Question 1

Carl Industries
Carl Industries has condensed balance sheets as shown:
 $\begin{array}{|l|r|r|r}
\hline & {\mathbf{2 0 1 1}} & {\mathbf{2 0 1 0}} & {\mathbf{2 0 0 9}} \
\hline \text { Assets: } & & & \
\hline \text { Current assets } & 65,000 & \$ 46,500 & \$ 80,000 \
\hline \text { Plant \& equipment, net } & 600,000 & 420,000 & 410,000 \
\hline \text { Intangible assets, net } & 15,000 & 36,500 & 50,000 \
\hline \text { Total assets } & 680,000 & \$ 503,000 & 540,000 \
\hline & & & \
\hline \text { Liabilities \& Stockholders' Equity: } & & & \
\hline \text { Current liabilities } & \$ 70,000 & \$ 25,000 & \$ 33,500 \
\hline \text { Long-term liabilities } & 420,000 & 290,000 & 400,000 \
\hline \text { Stockholders' equity } & 190,000 & 188,000 & 106,500 \
\hline \text { Total liabilities \& equity } & \$ 680,000 & \$ 503,000 & 540,000 \
\hline
\end{array}$

-Refer to the information for Carl Industries.In a percentage change balance sheet over the period of 2009 to 2011,what is the change in current assets? 
A) 78.6%
B) (27.3%)
C) (21.4%)
D) (18.75%)

Accepted Answer

($65,000-80,000)/80,000 = (18.75%)

Question 2

Ramos Company
Ramos Company included the following information in its annual report:
 $\begin{array}{|l|r|r|r}
\hline & \mathbf{2 0 1 1} & \mathbf{2 0 1 0} & {\mathbf{2 0 0 9}} \
\hline \text { Sales } & \$ 178,400 & \$ 162,500 & \$ 155,500 \
\hline \text { Cost of goods sold } & 115,000 & 102,500 & 100,000 \
\hline \text { Operating expenses } & 50,000 & 50,000 & 45,000 \
\hline \text { Net income } & 13,400 & 10,000 & 10,500 \
\hline
\end{array}$

-Refer to the information for Ramos Company.In a percentage change income statement over the period of 2009 to 2011,what is the change in net income? 
A) 100%
B) 21.6%
C) 72.4%
D) 27.6%

Accepted Answer

($13,400 - 10,500)/ $10,500 = 27.6%

Question 3

Return on assets will likely differ across firms and across time.Three elements of risk that will help explain these differences are operating leverage,___________________________________,and stage and length of product life cycle.

Accepted Answer

The answer of Return on assets will likely differ across...

Question 4

Firms with ____________________ levels of operating leverage experience greater variability in their return on assets.

Accepted Answer

The answer of Firms with ____________________ levels of operating leverage...

Question 5

Firms with complex capital structures can use which of the following in calculating EPS?
A) Outstanding convertible bonds.
B) Stock options exercised
C) Stock warrants issued
D) All of these are correct.

Accepted Answer

Firms with complex capital structures can use outstanding convertible bonds, stock options exercised, and stock warrants issued in calculating EPS. These instruments can have a dilutive effect on the earnings per share calculation, so it is important to consider them in order to accurately reflect the impact on shareholder value.

Question 6

Return on assets will likely differ across firms and across time.Three elements of risk that will help explain these differences are ________________________________________,cyclicality of sales and stage and length of product life cycle.

Accepted Answer

The answer of Return on assets will likely differ across...

Question 7

Firms with high operating leverage have a higher proportion of _________________________ in their cost structure.

Accepted Answer

The answer of Firms with high operating leverage have a...

Question 8

Carl Industries
Carl Industries has condensed balance sheets as shown:
 $\begin{array}{|l|r|r|r}
\hline & {\mathbf{2 0 1 1}} & {\mathbf{2 0 1 0}} & {\mathbf{2 0 0 9}} \
\hline \text { Assets: } & & & \
\hline \text { Current assets } & 65,000 & \$ 46,500 & \$ 80,000 \
\hline \text { Plant \& equipment, net } & 600,000 & 420,000 & 410,000 \
\hline \text { Intangible assets, net } & 15,000 & 36,500 & 50,000 \
\hline \text { Total assets } & 680,000 & \$ 503,000 & 540,000 \
\hline & & & \
\hline \text { Liabilities \& Stockholders' Equity: } & & & \
\hline \text { Current liabilities } & \$ 70,000 & \$ 25,000 & \$ 33,500 \
\hline \text { Long-term liabilities } & 420,000 & 290,000 & 400,000 \
\hline \text { Stockholders' equity } & 190,000 & 188,000 & 106,500 \
\hline \text { Total liabilities \& equity } & \$ 680,000 & \$ 503,000 & 540,000 \
\hline
\end{array}$

-Refer to the information for Carl Industries.In a percentage change balance sheet over the period of 2009 to 2011,what is the change in long-term liabilities? 
A) 94.7%
B) 15.4%
C) 5.3%
D) 5%

Accepted Answer

($ ($420,000-400000)/$400,000=5%

Question 9

The computation of the additional shares to be issued on the exercise of stock options
Assumes that the firm would repurchase common shares on the open market using an
Amount equal to the sum of all the following except:
A) any cash proceeds from such exercise
B) net incremental shares issued
C) any unamortized compensation expense on those options
D) any tax benefits that would be credited to additional paid-in capital

Accepted Answer

The answer of The computation of the additional shares to...

Question 10

Another term for earnings power is:
A) nonrecurrent revenue.
B) nonrecurrent gains.
C) sustainable earnings.
D) net change in equity.

Accepted Answer

Earnings power is a term used to describe a company's ability to generate sustainable earnings over a period of time. Sustainable earnings are earnings that are expected to continue into the future and are not affected by one-time gains or losses, which are classified as nonrecurrent revenue or nonrecurrent gains. Net change in equity refers to the change in a company's equity over time and is not a direct synonym for earnings power.

Question 11

Which of the following are better indicated by percentage change statements than common-size statements?
A) monetary changes
B) profitability
C) stability
D) growth and decline

Accepted Answer

Percentage change statements are better indicated for growth and decline as they show the relative change in the values compared to a base period. Common-size statements, on the other hand, show the proportion or percentage of each item in relation to a base item. Monetary changes, profitability, and stability can all be measured using both percentage change statements and common-size statements.

Question 12

The three elements of risk that help in understanding differences across firms and changes over time in ROAs are:
A) product life cycles, cyclicality of sales, competitive constraint.
B) operating leverage, cyclicality of sales, product life cycles.
C) cyclicality of sales, competitive constraint, operating leverage.
D) operating leverage, competitive constraint, product life cycles.

Accepted Answer

The three elements of risk that affect ROAs are operating leverage, cyclicality of sales, and product life cycles. These factors influence how firms manage costs and revenues, impacting profitability and risk.

Question 13

Return on assets can be disaggregated into asset turnover and ____________________________________________________________.

Accepted Answer

The answer of Return on assets can be disaggregated into...

Question 14

The ____________________ effect of interest expense on net income equals one minus the marginal tax rate times the interest expense.

Accepted Answer

The answer of The ____________________ effect of interest expense on...

Question 15

When the financial analysts multiplies the profit margin for ROA with the assets turnover ratio the result is called ______________

Accepted Answer

The answer of When the financial analysts multiplies the profit...

Question 16

Carl Industries
Carl Industries has condensed balance sheets as shown:
 $\begin{array}{|l|r|r|r}
\hline & {\mathbf{2 0 1 1}} & {\mathbf{2 0 1 0}} & {\mathbf{2 0 0 9}} \
\hline \text { Assets: } & & & \
\hline \text { Current assets } & 65,000 & \$ 46,500 & \$ 80,000 \
\hline \text { Plant \& equipment, net } & 600,000 & 420,000 & 410,000 \
\hline \text { Intangible assets, net } & 15,000 & 36,500 & 50,000 \
\hline \text { Total assets } & 680,000 & \$ 503,000 & 540,000 \
\hline & & & \
\hline \text { Liabilities \& Stockholders' Equity: } & & & \
\hline \text { Current liabilities } & \$ 70,000 & \$ 25,000 & \$ 33,500 \
\hline \text { Long-term liabilities } & 420,000 & 290,000 & 400,000 \
\hline \text { Stockholders' equity } & 190,000 & 188,000 & 106,500 \
\hline \text { Total liabilities \& equity } & \$ 680,000 & \$ 503,000 & 540,000 \
\hline
\end{array}$

-Refer to the information for Carl Industries.In a common size balance sheet for 2010,plant and equipment (net)is expressed as: 
A) 74.5%
B) 93.2%
C) 83.5 %
D) 30.5%

Accepted Answer

$420,000/503,000 83.50%

Question 17

Carl Industries
Carl Industries has condensed balance sheets as shown:
 $\begin{array}{|l|r|r|r}
\hline & {\mathbf{2 0 1 1}} & {\mathbf{2 0 1 0}} & {\mathbf{2 0 0 9}} \
\hline \text { Assets: } & & & \
\hline \text { Current assets } & 65,000 & \$ 46,500 & \$ 80,000 \
\hline \text { Plant \& equipment, net } & 600,000 & 420,000 & 410,000 \
\hline \text { Intangible assets, net } & 15,000 & 36,500 & 50,000 \
\hline \text { Total assets } & 680,000 & \$ 503,000 & 540,000 \
\hline & & & \
\hline \text { Liabilities \& Stockholders' Equity: } & & & \
\hline \text { Current liabilities } & \$ 70,000 & \$ 25,000 & \$ 33,500 \
\hline \text { Long-term liabilities } & 420,000 & 290,000 & 400,000 \
\hline \text { Stockholders' equity } & 190,000 & 188,000 & 106,500 \
\hline \text { Total liabilities \& equity } & \$ 680,000 & \$ 503,000 & 540,000 \
\hline
\end{array}$

-Refer to the information for Carl Industries.In a common size balance sheet for 2009,total liabilities and equity are expressed as: 
A) 25.9%
B) 100%
C) 74.1%
D) 103.6%

Accepted Answer

In a common size balance sheet, each category is expressed as a percentage of total assets (for the asset section) or as a percentage of total liabilities and equity (for the liabilities and equity section). Since the question asks for the percentage of total liabilities and equity in 2009, we look at the last line of the balance sheet for that year, which shows total liabilities and equity as $540,000. We divide this by the same amount to get a common size percentage of 100%.

Question 18

Return on common equity can be disaggregated into profit margin for ROCE,capital structure leverage and _________________________________________________.

Accepted Answer

The answer of Return on common equity can be disaggregated...

Question 19

In order to measure how profitable a firm is in generating a return for its common shareholders,a financial analyst would examine the return on _____________________________________________.

Accepted Answer

The answer of In order to measure how profitable a...

Question 20

Common-size analysis requires the analyst to be aware that percentages can change because of all of the following except:
A) changes in expenses in the numerator independent of changes in sales
B) changes in sales independent of changes in expenses
C) interaction effects between the numerator and denominator
D) All of these are possible explanations.

Accepted Answer

All of the options A, B, and C are possible explanations for changes in percentages in common-size analysis, so none of them is an exception.

Quiz 4: Profitability Analysis

Return on assets will likely differ across firms and across time.Three elements of risk that will help explain these differences are operating leverage,___________________________________,and stage and length of product life cycle.

Firms with ____________________ levels of operating leverage experience greater variability in their return on assets.

Firms with complex capital structures can use which of the following in calculating EPS?

Return on assets will likely differ across firms and across time.Three elements of risk that will help explain these differences are ________________________________________,cyclicality of sales and stage and length of product life cycle.

Firms with high operating leverage have a higher proportion of _________________________ in their cost structure.

The computation of the additional shares to be issued on the exercise of stock options Assumes that the firm would repurchase common shares on the open market using an Amount equal to the sum of all the following except:

Another term for earnings power is:

Which of the following are better indicated by percentage change statements than common-size statements?

The three elements of risk that help in understanding differences across firms and changes over time in ROAs are:

Return on assets can be disaggregated into asset turnover and ____________________________________________________________.

The ____________________ effect of interest expense on net income equals one minus the marginal tax rate times the interest expense.

When the financial analysts multiplies the profit margin for ROA with the assets turnover ratio the result is called ______________

Return on common equity can be disaggregated into profit margin for ROCE,capital structure leverage and _________________________________________________.

In order to measure how profitable a firm is in generating a return for its common shareholders,a financial analyst would examine the return on _____________________________________________.

Common-size analysis requires the analyst to be aware that percentages can change because of all of the following except: