Topics

Universities

University of North Carolina at Chapel Hill

University of Notre Dame

Clemson University

Explore all Universities

Professors

Explore all Professors

Textbook Solutions

Step-by-step solutions verified by experts

24/7 Homework Help

Complete assignments with the help of our community

Flashcards

Stimulate your visual memory & walk into test day with confidence

DocuAssist

Upload your study materials and we’ll help fill in the answers.

Campus Reps

Become a Campus Rep and earn up to 20% commission, plus weekly and monthly cash prizes.

My Courses

Add the courses you're enrolled in for tailored study material to meet your requirements

Explore all services

Deck 16: Option Valuation

Question

__________ a snapshot of the financial condition of the firm at a particular time.

A) The balance sheet provides
B) The income statement provides
C) The statement of cash flows provides
D) All of these provide
E) None of these provides

Use Space or

to flip the card.

Question

A firm has a higher asset turnover ratio than the industry average,which implies

A) the firm has a higher P/E ratio than other firms in the industry
B) the firm is more likely to avoid insolvency in the short run than other firms in the industry
C) the firm is more profitable than other firms in the industry
D) the firm is utilizing assets more efficiently than other firms in the industry
E) the firm has higher spending on new fixed assets than other firms in the industry.

Question

Return on total assets is a function of ______.

A) interest rates and pre-tax profits
B) the debt-equity ratio
C) the after-tax profit margin and the asset turnover ratio
D) sales and fixed assets
E) none of these

Question

Lake Somenos Furniture Co.
Income Statement (2001)
$\begin{array}{lr}\text { Sales } & \$ 8,000,000 \\ \text { Cost of goods sold } & 5,260,000 \\ \text { Gross profit } & 2,740,000 \\ \text { Selling and administrative expenses } & 1,500,000 \\ \text { Operating profit } & 1,240,000 \\ \text { Interest expenses } & 140,000 \\ \text { Income before tax } & 1,100,000 \\ \text { Tax expense } & 440,000 \\ \text { Net ineome } & \$ 660,000\end{array}$
$\begin{array}{l}\text { Balance Sheet }\\\begin{array}{lrr} & 2001 & {2000} \\\text { Cash } & \$ 200,000 & \$ 50,000 \\\text { Accounts receivable } & 1,200,000 & 950,000 \\\text { Inventory } & 1.840,000 & 1,500,000 \\\text { Total current assets } & 3,240,000 & 2,500,000 \\\text { Fixed assets } & 3,200,000 & 3,000,000 \\\hline \text { Total assets } & \$ 6,440,000 & \$ 5,500,000 \\\text { Accounts payable } & 800,000 & 720,000 \\\text { Bank loan } & 600,000 & 100,000 \\\hline \text { Total current liabilities } & 1,400,000 & 820,000 \\\text { Bonds payable } & 900,000 & 1,000,000 \\\text { Total liabilities } & 2,300,000 & 1,820,000 \\\text { Common stock(130,000 shares) } & 300,000 & 300,000 \\\text { Retained earnings } & 3,840,000 & 3,380,000 \\\text { Total liabilities \& equity } & \$ 6,440,000 & \$ 5,500,000\end{array}\end{array}$

-Refer to the financial statements of Lake Somenos Furniture Co.The firm's quick ratio for 2001 is ____.

A) 0.78
B) 1.71
C) 1.00
D) 2.07
E) none of these

Question

During periods of inflation,the use of FIFO (rather than LIFO)as the method of accounting for inventories causes _______.

A) higher inventory turnover
B) higher income taxes
C) lower ending inventory
D) higher reported sales
E) none of these

Question

__________ of the profitability of the firm over a period of time such as a year.

A) The balance sheet is a summary
B) The income statement is a summary
C) That statement of cash flows is a summary
D) The audit report is a summary
E) None of these is a summary

Question

If a firm has a positive tax rate,a positive ROA,and the interest rate on debt is the same as ROA,then ROA will be _______.

A) greater than the ROE
B) equal to the ROE
C) less than the ROE
D) greater than zero but it is impossible to determine how ROA will compare to ROE
E) negative in all cases

Question

A firm has a market to book value ratio that is equivalent to the industry average and an ROE that is less than the industry average,which implies _______.

A) the firm has a higher P/E ratio than other firms in the industry
B) the firm is more likely to avoid insolvency in the short run than other firms in the industry
C) the firm is more profitable than other firms in the industry
D) the firm is utilizing its assets more efficiently than other firms in the industry
E) none of these

Question

__________ of the cash flow generated by the firm's operations,investments and financial activities.

A) The balance sheet is a report
B) The income statement is a report
C) The statement of cash flows is a report
D) the auditor's statement of financial condition
E) None of these is a report

Question

In periods of inflation,accounting depreciation is __________ relative to replacement cost and real economic income is ________.

A) overstated,overstated
B) overstated,understated
C) understated,overstated
D) understated,understated
E) correctly,correctly

Question

An example of a liquidity ratio is ______.

A) fixed asset turnover
B) current ratio
C) acid test or quick ratio
D) a and c
E) b and c

Question

A firm has a P/E ratio of 12 and a ROE of 13% and a market to book value of _________.

A) 0.64
B) 0.92
C) 1.08
D) 1.56
E) none of these

Question

If the interest rate on debt is higher than ROA,then a firm will __________ by increasing the use of debt in the capital structure.

A) increase the ROE
B) not change the ROE
C) decrease the ROE
D) change the ROE in an indeterminable manner
E) none of these

Question

Given the results of the study by Clayman,you would __________ the stocks of firms with high ROEs and __________ the stocks of firms with low ROEs.

A) want to buy,want to buy
B) want to buy,not want to buy
C) not want to buy,want to buy
D) not want to buy,not want to buy
E) be unable to buy,want to buy

Question

Over a period of thirty-odd years in managing investment funds,Benjamin Graham used the approach of investing in the stocks of companies where the stocks were trading at less than their working capital value.The average return from using this strategy was approximately _____.

A) 5%
B) 10%
C) 15%
D) 20%
E) none of these

Question

A) 0.72
B) 1.71
C) 2.31
D) 2.07
E) none of these

Question

The inflation-adjusted accounting reports that the Canadian Institute of Chartered Accountants tried to impose

A) were ignored by most analysts.
B) were useful in estimating intrinsic value.
C) provided better estimates of real economic earnings than the unadjusted data.
D) added consistency to financial statement analysis.
E) none of these

Question

A firm has a higher quick (or acid test)ratio than the industry average,which implies.

A) the firm has a higher P/E ratio than other firms in the industry
B) the firm is more likely to avoid insolvency in short run than other firms in the industry
C) the firm may be less profitable than other firms in the industry
D) a and b
E) b and c

Question

If you wish to compute economic earnings and are trying to decide how to account for inventory,______.

A) FIFO is better than LIFO
B) LIFO is better than FIFO
C) FIFO and LIFO are equally good
D) FIFO and LIFO are equally bad
E) none of these

Question

A) 1.56
B) 1.62
C) 0.64
D) 2.07
E) none of these

Question

Lake Somenos Furniture Co.
Income Statement (2001)
$\begin{array}{lr}\text { Sales } & \$ 8,000,000 \\ \text { Cost of goods sold } & 5,260,000 \\ \text { Gross profit } & 2,740,000 \\ \text { Selling and administrative expenses } & 1,500,000 \\ \text { Operating profit } & 1,240,000 \\ \text { Interest expenses } & 140,000 \\ \text { Income before tax } & 1,100,000 \\ \text { Tax expense } & 440,000 \\ \text { Net ineome } & \$ 660,000\end{array}$
$\begin{array}{l}\text { Balance Sheet }\\\begin{array}{lrr} & 2001 & {2000} \\\text { Cash } & \$ 200,000 & \$ 50,000 \\\text { Accounts receivable } & 1,200,000 & 950,000 \\\text { Inventory } & 1.840,000 & 1,500,000 \\\text { Total current assets } & 3,240,000 & 2,500,000 \\\text { Fixed assets } & 3,200,000 & 3,000,000 \\\hline \text { Total assets } & \$ 6,440,000 & \$ 5,500,000 \\\text { Accounts payable } & 800,000 & 720,000 \\\text { Bank loan } & 600,000 & 100,000 \\\hline \text { Total current liabilities } & 1,400,000 & 820,000 \\\text { Bonds payable } & 900,000 & 1,000,000 \\\text { Total liabilities } & 2,300,000 & 1,820,000 \\\text { Common stock(130,000 shares) } & 300,000 & 300,000 \\\text { Retained earnings } & 3,840,000 & 3,380,000 \\\text { Total liabilities \& equity } & \$ 6,440,000 & \$ 5,500,000\end{array}\end{array}$

-Refer to the financial statements of Alderwood Vineyards,Inc.The firm's asset turnover ratio for 2001 is _________.

A) 1.34
B) 1.63
C) 0.86
D) 2.58
E) none of these

Question

Lake Somenos Furniture Co.
Income Statement (2001)
$\begin{array}{lr}\text { Sales } & \$ 8,000,000 \\ \text { Cost of goods sold } & 5,260,000 \\ \text { Gross profit } & 2,740,000 \\ \text { Selling and administrative expenses } & 1,500,000 \\ \text { Operating profit } & 1,240,000 \\ \text { Interest expenses } & 140,000 \\ \text { Income before tax } & 1,100,000 \\ \text { Tax expense } & 440,000 \\ \text { Net ineome } & \$ 660,000\end{array}$
$\begin{array}{l}\text { Balance Sheet }\\\begin{array}{lrr} & 2001 & {2000} \\\text { Cash } & \$ 200,000 & \$ 50,000 \\\text { Accounts receivable } & 1,200,000 & 950,000 \\\text { Inventory } & 1.840,000 & 1,500,000 \\\text { Total current assets } & 3,240,000 & 2,500,000 \\\text { Fixed assets } & 3,200,000 & 3,000,000 \\\hline \text { Total assets } & \$ 6,440,000 & \$ 5,500,000 \\\text { Accounts payable } & 800,000 & 720,000 \\\text { Bank loan } & 600,000 & 100,000 \\\hline \text { Total current liabilities } & 1,400,000 & 820,000 \\\text { Bonds payable } & 900,000 & 1,000,000 \\\text { Total liabilities } & 2,300,000 & 1,820,000 \\\text { Common stock(130,000 shares) } & 300,000 & 300,000 \\\text { Retained earnings } & 3,840,000 & 3,380,000 \\\text { Total liabilities \& equity } & \$ 6,440,000 & \$ 5,500,000\end{array}\end{array}$

-Refer to the financial statements of Alderwood Vineyards,Inc.The firm's fixed asset turnover ratio for 2001 is _________.

A) 1.20
B) 0.63
C) 1.97
D) 2.58
E) none of these

Question

A) 0.2
B) 1.6
C) 4.0
D) 15.0
E) 15.5

Question

Lake Somenos Furniture Co.
Income Statement (2001)
$\begin{array}{lr}\text { Sales } & \$ 8,000,000 \\ \text { Cost of goods sold } & 5,260,000 \\ \text { Gross profit } & 2,740,000 \\ \text { Selling and administrative expenses } & 1,500,000 \\ \text { Operating profit } & 1,240,000 \\ \text { Interest expenses } & 140,000 \\ \text { Income before tax } & 1,100,000 \\ \text { Tax expense } & 440,000 \\ \text { Net ineome } & \$ 660,000\end{array}$
$\begin{array}{l}\text { Balance Sheet }\\\begin{array}{lrr} & 2001 & {2000} \\\text { Cash } & \$ 200,000 & \$ 50,000 \\\text { Accounts receivable } & 1,200,000 & 950,000 \\\text { Inventory } & 1.840,000 & 1,500,000 \\\text { Total current assets } & 3,240,000 & 2,500,000 \\\text { Fixed assets } & 3,200,000 & 3,000,000 \\\hline \text { Total assets } & \$ 6,440,000 & \$ 5,500,000 \\\text { Accounts payable } & 800,000 & 720,000 \\\text { Bank loan } & 600,000 & 100,000 \\\hline \text { Total current liabilities } & 1,400,000 & 820,000 \\\text { Bonds payable } & 900,000 & 1,000,000 \\\text { Total liabilities } & 2,300,000 & 1,820,000 \\\text { Common stock(130,000 shares) } & 300,000 & 300,000 \\\text { Retained earnings } & 3,840,000 & 3,380,000 \\\text { Total liabilities \& equity } & \$ 6,440,000 & \$ 5,500,000\end{array}\end{array}$

-Refer to the financial statements of Alderwood Vineyards,Inc.The firm's return on equity ratio for 2001 is _________.

A) 0.24%
B) 1.63%
C) 4.00%
D) 15.50%
E) 16.9%

Question

Lake Somenos Furniture Co.
Income Statement (2001)
$\begin{array}{lr}\text { Sales } & \$ 8,000,000 \\ \text { Cost of goods sold } & 5,260,000 \\ \text { Gross profit } & 2,740,000 \\ \text { Selling and administrative expenses } & 1,500,000 \\ \text { Operating profit } & 1,240,000 \\ \text { Interest expenses } & 140,000 \\ \text { Income before tax } & 1,100,000 \\ \text { Tax expense } & 440,000 \\ \text { Net ineome } & \$ 660,000\end{array}$
$\begin{array}{l}\text { Balance Sheet }\\\begin{array}{lrr} & 2001 & {2000} \\\text { Cash } & \$ 200,000 & \$ 50,000 \\\text { Accounts receivable } & 1,200,000 & 950,000 \\\text { Inventory } & 1.840,000 & 1,500,000 \\\text { Total current assets } & 3,240,000 & 2,500,000 \\\text { Fixed assets } & 3,200,000 & 3,000,000 \\\hline \text { Total assets } & \$ 6,440,000 & \$ 5,500,000 \\\text { Accounts payable } & 800,000 & 720,000 \\\text { Bank loan } & 600,000 & 100,000 \\\hline \text { Total current liabilities } & 1,400,000 & 820,000 \\\text { Bonds payable } & 900,000 & 1,000,000 \\\text { Total liabilities } & 2,300,000 & 1,820,000 \\\text { Common stock(130,000 shares) } & 300,000 & 300,000 \\\text { Retained earnings } & 3,840,000 & 3,380,000 \\\text { Total liabilities \& equity } & \$ 6,440,000 & \$ 5,500,000\end{array}\end{array}$

-Refer to the financial statements of Alderwood Vineyards,Inc.The firm's P/E ratio for 2001 is _________.

A) 7.88
B) 1.63
C) 4.74
D) 15.00
E) none of these

Question

A) 1.34
B) 1.63
C) 1.96
D) 2.58
E) none of these

Question

A) 0.24
B) 1.26
C) 4.00
D) 15.00
E) none of these

Question

Lake Somenos Furniture Co.
Income Statement (2001)
$\begin{array}{lr}\text { Sales } & \$ 8,000,000 \\ \text { Cost of goods sold } & 5,260,000 \\ \text { Gross profit } & 2,740,000 \\ \text { Selling and administrative expenses } & 1,500,000 \\ \text { Operating profit } & 1,240,000 \\ \text { Interest expenses } & 140,000 \\ \text { Income before tax } & 1,100,000 \\ \text { Tax expense } & 440,000 \\ \text { Net ineome } & \$ 660,000\end{array}$
$\begin{array}{l}\text { Balance Sheet }\\\begin{array}{lrr} & 2001 & {2000} \\\text { Cash } & \$ 200,000 & \$ 50,000 \\\text { Accounts receivable } & 1,200,000 & 950,000 \\\text { Inventory } & 1.840,000 & 1,500,000 \\\text { Total current assets } & 3,240,000 & 2,500,000 \\\text { Fixed assets } & 3,200,000 & 3,000,000 \\\hline \text { Total assets } & \$ 6,440,000 & \$ 5,500,000 \\\text { Accounts payable } & 800,000 & 720,000 \\\text { Bank loan } & 600,000 & 100,000 \\\hline \text { Total current liabilities } & 1,400,000 & 820,000 \\\text { Bonds payable } & 900,000 & 1,000,000 \\\text { Total liabilities } & 2,300,000 & 1,820,000 \\\text { Common stock(130,000 shares) } & 300,000 & 300,000 \\\text { Retained earnings } & 3,840,000 & 3,380,000 \\\text { Total liabilities \& equity } & \$ 6,440,000 & \$ 5,500,000\end{array}\end{array}$

-Refer to the financial statements of Alderwood Vineyards,Inc.The firm's quick ratio for 2001 is _________.

A) 0.78
B) 1.71
C) 1.00
D) 0.85
E) none of these

Question

A) 7.88
B) 1.63
C) 4.00
D) 15.00
E) none of these

Question

A) 0.72
B) 1.71
C) 2.00
D) 8.86
E) none of these

Question

A) 1.04
B) 1.63
C) 1.96
D) 2.58
E) 3.15

Question

Lake Somenos Furniture Co.
Income Statement (2001)
$\begin{array}{lr}\text { Sales } & \$ 8,000,000 \\ \text { Cost of goods sold } & 5,260,000 \\ \text { Gross profit } & 2,740,000 \\ \text { Selling and administrative expenses } & 1,500,000 \\ \text { Operating profit } & 1,240,000 \\ \text { Interest expenses } & 140,000 \\ \text { Income before tax } & 1,100,000 \\ \text { Tax expense } & 440,000 \\ \text { Net ineome } & \$ 660,000\end{array}$
$\begin{array}{l}\text { Balance Sheet }\\\begin{array}{lrr} & 2001 & {2000} \\\text { Cash } & \$ 200,000 & \$ 50,000 \\\text { Accounts receivable } & 1,200,000 & 950,000 \\\text { Inventory } & 1.840,000 & 1,500,000 \\\text { Total current assets } & 3,240,000 & 2,500,000 \\\text { Fixed assets } & 3,200,000 & 3,000,000 \\\hline \text { Total assets } & \$ 6,440,000 & \$ 5,500,000 \\\text { Accounts payable } & 800,000 & 720,000 \\\text { Bank loan } & 600,000 & 100,000 \\\hline \text { Total current liabilities } & 1,400,000 & 820,000 \\\text { Bonds payable } & 900,000 & 1,000,000 \\\text { Total liabilities } & 2,300,000 & 1,820,000 \\\text { Common stock(130,000 shares) } & 300,000 & 300,000 \\\text { Retained earnings } & 3,840,000 & 3,380,000 \\\text { Total liabilities \& equity } & \$ 6,440,000 & \$ 5,500,000\end{array}\end{array}$

-Refer to the financial statements of Alderwood Vineyards,Inc.The firm's current ratio for 2001 is ____.

A) 0.28
B) 1.30
C) 2.31
D) 2.07
E) none of these

Question

Lake Somenos Furniture Co.
Income Statement (2001)
$\begin{array}{lr}\text { Sales } & \$ 8,000,000 \\ \text { Cost of goods sold } & 5,260,000 \\ \text { Gross profit } & 2,740,000 \\ \text { Selling and administrative expenses } & 1,500,000 \\ \text { Operating profit } & 1,240,000 \\ \text { Interest expenses } & 140,000 \\ \text { Income before tax } & 1,100,000 \\ \text { Tax expense } & 440,000 \\ \text { Net ineome } & \$ 660,000\end{array}$
$\begin{array}{l}\text { Balance Sheet }\\\begin{array}{lrr} & 2001 & {2000} \\\text { Cash } & \$ 200,000 & \$ 50,000 \\\text { Accounts receivable } & 1,200,000 & 950,000 \\\text { Inventory } & 1.840,000 & 1,500,000 \\\text { Total current assets } & 3,240,000 & 2,500,000 \\\text { Fixed assets } & 3,200,000 & 3,000,000 \\\hline \text { Total assets } & \$ 6,440,000 & \$ 5,500,000 \\\text { Accounts payable } & 800,000 & 720,000 \\\text { Bank loan } & 600,000 & 100,000 \\\hline \text { Total current liabilities } & 1,400,000 & 820,000 \\\text { Bonds payable } & 900,000 & 1,000,000 \\\text { Total liabilities } & 2,300,000 & 1,820,000 \\\text { Common stock(130,000 shares) } & 300,000 & 300,000 \\\text { Retained earnings } & 3,840,000 & 3,380,000 \\\text { Total liabilities \& equity } & \$ 6,440,000 & \$ 5,500,000\end{array}\end{array}$

-Refer to the financial statements of Alderwood Vineyards,Inc.The firm's times interest earned ratio for 2001 is _________.

A) 0.72
B) 1.71
C) 2.00
D) 3.375
E) none of these

Question

Lake Somenos Furniture Co.
Income Statement (2001)
$\begin{array}{lr}\text { Sales } & \$ 8,000,000 \\ \text { Cost of goods sold } & 5,260,000 \\ \text { Gross profit } & 2,740,000 \\ \text { Selling and administrative expenses } & 1,500,000 \\ \text { Operating profit } & 1,240,000 \\ \text { Interest expenses } & 140,000 \\ \text { Income before tax } & 1,100,000 \\ \text { Tax expense } & 440,000 \\ \text { Net ineome } & \$ 660,000\end{array}$
$\begin{array}{l}\text { Balance Sheet }\\\begin{array}{lrr} & 2001 & {2000} \\\text { Cash } & \$ 200,000 & \$ 50,000 \\\text { Accounts receivable } & 1,200,000 & 950,000 \\\text { Inventory } & 1.840,000 & 1,500,000 \\\text { Total current assets } & 3,240,000 & 2,500,000 \\\text { Fixed assets } & 3,200,000 & 3,000,000 \\\hline \text { Total assets } & \$ 6,440,000 & \$ 5,500,000 \\\text { Accounts payable } & 800,000 & 720,000 \\\text { Bank loan } & 600,000 & 100,000 \\\hline \text { Total current liabilities } & 1,400,000 & 820,000 \\\text { Bonds payable } & 900,000 & 1,000,000 \\\text { Total liabilities } & 2,300,000 & 1,820,000 \\\text { Common stock(130,000 shares) } & 300,000 & 300,000 \\\text { Retained earnings } & 3,840,000 & 3,380,000 \\\text { Total liabilities \& equity } & \$ 6,440,000 & \$ 5,500,000\end{array}\end{array}$

-Refer to the financial statements of Alderwood Vineyards,Inc.The firm's return on sales ratio for 2001 is __________ percent.

A) 0.2
B) 1.6
C) 4.0
D) 15.0
E) 21.6

Question

Lake Somenos Furniture Co.
Income Statement (2001)
$\begin{array}{lr}\text { Sales } & \$ 8,000,000 \\ \text { Cost of goods sold } & 5,260,000 \\ \text { Gross profit } & 2,740,000 \\ \text { Selling and administrative expenses } & 1,500,000 \\ \text { Operating profit } & 1,240,000 \\ \text { Interest expenses } & 140,000 \\ \text { Income before tax } & 1,100,000 \\ \text { Tax expense } & 440,000 \\ \text { Net ineome } & \$ 660,000\end{array}$
$\begin{array}{l}\text { Balance Sheet }\\\begin{array}{lrr} & 2001 & {2000} \\\text { Cash } & \$ 200,000 & \$ 50,000 \\\text { Accounts receivable } & 1,200,000 & 950,000 \\\text { Inventory } & 1.840,000 & 1,500,000 \\\text { Total current assets } & 3,240,000 & 2,500,000 \\\text { Fixed assets } & 3,200,000 & 3,000,000 \\\hline \text { Total assets } & \$ 6,440,000 & \$ 5,500,000 \\\text { Accounts payable } & 800,000 & 720,000 \\\text { Bank loan } & 600,000 & 100,000 \\\hline \text { Total current liabilities } & 1,400,000 & 820,000 \\\text { Bonds payable } & 900,000 & 1,000,000 \\\text { Total liabilities } & 2,300,000 & 1,820,000 \\\text { Common stock(130,000 shares) } & 300,000 & 300,000 \\\text { Retained earnings } & 3,840,000 & 3,380,000 \\\text { Total liabilities \& equity } & \$ 6,440,000 & \$ 5,500,000\end{array}\end{array}$

-Refer to the financial statements of Alderwood Vineyards,Inc.The firm's leverage ratio for 2001 is _________.

A) 1.56
B) 1.62
C) 0.64
D) 2.00
E) 2.17

Question

Lake Somenos Furniture Co.
Income Statement (2001)
$\begin{array}{lr}\text { Sales } & \$ 8,000,000 \\ \text { Cost of goods sold } & 5,260,000 \\ \text { Gross profit } & 2,740,000 \\ \text { Selling and administrative expenses } & 1,500,000 \\ \text { Operating profit } & 1,240,000 \\ \text { Interest expenses } & 140,000 \\ \text { Income before tax } & 1,100,000 \\ \text { Tax expense } & 440,000 \\ \text { Net ineome } & \$ 660,000\end{array}$
$\begin{array}{l}\text { Balance Sheet }\\\begin{array}{lrr} & 2001 & {2000} \\\text { Cash } & \$ 200,000 & \$ 50,000 \\\text { Accounts receivable } & 1,200,000 & 950,000 \\\text { Inventory } & 1.840,000 & 1,500,000 \\\text { Total current assets } & 3,240,000 & 2,500,000 \\\text { Fixed assets } & 3,200,000 & 3,000,000 \\\hline \text { Total assets } & \$ 6,440,000 & \$ 5,500,000 \\\text { Accounts payable } & 800,000 & 720,000 \\\text { Bank loan } & 600,000 & 100,000 \\\hline \text { Total current liabilities } & 1,400,000 & 820,000 \\\text { Bonds payable } & 900,000 & 1,000,000 \\\text { Total liabilities } & 2,300,000 & 1,820,000 \\\text { Common stock(130,000 shares) } & 300,000 & 300,000 \\\text { Retained earnings } & 3,840,000 & 3,380,000 \\\text { Total liabilities \& equity } & \$ 6,440,000 & \$ 5,500,000\end{array}\end{array}$

-Refer to the financial statements of Alderwood Vineyards,Inc.The firm's inventory turnover ratio for 2001 is _________.

A) 1.04
B) 1.63
C) 1.96
D) 2.58
E) 4.42

Question

A) 1.04
B) 0.63
C) 1.97
D) 2.58
E) none of these

Question

A) 0.24%
B) 1.63%
C) 4.00%
D) 15.00%
E) 16.9%

Question

A) 59.31
B) 49.05
C) 61.31
D) 62.31
E) none of these

Question

Lake Somenos Furniture Co.
Income Statement (2001)
$\begin{array}{lr}\text { Sales } & \$ 8,000,000 \\ \text { Cost of goods sold } & 5,260,000 \\ \text { Gross profit } & 2,740,000 \\ \text { Selling and administrative expenses } & 1,500,000 \\ \text { Operating profit } & 1,240,000 \\ \text { Interest expenses } & 140,000 \\ \text { Income before tax } & 1,100,000 \\ \text { Tax expense } & 440,000 \\ \text { Net ineome } & \$ 660,000\end{array}$
$\begin{array}{l}\text { Balance Sheet }\\\begin{array}{lrr} & 2001 & {2000} \\\text { Cash } & \$ 200,000 & \$ 50,000 \\\text { Accounts receivable } & 1,200,000 & 950,000 \\\text { Inventory } & 1.840,000 & 1,500,000 \\\text { Total current assets } & 3,240,000 & 2,500,000 \\\text { Fixed assets } & 3,200,000 & 3,000,000 \\\hline \text { Total assets } & \$ 6,440,000 & \$ 5,500,000 \\\text { Accounts payable } & 800,000 & 720,000 \\\text { Bank loan } & 600,000 & 100,000 \\\hline \text { Total current liabilities } & 1,400,000 & 820,000 \\\text { Bonds payable } & 900,000 & 1,000,000 \\\text { Total liabilities } & 2,300,000 & 1,820,000 \\\text { Common stock(130,000 shares) } & 300,000 & 300,000 \\\text { Retained earnings } & 3,840,000 & 3,380,000 \\\text { Total liabilities \& equity } & \$ 6,440,000 & \$ 5,500,000\end{array}\end{array}$

-Refer to the financial statements of Alderwood Vineyards,Inc.The firm's average collection period for 2001 is _________.

A) 5.26
B) 49.05
C) 61.31
D) 62.31
E) 69.35

Question

Given the following firm and market information,determine the value of the firm. $\begin{array}{l}\begin{array} { l l r } \text {Net profit margin}&3 \% \\\text {Total asset turnover}&1.5 \\\text {Debt/equity}&0.5 \\\text {Plowback ratio}&0.5 \\\text {Last year's dividends per share}&\$ 2.00 \\\text {Firm beta}&1.2 \\\text {Risk-free rate}&5 \% \\\text {Market risk premium}&8 \%\end{array}\end{array}$

A) $28.42
B) $18.42
C) $8.42
D) $38.42
E) none of these

Question

Purvis Corp.wants to increase its current ratio from the present level of 1.5 when it closes the books next week.The action of __________ will have the desired effect.

A) payment of current payables from cash
B) sales of current marketable securities for cash
C) write down of impaired assets
D) delay of next payroll
E) none of these

Question

__________ would best explain a situation where the ratio of (net income/total equity)of a firm is higher than the industry average,while the ratio of (net income/total assets)is lower than the industry average.

A) The firm's net profit margin is higher than the industry average
B) The firm's asset turnover is higher than the industry average
C) The firm's equity multiplier must be lower than the industry average
D) The firm's debt ratio is higher than the industry average
E) None of these

Question

A firm has an ROE of - 2%,a debt/equity ratio of 1.0,a tax rate of 0%,and an interest rate on debt of 10%.The firm's ROA is _______.

A) 4%
B) 6%
C) 8%
D) 10%
E) none of these

Question

A firm's current ratio is above the industry average;however,the firm's quick ratio is below the industry average.These ratios suggest that the firm ________.

A) has relatively more total current assets and even more inventory than other firms in the industry
B) is very efficient at managing inventories
C) has liquidity that is superior to the average firm in the industry
D) is near technical insolvency
E) none of these

Question

A firm has a (net profit/pretax profit ratio)of 0.625,a leverage ratio of 1.2,a (pretax profit/EBIT)of 0.9,an ROE of 17.82%,a current ratio of 8,and a return on sales ratio of 8%.The firm's asset turnover is ________.

A) 1.3
B) 2.3
C) 3.3
D) 4.3
E) none of these

Question

Which of the following ratios gives information on the amount of profits reinvested in the firm over the years:

A) Sales/total assets
B) Debt/total assets
C) Debt/equity
D) Retained earnings/total assets
E) None of these

Question

If a firm's ratio of (total liabilities/total assets)is higher than the industry average while the total capitalization of the firm's stockholders' equity)is lower than the industry average,the most likely assumption is that the firm _______.

A) has more current liabilities than the industry average
B) has more leased assets than the industry average
C) will be more profitable than the industry average
D) has more current assets than the industry average
E) none of these

Question

Lake Somenos Furniture Co.
Income Statement (2001)
$\begin{array}{lr}\text { Sales } & \$ 8,000,000 \\ \text { Cost of goods sold } & 5,260,000 \\ \text { Gross profit } & 2,740,000 \\ \text { Selling and administrative expenses } & 1,500,000 \\ \text { Operating profit } & 1,240,000 \\ \text { Interest expenses } & 140,000 \\ \text { Income before tax } & 1,100,000 \\ \text { Tax expense } & 440,000 \\ \text { Net ineome } & \$ 660,000\end{array}$
$\begin{array}{l}\text { Balance Sheet }\\\begin{array}{lrr} & 2001 & {2000} \\\text { Cash } & \$ 200,000 & \$ 50,000 \\\text { Accounts receivable } & 1,200,000 & 950,000 \\\text { Inventory } & 1.840,000 & 1,500,000 \\\text { Total current assets } & 3,240,000 & 2,500,000 \\\text { Fixed assets } & 3,200,000 & 3,000,000 \\\hline \text { Total assets } & \$ 6,440,000 & \$ 5,500,000 \\\text { Accounts payable } & 800,000 & 720,000 \\\text { Bank loan } & 600,000 & 100,000 \\\hline \text { Total current liabilities } & 1,400,000 & 820,000 \\\text { Bonds payable } & 900,000 & 1,000,000 \\\text { Total liabilities } & 2,300,000 & 1,820,000 \\\text { Common stock(130,000 shares) } & 300,000 & 300,000 \\\text { Retained earnings } & 3,840,000 & 3,380,000 \\\text { Total liabilities \& equity } & \$ 6,440,000 & \$ 5,500,000\end{array}\end{array}$

-Refer to the financial statements of Alderwood Vineyards,Inc.The firm's market to book value for 2001 is _________.

A) 0.24
B) 0.71
C) 4.00
D) 15.00
E) none of these

Question

What best explains why a firm's ratio of (long term debt/total capital is lower than the industry average,while the ratio of (income before interest and taxes/debt interest charges)is lower than the industry average.

A) The firm pays lower interest on long-term debt than the average firm
B) The firm has more short-term debt than average
C) The firm has a high ratio of (current assets/current liabilities)
D) The firm has a high ratio of (total cash flow/long term debt)
E) none of these

Question

TRS Company has a ratio of (total debt/total assets)that is above the industry average,and a ratio of (long term debt/equity)that is below the industry average.These ratios suggest that the firm ________.

A) utilizes assets effectively
B) has too much equity in the capital structure
C) has relatively high current liabilities
D) has a relatively low dividend payout ratio
E) none of these

Question

__________ is a true statement.

A) During periods of inflation,LIFO makes the balance sheet less representative of the actual inventory values than if FIFO were used
B) During periods of inflation,FIFO makes the balance sheet less representative of actual inventory values than if LIFO were used
C) After inflation ends,distortion due to LIFO will disappear as inventory is sold
D) During periods of inflation,LIFO overstates earnings relative to FIFO
E) None of these

Question

A firm has a (net profit/pretax profit)ratio of 0.6,a leverage ratio of 2,a (pretax profit/EBIT)of 0.6,an asset turnover ratio of 2.5,a current ratio of 1.5,and a return on sales ratio of 4%.The firm's ROE is ________.

A) 2.9%
B) 4.3%
C) 7.2%
D) 15.0%
E) none of these

Question

A firm has an ROA of 14%,a debt/equity ratio of 0.8,a tax rate of 35%,and the interest rate on the debt is 10%.The firm's ROE is ________.

A) 6.50%
B) 9.10%
C) 10.12%
D) 11.18%
E) none of these

Question

Return on total assets is the product of _____.

A) interest rates and pre-tax profits
B) the debt-equity ratio and P/E ratio
C) the after-tax profit margin and the asset turnover ratio
D) sales and fixed assets
E) None of these is correct

Question

__________ best explains a ratio of (sales/average net fixed assets)that exceeds the industry average.

A) The firm expanded plant and equipment in the past few years
B) The firm makes less efficient use of assets than competing firms
C) The firm has a substantial amount of old plant and equipment.
D) The firm uses straight-line depreciation
E) None of these

Question

Assuming continued inflation,a firm that uses LIFO will tend to have a(n)________ current ratio than a firm using FIFO,and the difference will tend to __________ as time passes.

A) higher,increase
B) higher,decrease
C) lower,decrease
D) lower,increase
E) identical,remain the same

Question

Fundamental analysis uses _________.

A) earnings and dividends prospects
B) relative strength
C) price momentum
D) a and b
E) a and c

Question

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

A) understate,overstate
B) understate,understate
C) overstate,understate
D) overstate,overstate
E) There is no discernable pattern.

Question

A measure of asset utilization is _______.

A) sales divided by working capital
B) return on total assets
C) return on equity capital
D) operating profit divided by sales
E) none of these

Question

Comparability problems arise because

A) firms may use different generally accepted accounting principles.
B) inflation may affect firms differently due to accounting conventions used.
C) financial analysts do not know how to compare financial statements.
D) a and b.
E) a and c.

Question

Which of the financial statements recognizes only transactions in which cash changes hands?

A) Balance Sheet
B) Income Statement
C) Statement of Cash Flows
D) a,and b
E) a,b,and c

Question

One problem with comparing financial ratios prepared by different reporting agencies is

A) some agencies receive financial information later than others.
B) agencies vary in their policies as to what is included in specific calculations.
C) some agencies are careless in their reporting.
D) some firms are more conservative in their accounting practices.
E) none of these.

Question

Mt. Prevost Machine Corp.
Income Statement (2001)
$\begin{array}{lr}\text { Sales } & \$ 4,000,000 \\ \text { Cost of goods sold } & 3,040,000 \\ \text { Gross profit } & 960,000 \\ \text { Selling and administrative expenses } & 430,000 \\ \text { Operating profit } & 530,000 \\ \text { Interest expense } & 160,000 \\ \text { Income before tax } & 370,000 \\ \text { Tax expense } & 148,000 \\ \text { Net income } & \$ 222,000\end{array}$
$\begin{array}{l}\text { Balance Sheet }\\\begin{array}{lrr} & 2001 & 2000 \\\text { Cash } & \$ 60,000 & \$ 50,000 \\\text { Aceounts receivable } & 550,000 & 500,000 \\\text { Inventory } & 690,000 & 620,000 \\\text { Total current assets } & 1,300,000 & 1,170,000 \\\text { Fixed assets } & 1,300,000 & 1,230,000 \\\text { Total assets } & 2,600,000 & 2,400,000 \\\text { Aceounts payable } & & \\\text { Bank loan } & 270,000 & 250,000 \\\text { Total current liabilities } & 580,000 & 500,000 \\\text { Bonds payable } & 850,000 & 750,000 \\\text { Total liabilities } & 900,000 & 1,000,000 \\\text { Common stock (25,000 shares) } & 1,750,000 & 1,750,000 \\\text { Retained earnings } & 250,000 & 250,000 \\\text { Total liabilities \& equity } & 600,000 & 400,000 \\\hline\end{array}\end{array}$

-Refer to the financial statements of Mt.Prevost Machine Corp.The firm's quick ratio for 2001 is ______.

A) 0.72
B) 1.53
C) 3.06
D) 47.90
E) none of these

Question

A) 40.72
B) 41.53
C) 43.06
D) 47.90
E) none of these

Question

A) 0.72
B) 1.53
C) 3.06
D) 47.90
E) none of these

Question

A) 0.1235
B) 0.2960
C) 2.9400
D) 11.260
E) none of these

Question

The P/E ratio that is based on a firm's financial statements and reported in the newspaper stock listings is different from the P/E ratio derived from the dividend discount model (DDM)because

A) the DDM uses a different price in the numerator.
B) the DDM uses different earnings measures in the denominator.
C) the prices reported are not accurate.
D) the people who construct the ratio from financial statements have inside information.
E) They are not different-this is a "trick" question.

Question

Proceeds from a company's sale of stock to the public are included in ______.

A) par value
B) additional paid-in capital
C) retained earnings
D) par value and retained earnings
E) par value,retained earnings,and retained earning

Question

Suppose that Pop's Cycles,Inc.has a ROA of 7% and pays a 6% coupon on its debt.Pop's has a capital structure that is 70% equity and 30% debt.Relative to a firm that is 100% equity-financed,Pop's Net Profit will be ________ and its ROE will be _______.

A) lower,lower
B) lower,higher
C) higher,lower
D) higher,higher
E) It is impossible to predict.

Question

A) 0.1325
B) 0.2960
C) 2.9400
D) 11.260
E) none of these

Question

Firms will not have both relatively high profit margins and total asset turnover for long periods of time because

A) if both variables are relatively high,more firms will be attracted into the industry,which will result in lower profit margins.
B) excess economic profits will result (until equilibrium is restored).
C) high profit margins result in inefficiency.
D) a and b.
E) a and c.

Question

A) 1.60
B) 3.16
C) 3.31
D) 4.64
E) none of these

Question

A) 0.1325
B) 0.2960
C) 2.9400
D) 11.260
E) none of these

Question

Mt. Prevost Machine Corp.
Income Statement (2001)
$\begin{array}{lr}\text { Sales } & \$ 4,000,000 \\ \text { Cost of goods sold } & 3,040,000 \\ \text { Gross profit } & 960,000 \\ \text { Selling and administrative expenses } & 430,000 \\ \text { Operating profit } & 530,000 \\ \text { Interest expense } & 160,000 \\ \text { Income before tax } & 370,000 \\ \text { Tax expense } & 148,000 \\ \text { Net income } & \$ 222,000\end{array}$
$\begin{array}{l}\text { Balance Sheet }\\\begin{array}{lrr} & 2001 & 2000 \\\text { Cash } & \$ 60,000 & \$ 50,000 \\\text { Aceounts receivable } & 550,000 & 500,000 \\\text { Inventory } & 690,000 & 620,000 \\\text { Total current assets } & 1,300,000 & 1,170,000 \\\text { Fixed assets } & 1,300,000 & 1,230,000 \\\text { Total assets } & 2,600,000 & 2,400,000 \\\text { Aceounts payable } & & \\\text { Bank loan } & 270,000 & 250,000 \\\text { Total current liabilities } & 580,000 & 500,000 \\\text { Bonds payable } & 850,000 & 750,000 \\\text { Total liabilities } & 900,000 & 1,000,000 \\\text { Common stock (25,000 shares) } & 1,750,000 & 1,750,000 \\\text { Retained earnings } & 250,000 & 250,000 \\\text { Total liabilities \& equity } & 600,000 & 400,000 \\\hline\end{array}\end{array}$

-Refer to the financial statements for Mt.Prevost Machine Corp.The firm's current ratio for 2001 is __________.

A) 0.72
B) 1.53
C) 3.06
D) 47.90
E) none of these

Question

A) .60
B) 3.16
C) 3.31
D) 4.64
E) none of these

Question

A) 1.60
B) 3.16
C) 3.31
D) 4.64
E) none of these

Question

A) 1.60
B) 3.16
C) 3.31
D) 4.64
E) none of these

Question

One reason that capital markets are not truly global is

A) exchange rates are too volatile.
B) investors are too timid.
C) some firms are not allowed to sell their shares in other countries.
D) there is not a global standard for international financial reporting.
E) both c and d are true.

Question

______ is a measure of what the firm would have earned if it didn't have any obligations to creditors or tax authorities.

A) Net Sales
B) Operating Income
C) Net Income
D) Non-operating Income
E) Earnings Before Interest and Taxes

Unlock Deck

1/90

Deck 16: Option Valuation

__________ a snapshot of the financial condition of the firm at a particular time.

A) The balance sheet provides
B) The income statement provides
C) The statement of cash flows provides
D) All of these provide
E) None of these provides

A firm has a higher asset turnover ratio than the industry average,which implies

Return on total assets is a function of ______.

A) interest rates and pre-tax profits
B) the debt-equity ratio
C) the after-tax profit margin and the asset turnover ratio
D) sales and fixed assets
E) none of these

A) 0.78
B) 1.71
C) 1.00
D) 2.07
E) none of these

Unlock Deck