Question 1

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.

Accepted Answer

D

Question 2

One common with the current ratio is that it is susceptible to "window dressing." If prior to the end of the accounting period Saxon 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.

Accepted Answer

Paying off accounts payable prior to year-end would decrease the company's current liabilities and increase its current assets, which would increase the current ratio. This is a common practice known as "window dressing" where companies may manipulate their financial statements to appear more favorable to investors or lenders. Purchasing more inventory on account, purchasing short-term investments with cash, or purchasing more inventory with cash would not necessarily improve the current ratio.

Question 3

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

Accepted Answer

Market equity beta measures the co-movement of a firm's returns with the returns of all securities in the market, as represented by a market index. It is a measure of systematic risk or non-diversifiable risk. Therefore, it is not specific to the firm's industry competitors or its value. It is influenced by macroeconomic factors affecting the overall market, such as interest rates, inflation, and political events.

Question 4

Mobile Company
Mobile Company manufactures computer technology devices.Selected financial data for Mobile is presented below;use the information to answer the following questions:
   
-Refer to the information for Mobile Company.Days of other financing required by Mobile at the end of 2010 would be:
A) 54.36 days
B) 75.36 days
C) 102.94 days
D) 5.27 days

Accepted Answer

Days A/R + Days Inv.- Days A/P = Days Other Financing
43.20 + 59.25 - 48.09 = 54.36

Question 5

If a customer wanted to obtain bank financing which of the following will the bank inquire about before granting a loan?
A) Firms credit history
B) financial position of the firms creditors
C) firms cash flow
D) a and c

Accepted Answer

The bank will inquire about the firm's credit history to assess its ability to pay back the loan and its cash flow to determine whether it has sufficient funds to do so. Financial position of creditors may not be relevant to the bank's decision.

Question 6

Mobile Company
Mobile Company manufactures computer technology devices.Selected financial data for Mobile is presented below;use the information to answer the following questions:
   
-Refer to the information for Mobile Company.Mobile's days receivables outstanding at the end of 2010 was:
A) 43.20 days
B) 40.50 days
C) 45.25 days
D) 8.50 days

Accepted Answer

$4,885,340 / [(490,816 + 665,828)F1F1F1S1F1F1F10 .5 ] = 8.45 A/R Turnover
365 / 8.45 = 43.20 days

Question 7

Mobile Company
Mobile Company manufactures computer technology devices.Selected financial data for Mobile is presented below;use the information to answer the following questions:
   
-Refer to the information for Mobile Company.Mobile's quick ratio changed by what percentage from 2009 to 2010?
A) 30%
B) 107%
C) 25%
D) 82%

Accepted Answer

2010 Quick ratio = 1,757,854 / 1,648,753 = 1.07
2009 Quick ratio = 1,282,432 / 1,566,237 = .82
(1.07 - .82)/ .82 = .30

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

Accepted Answer

Investment factors, financing factors, and operating factors are all identified as factors influencing long-term solvency risk in bankruptcy prediction research. Credit factors are not typically considered as a separate category, but rather are often incorporated into the other three factors. Therefore, D is not one of the factors identified as influencing long-term solvency risk.

Question 9

The Johnson Company has a current ratio of 1.45.The company has just sold $600,000 worth of merchandise on credit.What will the current ratio be after the sales on credit?
A) greater than 1.45
B) 1.45
C) less than 1.45
D) unable to determine without more information

Accepted Answer

The answer of The Johnson Company has a current ratio...

Question 10

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

Accepted Answer

The answer of The best indicator for assessing a firm's...

Question 11

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

Accepted Answer

The operating cash flows to current liabilities ratio is a measure of a company's ability to meet its short-term obligations, not its long-term solvency risk. The other three ratios all provide insights into a company's long-term solvency risk. The debt/equity ratio measures the degree to which a company is financed by debt versus equity, the interest coverage ratio measures the company's ability to pay interest on its debt, and the liabilities to assets ratio measures the proportion of a company's assets that are financed by debt.

Question 12

Here are several ratios calculated from Midas Company's financial statements: Days in Receivables = 45
Days in Payables = 36
Days in Inventory = 30
How many days of working capital financing does Midas need to obtain from other sources?
A) 39 days
B) 36 days
C) 56 days
D) 26 days

Accepted Answer

The answer of Here are several ratios calculated from Midas...

Question 13

Mobile Company
Mobile Company manufactures computer technology devices.Selected financial data for Mobile is presented below;use the information to answer the following questions:
   
-Refer to the information for Mobile Company.Mobile's 2010 Inventory Turnover ratio is:
A) 7.46
B) 11.83
C) 6.16
D) 5.62

Accepted Answer

$2,542,353 / [(338,599 + 487,505)F1F1F1S1F1F1F10 .5] = 6.16

Question 14

Which of the following is not one of the three explanatory variables that determine a firm's market beta?
A) Degree of investing leverage.
B) Degree of operating leverage.
C) Degree of financial leverage.
D) Variability of sales.

Accepted Answer

The three explanatory variables that determine a firm's market beta are degree of operating leverage, degree of financial leverage, and variability of sales. Degree of investing leverage is not a factor in determining a firm's market beta.

Question 15

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

Accepted Answer

Defaulting on a principal payment on debt would be considered the most troubling state of financial distress for an investor or creditor because it means that the borrower is unable to make the required payments on their debt obligations, indicating a serious liquidity problem and potentially leading to default on other debts. Failing to make an interest payment or paying an accounts payable after the billing date could be signs of financial distress, but they may be resolved more easily and may not indicate as severe of a problem as default on principal payment. Restructuring debt could also be a sign of financial distress, but it may be a proactive step taken by the borrower to address their financial situation and avoid default.

Question 16

Doran Corp.has a current ratio of 6.Under which of the following scenarios might this indicate a ?
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 Doran Corp.operates is experiencing a recession

Accepted Answer

A current ratio of 6 indicates high liquidity, but if inventories are increasing during a recession, it might suggest that the company is unable to sell its products, leading to potential financial difficulties.

Question 17

Mobile Company
Mobile Company manufactures computer technology devices.Selected financial data for Mobile is presented below;use the information to answer the following questions:
   
-Refer to the information for Mobile Company.Mobile's days accounts payable outstanding at the end of 2010 is:
A) 7.53 days
B) 48.09 days
C) 45.51 days
D) 50 days

Accepted Answer

Purchases = $2,542,353 + 338,599 - 487,505 = 2,393,447
Average A/P = (296,307 + 334,247)F1F1F1S1F1F1F10 .5 = 315,277
A/P Turnover = 7.59
Days = 365 / 7.59 = 48.09 days

Question 18

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

Accepted Answer

Economic theory suggests that higher returns are associated with higher perceived risk. Book value, price-earnings ratio, and bankruptcy risk may also contribute to differences in market returns, but they are not as directly related to the concept of risk as perceived risk.

Question 19

Mobile Company
Mobile Company manufactures computer technology devices.Selected financial data for Mobile is presented below;use the information to answer the following questions:
   
-Refer to the information for Mobile Company.Mobile's Operating Cash Flow to Current Liabilities ratio in 2010 was:
A) .70
B) 1.39
C) 1.00
D) .72

Accepted Answer

$1,156,084 / [($1,648,753 + 1,566,237)F1F1F1S1F1F1F10 .5] = .72

Question 20

Mobile Company
Mobile Company manufactures computer technology devices.Selected financial data for Mobile is presented below;use the information to answer the following questions:
   
-Refer to the information for Mobile Company.Mobile's current ratio in 2010 was:
A) 1.07
B) 1.45
C) 1
D) .69

Accepted Answer

$2,388,964 / 1,648,753 = 1.45

Quiz 5: Risk Analysis

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

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

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

Mobile Company Mobile Company manufactures computer technology devices.Selected financial data for Mobile is presented below;use the information to answer the following questions: -Refer to the information for Mobile Company.Days of other financing required by Mobile at the end of 2010 would be:

If a customer wanted to obtain bank financing which of the following will the bank inquire about before granting a loan?

Mobile Company Mobile Company manufactures computer technology devices.Selected financial data for Mobile is presented below;use the information to answer the following questions: -Refer to the information for Mobile Company.Mobile's days receivables outstanding at the end of 2010 was:

Mobile Company Mobile Company manufactures computer technology devices.Selected financial data for Mobile is presented below;use the information to answer the following questions: -Refer to the information for Mobile Company.Mobile's quick ratio changed by what percentage from 2009 to 2010?

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

The Johnson Company has a current ratio of 1.45.The company has just sold $600,000 worth of merchandise on credit.What will the current ratio be after the sales on credit?

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

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

Here are several ratios calculated from Midas Company's financial statements: Days in Receivables = 45 Days in Payables = 36 Days in Inventory = 30 How many days of working capital financing does Midas need to obtain from other sources?

Mobile Company Mobile Company manufactures computer technology devices.Selected financial data for Mobile is presented below;use the information to answer the following questions: -Refer to the information for Mobile Company.Mobile's 2010 Inventory Turnover ratio is:

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

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

Doran Corp.has a current ratio of 6.Under which of the following scenarios might this indicate a ?

Mobile Company Mobile Company manufactures computer technology devices.Selected financial data for Mobile is presented below;use the information to answer the following questions: -Refer to the information for Mobile Company.Mobile's days accounts payable outstanding at the end of 2010 is:

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

Mobile Company Mobile Company manufactures computer technology devices.Selected financial data for Mobile is presented below;use the information to answer the following questions: -Refer to the information for Mobile Company.Mobile's Operating Cash Flow to Current Liabilities ratio in 2010 was:

Mobile Company Mobile Company manufactures computer technology devices.Selected financial data for Mobile is presented below;use the information to answer the following questions: -Refer to the information for Mobile Company.Mobile's current ratio in 2010 was: