Question 1

Firms with an accounts payable turnover rate that is faster than the industry norm are:
A) Paying creditors faster than the norm.
B) Paying creditors faster than the norm and managing their payments to suppliers well.
C) In financial difficulty.
D) Managing their payments to suppliers well.
E) Paying creditors faster than the norm and are in financial difficulty.

Accepted Answer

The answer of Firms with an accounts payable turnover rate...

Question 2

CrossSports had interest expense of $12,000 and its income before interest and income taxes was $28,000.Its times interest earned ratio:
A) Is 2.3.
B) Is 0.3.
C) Is acceptable.
D) Is both 2.3 and acceptable.
E) Is both 0.3 and acceptablE.

Accepted Answer

Times interest earned ratio is calculated as income before interest and taxes divided by interest expense.

Times interest earned ratio = Income before interest and taxes ÷ Interest expense

= $28,000 ÷ $12,000

= 2.3

Since the ratio is above 1, it indicates that CrossSports generates enough income to cover its interest expense. Generally, a ratio of 2 or higher is considered acceptable, so a ratio of 2.3 is acceptable as well. Therefore, choice D is correct - the times interest earned ratio is both 2.3 and acceptable.

Question 3

A share's market value is affected by:
A) Expected growth in earnings.
B) Expected growth in dividends.
C) Expected business opportunities.
D) Expected growth in earnings and dividends.
E) All of these answers are correct.

Accepted Answer

All of these factors can contribute to the market value of a share. Expected growth in earnings and dividends can directly affect the financial performance of the company and therefore the value of its shares. Expected business opportunities can affect the future growth potential of the company which can also influence the value of its shares.

Question 4

BuyUS Inc.plans to issue 7%,$400,000,10-year bonds in order to finance an expansion.The expansion is expected to increase income before interest expense from $100,000 to $175,000.BuyUS has $1,000,000 in average common equity.Calculate the expected return on common shareholders' equity.(ignore income taxes)
A) 7.0%.
B) 14.7%.
C) 20.0%.
D) 43.8%.
E) 57.1%.

Accepted Answer

To calculate the expected return on common shareholders' equity, we need to use the DuPont analysis formula:

Return on Equity = Net Income / Average Total Equity
Net Income = Income before interest expense - Interest expense
Average Total Equity = (Beginning Common Equity + Ending Common Equity) / 2

We are given that the expansion is expected to increase income before interest expense from $100,000 to $175,000.

Net Income = $175,000 - ($400,000 x 7%) = $145,000

We are also given that BuyUS has $1,000,000 in average common equity.

Average Total Equity = ($1,000,000 + $1,000,000) / 2 = $1,000,000

Using the formula above:

Return on Equity = $145,000 / $1,000,000 = 14.5%

Therefore, the expected return on common shareholders' equity is 14.5%, which is closest to answer choice B) 14.7%.

Question 5

A company should maintain a current ratio of two to one when:
A) Estimating customer demand is difficult.
B) The company grants little or no credit.
C) The company is selling low priced clothing.
D) Inventory turns over frequently.
E) The company has little inventory.

Accepted Answer

A current ratio of two to one indicates that the company has twice as many current assets as current liabilities, which is generally considered a healthy financial position. It is particularly important for companies that grant credit, as they need to have enough current assets to cover any potential default by customers. Therefore, option B is the best choice as it suggests that the company grants little or no credit. The other options may or may not be relevant to maintaining a current ratio of two to one.

Question 6

Fast-Tech Corp's common shares have a market value of $63.The corporation's net income is $1,350,000 and the total number of shares outstanding is 450,000.The price-earnings ratio is:
A) 20.9.
B) 4.2.
C) 21.0.
D) 24.0.
E) 6.8.

Accepted Answer

The price-earnings ratio (P/E ratio) is calculated by dividing the market value per share by the earnings per share. The earnings per share can be found by dividing the net income by the total number of shares outstanding.

EPS = Net income / Total number of shares
EPS = 1,350,000 / 450,000
EPS = 3

P/E ratio = Market value per share / Earnings per share
P/E ratio = 63 / 3
P/E ratio = 21

Therefore, the P/E ratio is 21.0. The correct answer is C.

Question 7

The ratio of a company's book value of pledged assets to the book value of its secured liabilities is called the:
A) Pledged assets to secured liabilities.
B) Return on total assets.
C) Debt ratio.
D) Profit margin.
E) Times secured liabilities earned.

Accepted Answer

The given ratio is known as the pledged assets to secured liabilities ratio.

Question 8

The annual amount of cash dividends per share distributed to common shareholders relative to the share's market price is called the:
A) Dividend payout ratio.
B) Dividend yield.
C) Price-earnings ratio.
D) Current yield.
E) Earnings per sharE.

Accepted Answer

Dividend yield is the amount of cash dividends per share distributed to common shareholders relative to the share's market price.

Question 9

The pledged assets to secured liabilities ratio:
A) Is calculated by dividing book value of secured liabilities by book value of pledged assets.
B) Can be calculated from the book value of assets and liabilities.
C) Is not relevant to secured creditors.
D) Can always be calculated from information provided in the financial statements.
E) Is a method of determining if the pledged assets of a debtor will provide adequate security for a creditor.

Accepted Answer

The pledged assets to secured liabilities ratio is a method of determining if the pledged assets of a debtor will provide adequate security for a creditor. It is not calculated by dividing book value of secured liabilities by book value of pledged assets, nor is it always able to be calculated from information provided in the financial statements. It is also relevant to secured creditors, as it measures the ability of the debtor to meet their secured obligations.

Question 10

The dividend yield is calculated by:
A) Dividing cash dividends per share by earnings per share.
B) Dividing earnings per share by cash dividends per share.
C) Dividing cash dividends per share by the market price per share.
D) Dividing the market price per share by cash dividends per share.
E) Dividing cash dividends by retained earnings.

Accepted Answer

The dividend yield is calculated by dividing the annual cash dividend per share by the current market price of the stock, expressed as a percentage. Therefore, the correct answer is C.

Question 11

The formula for times interest earned is:
A) Net income + Interest expense + Income taxes divided by Interest expense.
B) Net income + Interest expense - Income taxes divided by Interest expense.
C) Net income - Interest expense - Income taxes divided by Interest expense.
D) Net income - Interest expense + Income taxes divided by Interest expense.
E) Interest expense divided by Net income + Interest expense + Income taxes expensE.

Accepted Answer

The times interest earned formula is calculated by taking the net income, adding the interest expense and income taxes, and then dividing that sum by the interest expense. This equation is expressed as (Net Income + Interest Expense + Income Taxes) / Interest Expense.

Question 12

If the times interest earned ratio:
A) Increases,risk increases.
B) Is under 1.5,risk decreases.
C) Is over 1.5,risk increases.
D) Increases,risk decreases.
E) Increases and/or is under 1.5,risk decreases.

Accepted Answer

The times interest earned ratio measures a company's ability to meet its interest obligations. An increase in this ratio indicates a stronger ability to cover interest payments, thus reducing financial risk.

Question 13

Wild Rose Corp paid $.65 in common annual dividends per share.Its earnings per share was $4.50.The market price per share was $38.00.Its dividend yield was:
A) 11.7%.
B) 1.7%.
C) 10.9%.
D) 21.4%.
E) 46.7%.

Accepted Answer

Dividend yield is calculated as dividend amount per share divided by market price per share, multiplied by 100. 
Dividend yield = (0.65 / 38) x 100 = 1.71 or 1.7% (rounded to one decimal place).

Question 14

Marble Corp.paid $.56 in common annual dividends per share.Its earnings per share was $5.20.The market price per share was $30.00.Its dividend yield was:
A) 11.4%.
B) 14.0%.
C) 7.1%.
D) 1.9%.
E) 8.75%.

Accepted Answer

The dividend yield is calculated as the annual dividends per share divided by the market price per share. So, for Marble Corp., the dividend yield = ($0.56 / $30.00) * 100% = 1.9%.

Question 15

Dividend yield measures:
A) The annual cash dividends per share paid to common shareholders relative to the stock's market price.
B) The annual cash dividends per share paid to common shareholders relative to the earnings per share.
C) The annual cash dividends per share paid to common shareholders relative to the investors' purchase price of the stock.
D) The annual cash dividends per share paid to common shareholders relative to the amount of retained earnings.
E) The annual cash dividends per share paid to common shareholders relative to the amount of cash.

Accepted Answer

Dividend yield measures the annual cash dividends per share paid to common shareholders relative to the stock's market price. This is often expressed as a percentage, as it shows how much a company pays out in dividends in comparison to its stock price.

Question 16

The price-earnings ratio is calculated by:
A) Dividing dividends by earnings per share.
B) Dividing earnings per share by market price per share.
C) Dividing market price per share by earnings per share.
D) Dividing dividends by market price per share.
E) Dividing market price per share by dividends.

Accepted Answer

The price-earnings ratio (P/E ratio) is calculated by dividing the market price per share by earnings per share. This ratio helps investors determine how much they are willing to pay for a company's earnings. A higher P/E ratio usually indicates that investors have high hopes for a company's future earnings potential.

Question 17

CampUs Ltd has net income of $500,000.It has 125,000 shares outstanding and a market price per share of $115.The price-earnings ratio is:
A) 28.8.
B) 14.7.
C) 92.0.
D) 13.5.
E) 8.0.

Accepted Answer

The price-earnings ratio is calculated by dividing the market price per share by the earnings per share. The earnings per share is calculated by dividing the net income by the number of shares outstanding. In this case, the earnings per share is $500,000 / 125,000 = $4.00. The price-earnings ratio is $115 / $4.00 = 28.8.

Question 18

The book value of a firm's total assets is $550,000 and it has pledged $500,000 of those assets to secure a loan of $450,000.The firm's total liabilities are $425,000.The pledged assets to secured liabilities is:
A) 1.1.
B) 1.3.
C) 1.4.
D) 1.7.
E) 2.2.

Accepted Answer

The answer of The book value of a firm's total...

Question 19

CompUS has pledged $275,000 worth of its assets.The total book value of its assets is $625,000.The firm's total liabilities are $750,000.The secured liabilities are $150,000.The pledged assets to secured liabilities is:
A) 1.2.
B) 1.8.
C) 2.3.
D) 2.7.
E) 5.0.

Accepted Answer

The pledged assets to secured liabilities ratio can be calculated as follows:

Pledged assets to secured liabilities ratio = (Value of pledged assets) / (Value of secured liabilities)

Here, the value of pledged assets is given as $275,000 and the value of secured liabilities is given as $150,000.

Therefore, pledged assets to secured liabilities ratio = $275,000 / $150,000 = 1.83

So, the best choice is B, which is 1.8.

Question 20

Return on total assets measures:
A) The percent of net income in each dollar of net sales.
B) A company's ability to produce sales from their assets.
C) A company's ability to produce net income from their assets.
D) A company's ability to increase its asset base from sales.
E) A company's ability to increase its asset base from net incomE.

Accepted Answer

Return on total assets (ROA) measures a company's ability to generate net income from their assets. It is calculated by dividing net income by total assets. This ratio indicates how efficiently a company is using its resources, and higher ROA values are generally considered more favorable.

Quiz 18: Analyzing Financial Statements

Firms with an accounts payable turnover rate that is faster than the industry norm are:

CrossSports had interest expense of $12,000 and its income before interest and income taxes was $28,000.Its times interest earned ratio:

A share's market value is affected by:

A company should maintain a current ratio of two to one when:

Fast-Tech Corp's common shares have a market value of $63.The corporation's net income is $1,350,000 and the total number of shares outstanding is 450,000.The price-earnings ratio is:

The ratio of a company's book value of pledged assets to the book value of its secured liabilities is called the:

The annual amount of cash dividends per share distributed to common shareholders relative to the share's market price is called the:

The pledged assets to secured liabilities ratio:

The dividend yield is calculated by:

The formula for times interest earned is:

If the times interest earned ratio:

Wild Rose Corp paid $.65 in common annual dividends per share.Its earnings per share was $4.50.The market price per share was $38.00.Its dividend yield was:

Marble Corp.paid $.56 in common annual dividends per share.Its earnings per share was $5.20.The market price per share was $30.00.Its dividend yield was:

Dividend yield measures:

The price-earnings ratio is calculated by:

CampUs Ltd has net income of $500,000.It has 125,000 shares outstanding and a market price per share of $115.The price-earnings ratio is:

The book value of a firm's total assets is $550,000 and it has pledged $500,000 of those assets to secure a loan of $450,000.The firm's total liabilities are $425,000.The pledged assets to secured liabilities is:

CompUS has pledged $275,000 worth of its assets.The total book value of its assets is $625,000.The firm's total liabilities are $750,000.The secured liabilities are $150,000.The pledged assets to secured liabilities is:

Return on total assets measures: