Question 1

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 quick ratio for 2008 is ________.

Accepted Answer

The answer of The financial statements of Burnaby Mountain Trading...

Question 2

A firm has a ROE equal to the industry average but its price-to-book ratio is below the industry average. You know that the firm's ________.

Accepted Answer

The firm's ROE is equal to the industry average, which means its return on equity is not necessarily above industry average. However, its price-to-book ratio is below industry average, indicating that investors are valuing the firm at a lower rate than its book value. This also implies that the firm's earnings yield (earnings per share/price per share) is relatively high compared to the industry average. Therefore, choice A is the correct answer. The other choices do not have a clear relationship with the given information.

Question 3

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

The answer of Use the following cash flow data of...

Question 4

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 investing activities of Haven Hardware?

Accepted Answer

The answer of Use the following cash flow data of...

Question 5

If a firm's ratio of (shareholders' equity/total assets) is lower than the industry average and its ratio of (long-term debt/shareholders' equity) is also lower than the industry average, this would suggest that the firm ________.

Accepted Answer

A low ratio of shareholders' equity/total assets indicates that the firm is relying more on debt financing than equity financing and thus may have more current liabilities than the industry average. Additionally, a low ratio of long-term debt/shareholders' equity indicates that the firm has a lower level of debt in relation to equity, which suggests a lower risk profile and potentially less profitability.

Question 6

Use the following cash flow data of Haven Hardware for the year ended 31 December 2013.  What is the net increase or decrease in cash for Haven Hardware for 2013?

Accepted Answer

The answer of Use the following cash flow data of...

Question 7

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

ROE = 0.6(0.7)(0.06)(4)(1.5) = 0.1512

Question 8

Economic Value Added (EVA) is:

Accepted Answer

Economic Value Added (EVA) is a financial performance measure that calculates the difference between the return on assets (ROA) and the opportunity cost of capital (the cost of capital times the capital invested). It represents the residual income that remains after deducting the cost of capital from the net operating profit. Therefore, option A is the correct answer. Option B is incorrect, as it merely multiplies two profitability ratios. Option C is incorrect, as abnormal return is a measure of excess return over the market's expected or required return, and is not necessarily linked to EVA. Option D is incorrect, as high-growth firms may have high EVA or low EVA, depending on whether their ROA exceeds their cost of capital.

Question 9

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

Accepted Answer

Many firms tie managers' compensation to EVA, making it an important metric for measuring financial performance and incentivizing managers to improve shareholder value.

Answer: B
 A profitable firm may not necessarily have a positive EVA, as EVA takes into account the cost of capital and whether the return on investment is sufficient to cover that cost.

Answer: C
 EVA recognizes that the cost of capital is a real cost because it considers the opportunity cost of investing in a project or asset as opposed to alternative investments that would provide a similar return.

Answer: D
 If a firm has positive present value of growth opportunities, it may still have negative EVA because the cost of capital may be higher than the return on investment in growth opportunities.

Question 10

If a firm has an ROA of 8%, a debt/equity ratio of 0.5, its ROE is ________.

Accepted Answer

ROE = ROA * (1 + Debt/Equity) = 8% * (1 + 0.5) = 12%

Question 11

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

The answer of The financial statements of Burnaby Mountain Trading...

Question 12

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

Lower inventory turnover, longer ACP and lower fixed-asset turnover are all indicators of poor operational efficiency, which contribute to lower asset turnover, profitability and return on equity. Therefore, it is not surprising to find that the firm has lower ATO, ROA and ROE than the industry average.

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

The net cash provided by or used in financing activities is calculated by adding up the cash inflows and outflows from financing activities, which are listed in the financing section of the cash flow statement. In this case, the cash inflows from financing activities are $80,000 from the issuance of long-term debt and $50,000 from the issuance of common stock, for a total cash inflow of $130,000. The cash outflows from financing activities are $250,000 in dividends paid and $0 for the repayment of long-term debt, for a total cash outflow of $250,000. Therefore, the net cash provided by or used in financing activities is -$120,000, which means that Haven Hardware used $120,000 of cash in financing activities.

Question 14

A firm has a P/E ratio of 24 and a ROE of 12%. Its market-to-book-value ratio is ________.

Accepted Answer

The answer of A firm has a P/E ratio of...

Question 15

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 current ratio for 2008 is ________.

Accepted Answer

The answer of The financial statements of Burnaby Mountain Trading...

Question 16

A firm has a tax burden of 0.7, a leverage ratio of 1.3, an interest burden of 0.8, and a return on sales ratio of 10%. The firm generates $2.28 in sales per dollar of assets. What is the firm's ROE?

Accepted Answer

ROE = (0.7)(1.3)(0.8)(0.10)(2.28) = 16.6%

Question 17

Use the following cash flow data of Haven Hardware for the year ended 31 December 2013.  What is the cash at the end of 2013 for Haven Hardware?

Accepted Answer

The answer of Use the following cash flow data of...

Question 18

A firm has an ROA of 19%, a debt/equity ratio of 1.8, a tax rate of 30%, and the interest rate on its debt is 7%. Its ROE is ________.

Accepted Answer

ROE = ROA x (1 - debt/equity) x (1 - tax rate) + (debt/equity x interest rate x [1 - tax rate])

Substituting the given values, we get:

ROE = 19% x (1 - 1.8) x (1 - 0.30) + (1.8 x 7% x [1 - 0.30])
ROE = 28.42%

Therefore, the answer is (B).

Question 19

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

Accepted Answer

A high price-to-book ratio indicates that investors may believe that the firm has opportunities to earn a rate of return in excess of the market capitalization rate. This means investors are willing to pay more for each dollar of assets because they believe the company can generate higher returns from those assets. The other options do not directly correlate with a high price-to-book ratio.

Question 20

The level of real income of a firm can be distorted by the reporting of depreciation and interest expense. During periods of low inflation, the level of reported depreciation tends to ________ income, and the level of interest expense reported tends to ________ income.

Accepted Answer

During periods of low inflation, depreciation tends to be reported at a higher rate than its true economic depreciation. This results in an understatement of income. Similarly, the level of reported interest expense tends to be higher than the cost of borrowing due to the impact of inflation on interest rates, leading to an overstatement of income. Therefore, option A is the correct answer.

Quiz 13: Financial Statement Analysis

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 quick ratio for 2008 is ________.

A firm has a ROE equal to the industry average but its price-to-book ratio is below the industry average. You know that the firm's ________.

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?

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 investing activities of Haven Hardware?

If a firm's ratio of (shareholders' equity/total assets) is lower than the industry average and its ratio of (long-term debt/shareholders' equity) is also lower than the industry average, this would suggest that the firm ________.

Use the following cash flow data of Haven Hardware for the year ended 31 December 2013. What is the net increase or decrease in cash for Haven Hardware for 2013?

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 ________.

Economic Value Added (EVA) is:

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

If a firm has an ROA of 8%, a debt/equity ratio of 0.5, its ROE is ________.

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 ________.

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

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?

A firm has a P/E ratio of 24 and a ROE of 12%. Its market-to-book-value ratio is ________.

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 current ratio for 2008 is ________.

A firm has a tax burden of 0.7, a leverage ratio of 1.3, an interest burden of 0.8, and a return on sales ratio of 10%. The firm generates $2.28 in sales per dollar of assets. What is the firm's ROE?

Use the following cash flow data of Haven Hardware for the year ended 31 December 2013. What is the cash at the end of 2013 for Haven Hardware?

A firm has an ROA of 19%, a debt/equity ratio of 1.8, a tax rate of 30%, and the interest rate on its debt is 7%. Its ROE is ________.

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

The level of real income of a firm can be distorted by the reporting of depreciation and interest expense. During periods of low inflation, the level of reported depreciation tends to income, and the level of interest expense reported tends to income.