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Q:
There is a strong upward movement in the price of OTC securities which are to be listed on an exchange, but this increase generally tapers off after the listing.
Q:
Before investing in a new stock issue, the investor should consider the management of the firm, past performance record, and intended use of funds.
Q:
Research indicates that large, prestigious investment bankers generally provide lower initial returns to investors than smaller investment banking houses.
Q:
Under-pricing of new stock issues helps ensure the investment banker that the issue will be fully subscribed to at the initial market price.
Q:
The stock price of an acquiring company generally changes parallel to that of the target.
Q:
The greatest profit, and the greatest risk, arises from trying to identify an acquisition candidate before the announcement.
Q:
Cash tender offers in mergers have tax advantages as compared to stock tender offers.
Q:
There is rarely a significant change in stock price when an OTC stock becomes listed on a national exchange.
Q:
In an efficient market environment, it is reasonable to assume that the higher the premium on a target company's stock, the less the risk of cancellation.
Q:
If a firm has a return on assets of 10% and a 40% debt-to-total-assets ratio, what will the return on equity be?
Q:
If a firm has an after-tax profit margin of 8%, an asset turnover of 3 times, and no debt, what will be its return on assets and return on equity?
Q:
Given the following financial data: net income/sales = 6%, sales/total assets = 2.5X, and debt/total assets = 25%, compute the return on assets and return on equity.ROA = 15.0%ROE = 20.0%
Q:
Price Printing Co. had sales of $10 million, operating income of $3 million, after-tax income of $1 million, assets of $8 million, stockholders' equity of $5 million, and a total debt of $3 million. If we measure Price's financial leverage, we would most likely use which of the following ratios from chapter 8?A.Debt-to-equity (60%) and debt-to-sales (30%)B.Debt-to-equity (60%) and equity-to-assets (62.5%)C.Debt-to-equity (60%) and debt-to-assets (37.5%)D.Equity-to-assets (62.5%) and after-tax income-to-debt (33.3%)
Q:
Price Printing Co. had sales of $10 million, operating income of $3 million, after-tax income of $1 million, assets of $8 million, stockholders' equity of $5 million, and a total debt of $3 million. What is Price Printing Company's asset turnover?
A..50x
B.1.25x
C.2.50x
D.3.33x
E..80x
Q:
Price Printing Co. had sales of $10 million, operating income of $3 million, after-tax income of $1 million, assets of $8 million, stockholders' equity of $5 million, and a total debt of $3 million. What is Price Printing Company's profit margin?
A.10.0%
B.20.0%
C.30.0%
D.33.0%
E.90.0%
Q:
Price Printing Co. had sales of $10 million, operating income of $3 million, after-tax income of $1 million, assets of $8 million, stockholders' equity of $5 million, and a total debt of $3 million. What is Price Printing Company's return on equity?
A.37.5%
B.10.0%
C.20.0%
D.60.0%
E.12.5%
Q:
Price Printing Co. had sales of $10 million, operating income of $3 million, after-tax income of $1 million, assets of $8 million, stockholders' equity of $5 million, and a total debt of $4 million. What is Price Printing Company's return on assets?
A.37.5%
B.12.5%
C.30.0%
D.25.0%
E.20.0%
Q:
You would expect to find depreciation and amortized expenses in the statement of cash flows under:
A.cash flows from operating activities.
B.cash flows from investing activities.
C.cash flows from financing activities.
D.cash flows from purchasing activities.
Q:
You would find the payment of dividends in the statement of cash flow under:
A.cash flows from operating activities.
B.cash flows from investing activities.
C.cash flows from financing activities.
D.cash flows from purchasing activities.
E.cash flows from selling activities.
Q:
When a company repurchases shares of their own common stock,
A.the earnings per share will rise.
B.the dividends paid out in total will decline.
C.the earnings per share growth rate will rise.
D.All of the above will happen
Q:
Which of the following is a good example of changes in accounting principles?
A.A change in earnings per share, due to an increase in the number of shares of common stock
B.A change in income, due to a change for post-retirement benefits
C.A change in earnings before taxes, because of a change in internal rates on debt
D.None of the above
Q:
The type of ratio that allows the analyst to measure the ability of the firm to earn an adequate return on sales, total assets, and invested capital is:
A.liquidity ratios.
B.profitability ratios.
C.asset-utilization ratios.
D.debt-utilization ratios.
E.price ratios.
Q:
Financial ratios are used to weigh and evaluate:
A.the operating performance and capital structure of the firm.
B.which stocks are the gold mine stocks when investing in the market.
C.which stocks are about to file for bankruptcy.
D.the net present value of the company.
E.which companies manage their inventories effectively.
Q:
The primary sections of a statement of cash flows are:
A.cash flows from investing, operating, and financing activities.
B.cash flows from investing and operating activities.
C.cash flows from investing, financing, and accounting activities.
D.cash flows from investing, operating, financing, and accounting activities.
Q:
The major device that indicates what the firm owns, and how these assets are financed, in the form of liabilities or ownership interest is:
A.the balance sheet.
B.the statement of cash flows.
C.the income statement.
D.the general ledger.
Q:
Which of the following is not an Asset-utilization ratio:
A.Receivable turnover
B.Fixed-asset turnover
C.Quick ratio
D.Total assets turnover
E.All of the above are Asset-utilization ratios
Q:
A stock is a good buy when the value of which of these ratios is low, compared to a market index or company history?
A.Price-to-book-value
B.Price-to-earnings
C.Dividend yield
D.All of the above
Q:
An analyst can judge a company's level of debt by comparing these ratios:
A.return-on-equity to total debt-to-assets
B.return-on-equity to total asset turnover
C.return-on-equity to debt turnover
D.return-on-equity to return-on-assets
E.return-on-equity to current ratio
Q:
The statement of cash flows tells us
A.what the accounting profit or loss is.
B.how cash was created.
C.the actual profit or loss.
D.the actual value of assets and liabilities.
E.the source and use of net income.
Q:
Corporate pension funds pose a threat to future earnings of the company because
A.the company is liable for all payments.
B.unfunded pensions will be paid from future earnings.
C.the firm may be unable to reinvest in new assets.
D.All of the above
Q:
Replacement cost accounting __________ income but __________ assets and ____________ the debt-to-assets ratio.
A.reduces; increases; lowers
B.lowers; increases; increases
C.increases; decreases; lowers
D.none of the above
Q:
In an inflationary economy, many firms use the ________ method of inventory valuation to reduce distortion of profits.
A.Current cost
B.LIFO
C.FIFO
D.LILO
E.Average cost
Q:
__________ analysis is the process of studying a series of ratios for a company and/or industry over time.
A.DuPont
B.Trend
C.Common size
D.Critical
E.All of the above
Q:
Ratio analysis, which compares a company to an industry, is complicated because:
A.reliable industry data is not readily accessible.
B.the accounting conventions between companies may be dissimilar.
C.large companies are diversified across several industries.
D.More than one of the above
Q:
A high payout ratio indicates that:
A.a firm is investing heavily in plant and equipment.
B.a firm has high current obligations.
C.the firm is probably in the mature phase of its life cycle and does not have many growth opportunities available.
D.the firm is probably in Stage II of its life cycle.
E.the firm probably has too many highly profitable investment opportunities.
Q:
___________ ratios measure the impact of external market forces on the internal performance of a firm.
A.Price
B.Profitability
C.Liquidity
D.Asset-utilization
E.Debt-utilization
Q:
Which of the following statements is(are) true?
A.Debt-to-equity and debt-to-asset ratios measure capital structure and vary widely among industries
B.Debt-utilization ratios alone do not measure a firm's ability to meet its cash obligations
C.DuPont analysis considers the impact of debt on the profitability of the firm
D.Two of the above are true
Q:
The ________ ratios help determine the degree of financial risk and earnings volatility present in a firm.
A.profitability
B.asset-utilization
C.liquidity
D.debt-utilization
E.price
Q:
Which of the following statements about liquidity ratios is true?
A.The higher the current ratio, the more likely a firm is able to pay its short-term obligations
B.The lower the quick ratio relative to the current ratio, the safer a firm is in terms of liquidity
C.The lower the current ratio, the more likely a firm is able to pay its short-term obligations
D.Relatively high current ratios are usually a sign of efficient working capital management
Q:
The primary purpose of the liquidity ratios is to determine:
A.how much working capital is tied up in inventory.
B.the relative level of short-term debt.
C.how well a firm is able to pay off short-term obligations.
D.More than one of the above
Q:
Asset-utilization ratios measure all of the following except:
A.productivity of fixed assets in terms of sales.
B.the relationship of sales on the income statement to various assets on the balance sheet.
C.how many times per year the inventory is sold and accounts receivable collected.
D.the firm's ability to pay off short-term obligations as they come due.
Q:
The method of calculating return on assets which highlights the importance of sales, profit margin, and asset turnover is known as:
A.the sales method.
B.DuPont analysis.
C.the Altman model.
D.the Gordon model.
E.the Return on Assets model.
Q:
________________ ratios measure the ability of a firm to earn an adequate return on sales, total assets, and invested capital.
A.Asset-utilization
B.Liquidity
C.Profitability
D.Debt-utilization
E.Price
Q:
Which of the following is NOT a key ratio in the prediction of bankruptcy, as developed by Edward Altman?
A.Debt-to-equity ratio
B.Current ratio
C.Retained earnings as a percent of total assets
D.EBIT to total assets
Q:
Cash inflows arise from _____ assets, ________ liabilities, and ___________ stockholders' equity.
A.increasing; increasing; decreasing
B.increasing; decreasing; decreasing
C.decreasing; increasing; increasing
D.decreasing; increasing; decreasing
Q:
The statement of cash inflows and outflows shows all of the following, except:
A.how the firm's balance sheet changed from one period to another.
B.how funds from operations were used to finance the company's assets.
C.how the firm has matched short-term and long-term sources of funds with short-term and long-term uses of funds.
D.the firm's cost of new borrowing.
Q:
The ________ does not represent continuing operations in any way but is simply a snapshot of the total worth of a firm at a given point in time.
A.income statement
B.balance sheet
C.source and use of funds statement
D.statement of cash flows
E.none of the above
Q:
The major device for measuring the profitability of a firm over a defined period of time is the
A.income statement.
B.balance sheet.
C.statement of cash flows.
D.None of the above
Q:
DuPont analysis illustrates the interaction of financial leverage, profit margin, and asset turnover on generating return on equity.
Q:
DuPont analysis illustrates that the return on equity can be increased by decreasing the amount of debt used in the capital structure.
Q:
Treasury stock represents shares of common stock that have been authorized but not issued.
Q:
Since all companies must operate under generally accepted accounting principles, equal earnings per share for company A and B mean exactly the same thing to an investor.
Q:
Financial statements present a numerical picture of a company's financial and operating health.
Q:
The DuPont method demonstrates the relationship between assets, sales, income, and debt for creating returns on assets and equity.
Q:
To examine the long-term performance over a number of years, one would use fundamental analysis.
Q:
Debt-utilization ratios provide an indication of the way the firm is financed between debt (lenders) and equity (owners), and therefore helps the analyst determine the amount of financial risk present in the firm.
Q:
The primary emphasis of the profitability ratios is a determination of the firm's ability to pay off short-term obligations as they come due.
Q:
Industry comparisons allow an analyst to separate quality companies from losers.
Q:
The Statement of Financial Accounting Standards (SFAS) No. 95 requires that the statement of cash flows be divided into three sections: cash flows from operations, investments, and financing.
Q:
The Financial Accounting Standards Board (FASB) 85 requires that the Statement of Cash Flows be divided into three sections: cash flows from operations, investments, and financing.
Q:
Inflation-adjusted financial statements may be shown as supplements to the historical cost financial statements.
Q:
The current cost method of inflation accounting adjusts statements by using the Consumer Price Index.
Q:
Corporate diversification eases the task of the financial analyst.
Q:
The tax ratio for forest product companies may be low because of the tax treatment given timber cuttings.
Q:
Regardless of the method of presentation in the financial statements, the analyst should eliminate the effect of extraordinary gains and losses in projecting data into the future.
Q:
LIFO accounting tends to increase inventory profits.
Q:
For a firm with old, heavy fixed assets, replacement cost accounting will normally decrease the return-on-equity ratio.
Q:
For a firm with old, heavy fixed assets, replacement cost accounting will normally increase the debt-to-total-assets ratio.
Q:
A conservative investor or analyst might prefer examining the fixed-charge coverage ratio, rather than just the times interest earned ratio.
Q:
Rapid asset-utilization tends to provide greater liquidity.
Q:
DuPont analysis deals primarily with the current and quick ratios.
Q:
A firm with an average return on assets, but a high return on equity, was probably able to achieve this by keeping debt down to a very low level.
Q:
Return on assets can be stated to equal (net income/sales) x (sales/total assets).
Q:
The after-tax profit margin represents operating income divided by sales.
Q:
Ratio analysis is equally effective in identifying either winners or losers.
Q:
An increase in assets is considered a source of funds.
Q:
Extraordinary gains and losses are usually included in ratio analysis, since they reflect on the annual operating performance of a firm.
Q:
Listing all balance sheet items at historical cost helps to reduce the distortion in profits caused by inflation.
Q:
Industry trend analysis provides a method of comparing industry performance throughout the economy, and of identifying the potential winning and losing companies within an industry.
Q:
Ratio analysis for large firms may be facilitated by dividing the company along industry, market, or geographic lines.