Business Development

Q: Suppose you find two bonds identical in all respects except that bond A is convertible to common stock and bond B is not. Bond A is priced at $1,245, and bond B is priced at $1,120. Bond A has a promised yield to maturity of 5.6%, and bond B has a promised yield to maturity of 6.7%. The stock of bond A is trading at $49.80 per share. Which of the following statements is (are) correct? I. The value of the conversion option for bond A is $125. II. The lower promised yield to maturity of bond A indicates that the bond is priced according to its straight debt value rather than its conversion value. III. If bond A can be converted into 25 shares of stock, the investor would break even at the current prices. A. II only B. I and III only C. III only D. I, II, and III

Q: A firm has a compound leverage factor greater than 1; this indicates that ______. A. the firm has no interest payments B. the firm uses less debt as a percentage of financing C. the firm's interest payments are equal to the firm's pretax profits D. the firm's debt has a positive contribution to the firm's ROA

Q: The firm's leverage ratio is 1.2, interest-burden ratio is .81, and profit margin is .24, and its asset turnover is 1.25. What is the firm's ROA? A. .25 B. .3 C. .335 D. .372

Q: The quick ratio is a measure of a firm's __________. A. asset turnover B. market valuation C. liquidity D. interest burden

Q: The major difference between IFRS and GAAP is that U.S. standards are ___________ and IFRS standards are _________. A. strictly enforced; weakly enforced B. rules-based; principles-based C. evolutionary; devolutionary D. based on government standards; based on corporate practice

Q: The tax burden of the firm is .5, the interest burden is .55, the profit margin is .25, the asset turnover is 1.5, and the leverage ratio is 1.65. What is the ROE of the firm? A. 1.88% B. 6.68% C. 12.15% D. 17.02%

Q: The tax burden of the firm is .4, the interest burden is .65, the return on sales is .05, the asset turnover is .90, and the leverage ratio is 1.35. What is the ROE of the firm? A. 1.58% B. 5.68% C. 12.2% D. 13.33%

Q: A firm's leverage ratio is 1.2, interest-burden ratio is .81, and profit margin is .25, and its asset turnover is 1.1. What is the firm's compound leverage factor? A. .243 B. .267 C. .826 D. .972

Q: What ratio will definitely increase when a firm increases its annual sales with no corresponding increase in assets? A. Asset turnover B. Current ratio C. Liquidity ratio D. Quick ratio

Q: The practice of "selling" large quantities of goods to customers in order to get quarterly sales up while allowing these customers to return the goods next quarter is termed _____________. A. channel stuffing B. clogging the network C. spamming the johns D. artificial sales

Q: The term quality of earnings refers to ________. A. how well reported earnings conform to GAAP B. the realism and sustainability of reported earnings C. whether actual earnings matched expected earnings D. how well reported earnings fit a trend line of earnings growth

Q: The net income of the company is $120. Accounts payable increase by $20, depreciation is $15, and equipment is purchased for $40. If the firm issued $110 in new bonds, what is the total change in cash for the firm for all activities? A. Increase of $225 B. Increase of $130 C. Decrease of $195 D. Decrease of $110

Q: A firm purchases goods on credit worth $90. The same firm pays off $100 in old credit purchases. An investment is made via the purchase of a new facility, and equity is issued in the amount of $180 to pay for the purchase. What is the change in net cash provided by investments? A. $10 decrease B. $90 decrease C. $180 decrease D. $190 decrease

Q: A firm purchases goods on credit worth $100. The same firm pays off $80 in old credit purchases. An investment is made via the purchase of a new facility, and equity is issued in the amount of $200 to pay for the purchase. What is the change in net cash provided by financing? A. $20 increase B. $80 increase C. $100 increase D. $200 increase

Q: A firm purchases goods on credit worth $150. The same firm pays off $100 in old credit purchases. An investment is made via the purchase of a new facility, and equity is issued in the amount of $300 to pay for the purchase. What is the change in net cash provided by operations? A. $50 increase B. $100 increase C. $150 increase D. $250 increase

Q: The table below shows some data for Key Biscuit Company: What must have caused the firm's ROE to drop? A. The firm began using more debt as a percentage of financing.B. The firm began using less debt as a percentage of financing.C. The compound leverage ratio was less than 1.D. The operating ROA was declining.

Q: Which of the following will result in an increase in cash to the firm? A. Dividends paid B. A delay in collecting on accounts receivable C. Net new investments D. An increase in accounts payable

Q: Which of the following transactions will result in a decrease in cash flow from investments? A. Acquisition of another business B. Capital gain from sale of a subsidiary C. Decrease in net investments D. Sale of equipment

Q: Which of the following transactions will result in a decrease in cash flow from operations? A. Increase in accounts receivable B. Decrease in inventories C. Decrease in taxes payable D. Decrease in bonds outstanding

Q: Another term for EVA is ______. A. net income B. operating income C. residual income D. market-based income

Q: The ABS company has a capital base of $100 million, an opportunity cost of capital (k) of 15%, a return on assets (ROA) of 9%, and a return on equity (ROE) of 18%. What is the economic value added (EVA) for ABS?

Q: When assessing the sustainability of a firm's cash flows, analysts will prefer to see cash growth generated from which of the following sources? A. Cash flow from investment activities B. Cash flow from operating activities C. Cash flow from financing D. Cash flow from extraordinary events

Q: Which of the following would result in a cash inflow under the heading "Cash flow from investing" in the statement of cash flows? A. Purchase of capital equipment B. Payments to suppliers for inventory C. Collections on receivables D. Sale of production machinery

Q: All of the following ratios are related to efficiency except _______. A. total asset turnover B. fixed-asset turnover C. average collection period D. cash ratio

Q: Use the following cash flow data of Haven Hardware for the year ended December 31, 2012. What is the cash at the end of 2012 for Haven Hardware? A. $6,000B. $94,000C. $736,000D. $188,000

Q: Use the following cash flow data of Haven Hardware for the year ended December 31, 2012. What is the net increase or decrease in cash for Haven Hardware for 2012? A. -$94,000B. -$88,000C. $88,000D. $188,000

Q: Use the following cash flow data of Haven Hardware for the year ended December 31, 2012.What is the net cash provided by or used in financing activities of Haven Hardware? A. -$10,000B. -$120,000C. $10,000D. $120,000

Q: Use the following cash flow data of Haven Hardware for the year ended December 31, 2012. What is the net cash provided by or used in investing activities of Haven Hardware? A. -$12,000B. -$62,000C. $12,000D. $164,000

Q: Use the following cash flow data of Haven Hardware for the year ended December 31, 2012. What is the net cash provided by operating activities of Haven Hardware? A. -$30,000B. $220,000C. $320,000D. $780,000

Q: A firm has an ROE equal to the industry average, but its price-to-book ratio is below the industry average. You know that the firm's _________. A. earnings yield is above the industry average B. P/E ratio is above the industry average C. dividend payout ratio is too high D. interest burden must be below the industry average

Q: A high price-to-book ratio may indicate which one of the following? A. The firm expanded its plant and equipment in the past few years. B. The firm is doing a poorer job controlling its inventory expense than other related firms. C. Investors may believe that this firm has opportunities for earning a rate of return in excess of the market capitalization rate. D. All of these options.

Q: A firm has a lower inventory turnover, a longer ACP, and a lower fixed-asset turnover than the industry averages. You should not be surprised to find that this firm has: I. Lower ATO than the industry average II. Lower ROA than the industry average III. Lower ROE than the industry average A. I only B. I and II only C. II and III only D. I, II, and III

Q: If a firm's ratio of stockholders' equity/total assets is lower than the industry average and its ratio of long-term debt/stockholders' equity is also lower than the industry average, this would suggest that the firm _________. A. has more current liabilities than the industry average B. has more leased assets than the industry average C. will be less profitable than the industry average D. has more current assets than the industry average

Q: The level of real income of a firm can be distorted by the reporting of depreciation and interest expense. During periods of low 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

Q: A firm has an ROA of 19%, a debt/equity ratio of 1.8, and a tax rate of 30%, and the interest rate on its debt is 7%. Its ROE is _________. A. 15.12% B. 28.42% C. 37.24% D. 40.6%

Q: A firm has a net profit/pretax profit ratio of .6, a leverage ratio of 1.5, a pretax profit/EBIT of .7, an asset turnover ratio of 4, a current ratio of 2, and a return-on-sales ratio of 6%. Its ROE is _________. A. 7.56% B. 15.12% C. 20.16% D. 30.24%

Q: The financial statements of Burnaby Mountain Trading Company are shown below. Note: The common shares are trading in the stock market for $27 each.Refer to the financial statements of Burnaby Mountain Trading Company. The firm's return-on-equity ratio for 2012 is _________. (Please keep in mind that when a ratio involves both income statement and balance sheet numbers, the balance sheet numbers for the beginning and end of the year must be averaged.) A. .0409B. .0429C. .0462D. .0923

Q: The financial statements of Burnaby Mountain Trading Company are shown below. Note: The common shares are trading in the stock market for $27 each.Refer to the financial statements of Burnaby Mountain Trading Company. The firm's asset turnover ratio for 2012 is _________. (Please keep in mind that when a ratio involves both income statement and balance sheet numbers, the balance sheet numbers for the beginning and end of the year must be averaged.) A. 1.3B. 1.5C. 1.69D. 2.83

Q: The financial statements of Burnaby Mountain Trading Company are shown below. Note: The common shares are trading in the stock market for $27 each.Refer to the financial statements of Burnaby Mountain Trading Company. The firm's fixed-asset turnover ratio for 2012 is _________. (Please keep in mind that when a ratio involves both income statement and balance sheet numbers, the balance sheet numbers for the beginning and end of the year must be averaged.) A. 2.8B. 6C. 9D. 11.11

Q: The financial statements of Flathead Lake Manufacturing Company are shown below: Note: The common shares are trading in the stock market for $15 per shareRefer to the financial statements of Flathead Lake Manufacturing Company. The firm's compound leverage ratio is __________. (Please keep in mind that when a ratio involves both income statement and balance sheet numbers, the balance sheet numbers for the beginning and end of the year must be averaged.) A. 1.5B. 2C. 2.5D. 3

Q: The financial statements of Flathead Lake Manufacturing Company are shown below: Note: The common shares are trading in the stock market for $15 per shareRefer to the financial statements of Flathead Lake Manufacturing Company. The firm's return on equity ratio for 2012 is _________. (Please keep in mind that when a ratio involves both income statement and balance sheet numbers, the balance sheet numbers for the beginning and end of the year must be averaged.) A. 6.5%B. 26.5%C. 33.4%D. 38%

Q: The financial statements of Flathead Lake Manufacturing Company are shown below: Note: The common shares are trading in the stock market for $15 per shareRefer to the financial statements of Flathead Lake Manufacturing Company. In 2012 Flathead generated ______ of EBIT for every dollar of sales. A. $.075B. $.086C. $.092D. $.099

Q: The financial statements of Flathead Lake Manufacturing Company are shown below: Note: The common shares are trading in the stock market for $15 per shareRefer to the financial statements of Flathead Lake Manufacturing Company. The firm's total asset turnover for 2012 is _________. (Please keep in mind that when a ratio involves both income statement and balance sheet numbers, the balance sheet numbers for the beginning and end of the year must be averaged.) A. 3.56B. 3.26C. 3.14D. 3.02

Q: The financial statements of Flathead Lake Manufacturing Company are shown below: Note: The common shares are trading in the stock market for $15 per shareRefer to the financial statements of Flathead Lake Manufacturing Company. The industry average ACP is 32 days. How is Flathead doing in its collections relative to the industry? (Please keep in mind that when a ratio involves both income statement and balance sheet numbers, the balance sheet numbers for the beginning and end of the year must be averaged.) A. Flathead's receivables are outstanding about 9 fewer days than the industry average.B. Flathead's receivables are outstanding about 15 fewer days than the industry average.C. Flathead's receivables are outstanding about 12 more days than the industry average.D. Flathead's receivables are outstanding about 6 more days than the industry average.

Q: The financial statements of Flathead Lake Manufacturing Company are shown below: Note: The common shares are trading in the stock market for $15 per shareRefer to the financial statements of Flathead Lake Manufacturing Company. The firm's cash flow from operating activities for 2012 was _______. A. $810,000B. $775,000C. $755,000D. $735,000

Q: The financial statements of Flathead Lake Manufacturing Company are shown below: Note: The common shares are trading in the stock market for $15 per shareRefer to the financial statements of Flathead Lake Manufacturing Company. The firm's current ratio for 2012 indicates that Flathead's liquidity has ________ since 2011. A. risenB. fallenC. stayed the sameD. The answer cannot be determined from the information given.

Q: The financial statements of Flathead Lake Manufacturing Company are shown below: Note: The common shares are trading in the stock market for $15 per shareRefer to the financial statements of Flathead Lake Manufacturing Company. The firm's inventory turnover ratio is _________. (Please keep in mind that when a ratio involves both income statement and balance sheet numbers, the balance sheet numbers for the beginning and end of the year must be averaged.) A. 11.6B. 10.2C. 9.5D. 7.7

Q: Which of the following statements is true concerning economic value added? A. A growing number of firms tie managers' compensation to EVA. B. A profitable firm will always have a positive EVA. C. EVA recognizes that the cost of capital is not a real cost. D. If a firm has positive present value of growth opportunities, it will have positive EVA.

Q: Economic value added (EVA) is:A. the difference between the return on assets and the opportunity cost of capital times the capital baseB. ROA ROEC. a measure of the firm's abnormal returnD. largest for high-growth firms

Q: A firm has a tax burden of .7, a leverage ratio of 1.3, an interest burden of .8, and a return-on-sales ratio of 10%. The firm generates $2.28 in sales per dollar of assets. What is the firm's ROE? A. 12.4% B. 14.5% C. 16.6% D. 17.8%

Q: A firm has an ROA of 8% and a debt/equity ratio of .5; its ROE is _________. A. 4% B. 6% C. 8% D. 12%

Q: A firm has a P/E ratio of 24 and an ROE of 12%. Its market-to-book-value ratio is _________. A. 2.88 B. 2 C. 1.75 D. .69

Q: You find that a firm that uses debt has a compound leverage factor less than 1. This tells you that ________. A. the firm's use of financial leverage is positively contributing to ROE B. the firm's use of financial leverage is negatively contributing to ROE C. the firm's use of operating leverage is positively contributing to ROE D. the firm's use of operating leverage is negatively contributing to ROE

Q: If a firm has a positive tax rate and a positive operating ROA, and the interest rate on debt is the same as the operating ROA, then operating ROA will be _________. A. greater than zero, but it is impossible to determine how operating ROA will compare to ROE B. equal to ROE C. greater than ROE D. less than ROE

Q: A firm has an ROE of 20% and a market-to-book ratio of 2.38. Its P/E ratio is _________. A. 8.4 B. 11.9 C. 17.62 D. 47.6

Q: Operating ROA can be found as the product of ______. A. Return on sales ATO B. Tax burden Interest burden C. Interest burden Leverage ratio D. ROE Dividend payout ratio

Q: By 2008, over 100 countries had adopted financial reporting standards that are in conformance with ________. A. GAAP B. IFRS C. FASB D. GASB

Q: Which of the following is not a ratio used in the DuPont analysis? A. Interest burden B. Profit margin C. Asset turnover D. Earnings yield ratio

Q: The process of decomposing ROE into a series of component ratios is called ______________. A. DuPont analysis B. technical analysis C. comparative analysis D. liquidity analysis

Q: Which one of the following ratios is used to calculate the times-interest-earned ratio? A. Net profit/Interest expense B. Pretax profit/EBIT C. EBIT/Sales D. EBIT/Interest expense

Q: The highest possible value for the interest-burden ratio is ______, and this occurs when the firm _________. A. 0; uses as much debt as possible B. 1; uses debt to the point where ROA = interest cost of debt C. 1; uses no interest-bearing debt D. -1; pays down its existing debts

Q: A firm increases its financial leverage when its ROA is greater than the cost of debt. Everything else equal, this change will probably increase the firm's: I. Beta II. Earnings variability over the business cycle III. ROE IV. Stock price A. I and II only B. III and IV only C. I, III, and IV only D. I, II, and III only

Q: Operating ROA is calculated as __________, while ROE is calculated as _________. A. EBIT/Total assets; Net profit/Total assets B. Net profit/Total assets; EBIT/Total assets C. EBIT/Total assets; Net profit/Equity D. Net profit/EBIT; Sales/Total assets

Q: Common-size balance sheets are prepared by dividing all quantities by ____________. A. total assets B. total liabilities C. shareholders' equity D. fixed assets

Q: Based on the cash flow data in the table for Interceptors Inc., which of the following statements is (are) correct?I. This firm appears to be a good investment because of its steady growth in cash.II. This firm has been able to generate growing cash flows only by borrowing or selling equity to offset declining operating cash flows.III. Financing activities have been increasingly important for this firm's operations, at least in the short run. A. I onlyB. II and III onlyC. II onlyD. I and II only

Q: What must cash flow from financing have been in 2008 for Interceptors, Inc.?A. $5B. $28C. $30D. $33

Q: In 2006 Hewlett-Packard repurchased shares of common stock worth $5,241 million and made dividend payments of $894 million. Other financing activities raised $196 million, and Hewlett-Packard's total cash flow from financing was -$6,077 million. How much did the long-term debt accounts of Hewlett-Packard change? A. Increased $138 million B. Decreased $138 million C. Increased $836 million D. Decreased $836 million

Q: Which of the following is not one of the three key financial statements available to investors in publicly traded firms? A. Income statement B. Balance sheet C. Statement of operating earnings D. Statement of cash flows

Q: If the interest rate on debt is higher than the ROA, then a firm's ROE will _________. A. decrease B. increase C. not change D. change but in an indeterminable manner

Q: Benjamin Graham thought that the benefits from detailed analysis of a firm's financial statements had _________ over his long professional life. A. increased greatly B. increased slightly C. remained constant D. decreased

Q: One of the biggest impediments to a global capital market has been _________. A. volatile exchange rates B. the lack of common accounting standards C. lower disclosure standards in the United States than abroad D. the lack of transparent reporting standards across the EU

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