text { Long-term Debt } \\\hline \$ 1,655,499 & \$ 1,847,712 & \text { Total Liabilities } \\\hline \$ 911,501 & \$ 1,081,253 & \text { Shareholders' Equity } \\\$ 2,567,000 & \$ 2,928,965 & \text { Total Liabilities and Shareholders Equity } \\\hline\end{array}$
$\text { Selected Income Statement Data - for the year ending December 31,2007: }$
$\begin{array}{|c|l|l|}\hline \quad\quad\quad\quad\quad\quad\quad&\$ 3,210,645 & \text { Net Sales } \\\hline&-2,310,210 & \text { Cost of GoodsSold } \\\hline &900,435 & \text { Pperating Income } \\\hline &324,850 & \text { Net Income } \\\hline\end{array}$
$\text { SelectedStatement of Cash Flow Data - for the year encling December 31,2007:}$
$\begin{array}{|l|l|l|}\hline \quad\quad\quad\quad\quad\quad\quad&\$ 584,750 & \text { Cash Flows from Operations } \\\hline &42,400 & \text { Interest Expense } \\\hline &114,200 & \text { Income Tax Expense } \\\hline\end{array}$ DXI's Liabilities to Assets Ratio for 2007 is

A) 105.1%
B) 63.1%
C) 78.3%
D) 100.0%

Question 30

In bankruptcy prediction analysis a type ____________________ error is classifying a firm as bankrupt and it ultimately survives.

Question 31

The operating cycle must not only generate cash to supply ________________________________________ needs, it must generate sufficient cash to service debt.

Question 32

The source of risk related interest rate changes and demographic changes is ____________________.

Question 33

In bankruptcy prediction analysis a type ____________________ error is classifying a firm as nonbankrupt when it ultimately goes bankrupt.

Question 34

The source of risk related to management competence, strategic direction and lawsuits is _________________________.

Question 35

In general, the shorter the number of days of needed financing, the ____________________ is the cash flow from operations to average current liabilities.

Question 36

Below is selected information from DXI's 2007 financial statements: $\begin{array}{|l|l|l|}\hline \text { Dec. 31, 2006 } & \text { As of Dec.31, } 2007 & \\\hline \$ 745,800 & \$ 958,245 & \text { Cash and short-term investments } \\\hline 135,400 & 125,850 & \text { AccountsReceivable (net) } \\\hline 175,840 & 195,650 & \text { Inventories } \\\hline 30,860 & 45,300 & \text { Prepaid Expenses and other current assets } \\\hline \$ 1,087,900 & \$ 1,325,045 & \text { Total Current Assets } \\\hline 1,358,700 & 1,478,320 & \text { Plant, Property and Equipment, net } \\\hline 120,400 & 125,600 & \text { Intangible Assets } \\\hline \$ 2,567,000 & \$ 2,928,965 & \text { Total Assets } \\\hline\\\hline & & \\\hline 38,108 & \$ 25,190 & \text { Short-term borrowings } \\\hline 40,000 & 45,000 & \text { Current portion of long-term debt } \\\hline 325,900 & 285,400 & \text { Accounts payable } \\\hline 705,891 & 916,722 & \text { Acculed liabilities } \\\hline\\\hline 05,891 & \$ 16,722 & \text { Accued liablilties } \\\hline 115,600 & 125,400 & \text { Income taxes payable } \\\hline \$ 1,225,499 & \$ 1,397,712 & \text { Total Current Liabilities } \\\hline 430,000 & 450,000 & \text { Long-term Debt } \\\hline \$ 1,655,499 & \$ 1,847,712 & \text { Total Liabilities } \\\hline \$ 911,501 & \$ 1,081,253 & \text { Shareholders' Equity } \\\$ 2,567,000 & \$ 2,928,965 & \text { Total Liabilities and Shareholders Equity } \\\hline\end{array}$
$\text { Selected Income Statement Data - for the year ending December 31,2007: }$
$\begin{array}{|c|l|l|}\hline \quad\quad\quad\quad\quad\quad\quad&\$ 3,210,645 & \text { Net Sales } \\\hline&-2,310,210 & \text { Cost of GoodsSold } \\\hline &900,435 & \text { Pperating Income } \\\hline &324,850 & \text { Net Income } \\\hline\end{array}$
$\text { SelectedStatement of Cash Flow Data - for the year encling December 31,2007:}$
$\begin{array}{|l|l|l|}\hline \quad\quad\quad\quad\quad\quad\quad&\$ 584,750 & \text { Cash Flows from Operations } \\\hline &42,400 & \text { Interest Expense } \\\hline &114,200 & \text { Income Tax Expense } \\\hline\end{array}$ DXI's 2007 Long-term Debt to Long-Term Capital ratio is

A) 31.4%
B) 29.4%
C) 34.0%
D) 25.4%

Question 37

Short-term ____________________________ represents a firm's near-term ability to generate cash to service working capital needs and debt service requirements.

Question 38

Below is selected information from DXI's 2007 financial statements: $\begin{array}{|l|l|l|}\hline \text { Dec. 31, 2006 } & \text { As of Dec.31, } 2007 & \\\hline \$ 745,800 & \$ 958,245 & \text { Cash and short-term investments } \\\hline 135,400 & 125,850 & \text { AccountsReceivable (net) } \\\hline 175,840 & 195,650 & \text { Inventories } \\\hline 30,860 & 45,300 & \text { Prepaid Expenses and other current assets } \\\hline \$ 1,087,900 & \$ 1,325,045 & \text { Total Current Assets } \\\hline 1,358,700 & 1,478,320 & \text { Plant, Property and Equipment, net } \\\hline 120,400 & 125,600 & \text { Intangible Assets } \\\hline \$ 2,567,000 & \$ 2,928,965 & \text { Total Assets } \\\hline\\\hline & & \\\hline 38,108 & \$ 25,190 & \text { Short-term borrowings } \\\hline 40,000 & 45,000 & \text { Current portion of long-term debt } \\\hline 325,900 & 285,400 & \text { Accounts payable } \\\hline 705,891 & 916,722 & \text { Acculed liabilities } \\\hline\\\hline 05,891 & \$ 16,722 & \text { Accued liablilties } \\\hline 115,600 & 125,400 & \text { Income taxes payable } \\\hline \$ 1,225,499 & \$ 1,397,712 & \text { Total Current Liabilities } \\\hline 430,000 & 450,000 & \text { Long-term Debt } \\\hline \$ 1,655,499 & \$ 1,847,712 & \text { Total Liabilities } \\\hline \$ 911,501 & \$ 1,081,253 & \text { Shareholders' Equity } \\\$ 2,567,000 & \$ 2,928,965 & \text { Total Liabilities and Shareholders Equity } \\\hline\end{array}$
$\text { Selected Income Statement Data - for the year ending December 31,2007: }$
$\begin{array}{|c|l|l|}\hline \quad\quad\quad\quad\quad\quad\quad&\$ 3,210,645 & \text { Net Sales } \\\hline&-2,310,210 & \text { Cost of GoodsSold } \\\hline &900,435 & \text { Pperating Income } \\\hline &324,850 & \text { Net Income } \\\hline\end{array}$
$\text { SelectedStatement of Cash Flow Data - for the year encling December 31,2007:}$
$\begin{array}{|l|l|l|}\hline \quad\quad\quad\quad\quad\quad\quad&\$ 584,750 & \text { Cash Flows from Operations } \\\hline &42,400 & \text { Interest Expense } \\\hline &114,200 & \text { Income Tax Expense } \\\hline\end{array}$ DXI's 2007 Liabilities to Shareholders' Equity ratio is

A) 100.0%
B) 170.9%
C) 63.1%
D) 129.3%

Question 39

When management takes deliberate steps at a balance sheet date to produce a better current ratio than is normal it is called ______________________________.

Question 40

Long-term ______________________________ represents the longer-term ability of the firm to generate cash internally or from external sources to satisfy plant capacity and debt repayment needs.

Question 41

Cash flow from operations indicates the amount of cash that the firm derived from operations after funding ______________________________.

Question 42

The ________________________________________ ratio indicates the number of times that net income before interest expense and income taxes exceeds interest expense.

Question 43

Beta captures the _________________________ of the firm.

Question 44

_________________________ concerns a firm's ability to make interest and principal payments on borrowings as they become due.

Question 45

Discuss the differences between Chapter 7 and Chapter 11 bankruptcy filings?

Question 46

For each of the following factors determine if the given change or level of that factor would lead an analyst to believe that managers of a firm are more or less likely to engage in earnings manipulation:

Question 47

One criticism of the interest and fixed charges coverage ratios as measures of long-term solvency risk is that they use earnings rather than cash flows in the numerator. Detail how the interest coverage ratio and fixed charges coverage ratio are calculated. In addition, discuss why using earnings in the numerator is a problem and what method could be used to alleviate this problem.

Question 48

When a financial analyst examines the credit risk of a company it is common that he or she uses a set of factors that all begin with the letter "C". Each factor provides a consideration that enters into the lending decision. List and discuss how each of the factors affects a company's credit risk.

Question 49

For each of the following scenarios determine if it is an indicator of potential cash flow problems:

Question 50

Large current ratios indicate the availability of cash and near cash assets to repay ____________________ coming due within the next year.

Question 51

Financially healthy firms frequently close any cash flow gap in their operating cycles with ________________________________________.

Question 52

An analyst can view the revenues to cash ratio as a ________________________________________.

Question 53

The main ratio used by many financial analysts to examine a company's short-term liquidity risk is the current ratio. However, there are a number of problems that arise when this ratio is used to examine short-term liquidity risk that may make the current ratio less useful than initially thought. Discuss the interpretative problems of using the current ratio.

Question 54

When the excess of ROA over the after-tax cost of borrowing declines, additional ________________________________________ begins to reduce the return to common shareholders.

Question 55

The current risk-free rate of return in the economy is 6.5%. In addition, the market rate of return is currently 10%. Given that a company's expected return on common stock is 12.5% what is the company's systemic risk level (beta)? Show your calculations. In addition, describe systemic risk.

Question 56

The current risk-free rate of return in the economy is 4%. In addition, the market rate of return is currently 9.5%. Given this information what would be the expected return on common stock for a company with a systemic risk level (Beta) of 1.2? Show your calculations. In addition, describe systemic risk.

Question 57

When calculating the quick ratio, an analyst would include in the numerator cash, ________________________________________, and receivables.

Question 58

Bankruptcy analysis research has gone through many iterations, from univariate bankruptcy prediction models to sophisticated logit models. However, after examining the results of the research there appear to be a number of common factors that consistently explain bankruptcy. These factors can be grouped into investment factors, financing factors, operating factors. For each of the three groups discuss specific factors that have been found to significantly explain bankruptcy.

Question 59

In the empirical research on earnings manipulation discussed in the chapter a number of firm characteristics are found to be associated with the likelihood of engaging in earnings manipulation. For each of the characteristics listed below discuss the rationale for their inclusion in the model:

Question 60

The analysis of short-term liquidity risk requires an understanding of the _________________________ of a firm.

Question 61

Given the following information, calculate for Year 2 the number of days of working capital financing the firm will need to obtain from other sources?

Question 62

Below is information from DXI's 2007 financial statements.

Question 63

Refer to the financial statement data for Patriot Comp. for 2006 and 2005. Complete the table by computing the ratios.