Question 1

In a leveraged buyout,a firm's financial leverage ratio ________.
A) equals zero
B) equals 1
C) equals infinity
D) is a high number

Accepted Answer

In a leveraged buyout, a firm is acquired using a large amount of debt financing, which increases its financial leverage. Therefore, the financial leverage ratio is typically a high number.

Question 2

A difficulty with increasing a retailer's return on net worth through high financial leverage is the ________.
A) possible loss in sales due to being out-of-stock on desirable merchandise
B) negative effect on net profit due to high inventory levels
C) uncertainty of repayment of interest and debt
D) high costs of stocking inventory

Accepted Answer

Increasing financial leverage means taking on more debt, which in turn means paying back more interest. If the retailer is not able to repay the interest and debt, it could lead to bankruptcy. This uncertainty makes it risky to rely solely on financial leverage to increase return on net worth.

Question 3

A retailer has a collection period of 37 days.Its net sales equal $1,000,000.Its accounts receivable equals ________.
A) $27,027
B) $36,000
C) $101,370
D) The answer cannot be determined from the information provided.

Accepted Answer

To calculate the accounts receivable, we use the formula: 
Average accounts receivable = (Net credit sales / Average accounts receivable turnover)
37 days = (365 days / Accounts receivable turnover)
Accounts receivable turnover = 365/37 = 9.86

Using this turnover ratio, we can calculate average accounts receivable:
Average accounts receivable = ($1,000,000 / 9.86) = $101,370.

Therefore, the answer is C.

Question 4

A retailer can increase its accounts payable to net sales ratio by ________.
A) buying in large quantities
B) increasing its inventory turnover
C) paying accounts payable early to receive cash discounts
D) demanding longer payment terms from vendors

Accepted Answer

By demanding longer payment terms from vendors, a retailer can decrease its accounts payable turnover, resulting in an increase in its accounts payable to net sales ratio. This would be the best choice among the options given as it directly addresses the desired outcome. Buying in large quantities and increasing inventory turnover may not directly impact the ratio, and paying accounts payable early to receive cash discounts may actually decrease the ratio as it can decrease accounts payable balances.

Question 5

The collection period measures ________.
A) average grants to charitable institutions
B) the average time in court needed to get customers to pay late bills
C) how current a retailer is in paying its accounts payable
D) the average age of accounts receivable

Accepted Answer

The collection period measures the average age of accounts receivable, which is the length of time it takes for a company to collect payments from its customers.

Question 6

A retailer typically has half of its sales on credit.Credit sales are payable in full within 30 days of the merchandise's sales.The retailer's collection period (based on total net sales)is 15 days.The retailer has ________.
A) slow-turning accounts receivable
B) average-turning accounts receivable
C) fast-turning accounts receivable
D) high financial leverage

Accepted Answer

The answer of A retailer typically has half of its...

Question 7

A retailer with a high interest cost due to high financial leverage needs to carefully evaluate its ________.
A) quick ratio
B) return on net worth
C) collection period
D) assets to net sales ratio

Accepted Answer

The quick ratio measures a company's ability to meet short-term obligations with its quick assets, which are the most liquid assets that can be quickly converted to cash. A high interest cost due to high financial leverage indicates that the company may have difficulty meeting its debt obligations, so a strong quick ratio is important to ensure the company has enough cash or near-cash assets to cover its short-term obligations.

Question 8

A firm's collection period is 37 days; its overall terms are 30 days.This indicates ________.
A) slow-turning accounts receivable
B) fast-turning accounts receivable
C) average-turning accounts receivable
D) slow paying of accounts payable

Accepted Answer

The answer of A firm's collection period is 37 days;...

Question 9

A retailer's liabilities are very low relative to its assets.The retailer has ________.
A) low financial leverage
B) low fixed assets
C) high asset turnover
D) low net worth

Accepted Answer

A retailer's low liabilities relative to its assets indicates it has low financial leverage, meaning it relies less on debt financing and has a stronger financial position. This does not necessarily imply low fixed assets, high asset turnover or low net worth.

Question 10

Which budgeting process is most compatible with a management style that assumes that employees can be self-managers?
A) zero-based
B) incremental
C) bottom-up
D) top-down

Accepted Answer

The bottom-up budgeting process is most compatible with a management style that assumes employees can be self-managers. In this process, employees at all levels of the organization participate in creating the budget, providing more autonomy and decision-making power to those closest to the work being done. This style of budgeting can encourage employee engagement and ownership, as well as cross-functional collaboration. It is the opposite of the top-down budgeting process, in which senior managers create the budget and impose it on lower-level employees. The zero-based budgeting process involves starting the budgeting process from scratch each year and justifying all expenses, while incremental budgeting involves making small adjustments to the previous year's budget.

Question 11

A retailer has a return on net worth of 24 percent.If its asset turnover is 3 and its profit margin is 4.0 percent,what is its financial leverage?
A) 2 times
B) 2 percent
C) 4 times
D) 4 percent

Accepted Answer

2 timesThe financial leverage can be calculated using the formula: Return on Net Worth = Profit Margin * Asset Turnover * Financial Leverage. Plugging in the given values: 24% = 4% * 3 * Financial Leverage. Solving for Financial Leverage gives us 2 times, indicating the retailer's assets are financed by 2 times the amount of its equity.

Question 12

A retailer has $300,000 in cash,$500,000 in accounts receivable,$1,000,000 in inventories,$400,000 in marketable securities,and $2,000,000 in total current liabilities.What is its current ratio?
A) 0.15
B) 0.40
C) 1.100
D) 1.375

Accepted Answer

Current ratio = (current assets) / (current liabilities)
Current assets = cash + accounts receivable + inventories + marketable securities = 300,000 + 500,000 + 1,000,000 + 400,000 = 2,200,000
Current ratio = 2,200,000 / 2,000,000 = 1.1
Therefore, the current ratio is 1.100, which means the company has sufficient current assets to cover its current liabilities.

Question 13

A multi-unit retailer seeks to determine the profitability of a number of stores located in the Northeast.In calculating expenses by geographic area,the firm does not have to allocate which expenses?
A) direct costs
B) opportunity costs
C) natural account expenses
D) variable costs

Accepted Answer

Direct costs are those that can be specifically attributed to a particular store or location, and do not need to be allocated among multiple stores. Therefore, in calculating expenses by geographic area, the firm does not have to allocate direct costs. On the other hand, opportunity costs, natural account expenses, and variable costs may need to be allocated among multiple stores or locations, as they are not specific to one store or location.

Question 14

A retailer's net sales equals $300,000; its accounts receivable is $30,000.Its collection period is approximately ________.
A) 10 days
B) 30 days
C) 36 days
D) 54 days

Accepted Answer

To calculate the collection period, we use the formula: 
Accounts Receivable / (Net Sales / Number of Days in the Period)

Assuming a 365-day period, the calculation would be: 
$30,000 / ($300,000 / 365) = 36.5 (rounded to 36)

Therefore, the collection period is approximately 36 days. Choice C is the closest option.

Question 15

A retailer has $10 of assets for each $9 of liabilities.What is its financial leverage?
A) 0.9 times
B) 9.0 times
C) 10.0 times
D) The answer cannot be determined based on the information given.

Accepted Answer

The financial leverage is calculated as the ratio of assets to liabilities. In this case, the financial leverage is $10/$9 = 10.0 times.

Question 16

The basic difference between the quick ratio and the current ratio is that the ________.
A) quick ratio assumes that marketable securities can be quickly converted to cash
B) quick ratio is a more severe test
C) quick ratio assumes that inventories can be quickly converted to cash
D) current ratio measures only the most liquid assets

Accepted Answer

The quick ratio is a more severe test because it excludes inventories from the calculation, assuming that they cannot be quickly converted to cash. The current ratio includes all current assets, including inventories. The assumption about marketable securities is true for both ratios. The current ratio measures a broader range of assets than just the most liquid ones.

Question 17

The major difference between the top-down and the bottom-up budgeting process is ________.
A) whether the budget request is raised or lowered
B) the degree of centralization in the budgetary process
C) whether zero or incremental budgeting is used
D) the time interval between initial budget setting and the end of the budgetary process

Accepted Answer

The major difference between top-down and bottom-up budgeting is the degree of centralization in the budgetary process. Top-down budgeting is highly centralized, with budget decisions made at the top levels of management and then cascaded down to lower levels. Bottom-up budgeting is highly decentralized, with budget decisions made at lower levels of management and then aggregated up to higher levels. The other options listed are not accurate differences between the two approaches.

Question 18

A firm has $400,000 in cash,$250,000 in accounts receivable,and $700,000 in current liabilities.Its quick ratio is ________.
A) 0.36
B) 0.57
C) 0.93
D) 1.14

Accepted Answer

The quick ratio is calculated as (Cash + Accounts Receivable) / Current Liabilities. Here, it is ($400,000 + $250,000) / $700,000 = $650,000 / $700,000 = 0.93.

Question 19

A disadvantage associated with the use of leveraged buyouts is ________.
A) a high collection period
B) low asset turnover
C) the high debt-to-assets ratio
D) low return on net assets

Accepted Answer

The high debt-to-assets ratio is a disadvantage associated with the use of leveraged buyouts. Leveraged buyouts involve acquiring a company primarily with debt, which can lead to a high debt-to-assets ratio. This increases the risk of default and bankruptcy if the company is unable to generate sufficient cash flow to service the debt.

Question 20

The quick ratio measures a retailer's ability to ________.
A) raise capital with a stock offering
B) earn a satisfactory profit
C) cover short-term debt
D) control operating expenses

Accepted Answer

The quick ratio, also known as the acid test ratio, is a measure of a company's ability to cover its short-term debt obligations with its most liquid assets. This ratio does not include inventory in its calculation, as inventory can be difficult to turn into cash quickly if needed. Therefore, a high quick ratio indicates that a retailer has sufficient liquid assets to cover its short-term debt obligations.

Quiz 12: Operations Management: Financial Dimensions

In a leveraged buyout,a firm's financial leverage ratio ________.

A difficulty with increasing a retailer's return on net worth through high financial leverage is the ________.

A retailer has a collection period of 37 days.Its net sales equal $1,000,000.Its accounts receivable equals ________.

A retailer can increase its accounts payable to net sales ratio by ________.

The collection period measures ________.

A retailer typically has half of its sales on credit.Credit sales are payable in full within 30 days of the merchandise's sales.The retailer's collection period (based on total net sales) is 15 days.The retailer has ________.

A retailer with a high interest cost due to high financial leverage needs to carefully evaluate its ________.

A firm's collection period is 37 days; its overall terms are 30 days.This indicates ________.

A retailer's liabilities are very low relative to its assets.The retailer has ________.

Which budgeting process is most compatible with a management style that assumes that employees can be self-managers?

A retailer has a return on net worth of 24 percent.If its asset turnover is 3 and its profit margin is 4.0 percent,what is its financial leverage?

A retailer has $300,000 in cash,$500,000 in accounts receivable,$1,000,000 in inventories,$400,000 in marketable securities,and $2,000,000 in total current liabilities.What is its current ratio?

A multi-unit retailer seeks to determine the profitability of a number of stores located in the Northeast.In calculating expenses by geographic area,the firm does not have to allocate which expenses?

A retailer's net sales equals $300,000; its accounts receivable is $30,000.Its collection period is approximately ________.

A retailer has $10 of assets for each $9 of liabilities.What is its financial leverage?

The basic difference between the quick ratio and the current ratio is that the ________.

The major difference between the top-down and the bottom-up budgeting process is ________.

A firm has $400,000 in cash,$250,000 in accounts receivable,and $700,000 in current liabilities.Its quick ratio is ________.

A disadvantage associated with the use of leveraged buyouts is ________.

The quick ratio measures a retailer's ability to ________.