Accounting multiple choice questions In Tutorial Library
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TITLE: Accounting multiple choice questions
UNIVERSITY / INSTITUTE: Purdue University
CLASS / COURSE: Finance
QUESTION DESCRIPTION:
Questions: 26
1. A common-size balance sheet shows the firm's accounts as a percent of the:
a. industry's assets.
b. firm's net income.
c. firm's total assets.
d. firms cost of goods sold
e. None of the above
2.
(Points: 1)
When a firm's debt-equity ratio is 1.0, the firm:
a. has too much long-term debt in relation to leases.
b. has less long-term debt than equity.
c. is nearing insolvency.
d. has as much in long-term liabilities as in equity.
3.
(Points: 1)
If a firm's total debt ratio is greater than 0.5, then:
a. its current liabilities are quite high.
b. its debt-equity ratio exceeds 1.0.
c. it has too few of total assets.
d. it has more long-term debt than equity.
4.
(Points: 1)
A times interest earned (TIE) ratio of 5.0 indicates that the firm:
a. is 5 times less likely to pay its interest charges
b. earns significantly more than its interest obligations.
c. has interest expense equal to 5% of EBIT.
d. has low tax liability.
e. has a debt-to-equity ratio of 5
5.
(Points: 1)
Which of the following actions will improve a firm's current ratio if it is currently less than 1.0?
a. Convert marketable securities to cash.
b. Pay accounts payable with cash.
c. Buy inventory on credit.
d. Sell inventory at cost.
e. None of the above
6.
(Points: 1)
If a firm's quick ratio is 0.50, this would suggest that the firm:
a. has a low level of current liabilities.
b. has been overstating the value of its inventory.
c. faces a potentially serious liquidity crisis.
d. should reduce its holdings of cash and/or marketable securities.
7.
(Points: 1)
What are the annual sales for a firm with $400,000 in debt, a total debt ratio of 0.4, and an asset turnover of 3.0?
a. $ 333,333
b. $1,200,000
c. $1,800,000
d. $3,000,000
e. None of the above
8.
(Points: 1)
The inventory turnover ratio compares:
a. sales to beginning inventory.
b. cost of goods sold to average inventory.
c. average receivables to average inventory.
d. average assets to average inventory.
e. None of the above
9.
(Points: 1)
A firm reports a net profit margin of 10.0% on sales of $3 million when ignoring the effects of financing. If taxes are $200,000, how much is EBIT? Note that net income = EBIT - Taxes.
a. $100,000
b. $300,000
c. $500,000
d. $800,000
10.
(Points: 1)
How much will book value per share (BVPS) increase for a firm with EPS of $2 and a 40% dividend payout ratio? Note that BVPS is common equity divided by number of shares
a. $0.80 per share
b. $0.40 per share
c. $1.20 per share
d. $2.00 per share
e. None of the above
11.
(Points: 1)
The use of debt in the firm's capital structure will increase ROE if the firm:
a. has more debt than equity.
b. pays less in taxes than in interest.
c. earns a higher return than the rate paid on debt.
d. has a times interest earned greater than 1.0.
12.
(Points: 1)
Suppose a firm's equity ratio 75%, net profit margin is 7%, sales equal $350,000, and total assets equal $120,000. Using the DuPont model, calculate ROE.
a. 9.33%
b. 7.5%
c. 7%
d. 27.22%
e. None of the above
13.
(Points: 1)
Calculate the debt ratio for a firm with a debt-to-equity ratio of 0.65?
a. 35.59%
b. 39.39%
c. 54.39%
d. 65.0%
e. None of the above
14.
(Points: 1)
Which of the following would be most detrimental to a firm's current ratio if that ratio is currently 2.0?
a. Buy raw materials on credit.
b. Sell marketable securities at cost.
c. Pay off accounts payable with cash.
d. Pay off a portion of long-term debt with cash.
15.
(Points: 1)
Last year's asset turnover ratio was 2.0. Sales have increased by 25% and average total assets have increased by 10% since that time. Calculate asset turnover ratio.
a. 1.82
b. 2.05
c. 2.15
d. 2.27
16.
(Points: 1)
The use of financial leverage will be detrimental to a firm's ROE if the:
a. firm has no long-term debt.
b. firm's profit margin does not exceed its asset turnover.
c. interest expense exceeds the tax liability.
d. interest rate on debt exceeds the firm's ROA.
17.
(Points: 1)
Kenzi Corp. has a net profit margin of 7%. It finances 80% of its assets with equity. What asset turnover ratio is necessary to achieve an ROE of 18%?
a. 2.057
b. 2.04
c. 2.141
d. 4.024
18.
(Points: 1)
A total debt ratio of 0.35:
a. indicates that the firm is financed with 35% long-term debt.
b. would exist if a firm had liabilities of $700 and assets of $2,000.
c. indicates that 35 cents of every dollar of capital is in the form of short-term debt.
d. indicates that 35 cents of every dollar of capital is in the form of long-term debt.
19.
(Points: 1)
A sign that a firm is efficient in the utilization of its assets is a:
a. high average collection period.
b. high equity multiplier ratio
c. low asset turnover.
d. high inventory turnover.
e. none of the above
20.
(Points: 1)
Debt management ratios provide an indication as to a firm's asset utilization.
True False
21.
(Points: 1)
An increase in a firm's depreciation expenses would reduce the firm's taxable income but would increase the firm's net cash flow.
True False
22.
(Points: 1)
The inventory turnover ratio measures the profitability of a firm to its stockholders.
True False
23.
(Points: 1)
Which of the following ratios could help you evaluate a firm for its ability to meet its short-term debt obligations?
a. Net profit margin
b. Total assets turnover
c. Times interest earned ratio
d. Quick ratio
e. Price-earnings ratio
24.
(Points: 1)
A firm has a net profit margin of 17% on sales of $30 million. If the firm has debt of $8 million, interest rate of 5%, and total assets of $25 million, what is the firm's ROA? Hint: use Du Pont.
a. 12.9%
b. 13.33%
c. 20.40%
d. 25.1%
25.
(Points: 1)
The question "Did the common stockholders receive an adequate return on their investment?" is answered by looking at the firm's:
a. liquidity ratios
b. asset management ratios
c. leverage ratios
d. profitability ratios
26.
(Points: 1)
If Boyd Corporation has annual sales of $2 million (all credit) and average collection period of 35 days, calculate the firm's accounts receivable (use 365 days).
a. $57,143.13
b. $5,556.01
c. $191,780.82
d. $97,222
e. None of the above
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SUBJECTS / CATEGORIES:
1. Finance
2. Financial Management
3. Accounting
4. Corporate Finance
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