Q&A Hero

Q: which of the following is a cash outflow? a. splitting the stock two for one b. acquiring inventory c. retaining earnings d. switching from straight-line depreciation to accelerated depreciation

Q: which of the following is a cash inflow? a. distributing a stock dividend b. retiring an account payable c. collecting an account receivable d. paying property taxes

Q: which of the following has no impact on cash flow? a. the firm's equity b. depreciation expense c. taxes paid d. net income

Q: operating income is not affected by a. depreciation b. cost of goods sold c. rent payments d. interest earned

Q: creditors would prefer 1> a quick ratio of 1.2 to a quick ratio of 0.8 2> a quick ratio of 0.8 to a quick ratio of 1.2 3> days sales outstanding of 46 to a days sales outstanding of 35 4> days sales outstanding of 35 to a days sales outstanding of 46 a. 1 and 3 b. 1 and 4 c. 2 and 3 d. 2 and 4

Q: owners of bonds would prefer 1> a debt ratio of 60 percent to a debt ratio of 40 percent 2> a debt ratio of 40 percent to a debt ratio of 60 percent 3> a timesinterestearned of 5.1 to a times-interest-earned of 3.9 4> a timesinterestearned of 3.9 to a times-interest-earned of 5.1 a. 1 and 3 b. 1 and 4 c. 2 and 3 d. 2 and 4

Q: the debt ratio is a measure 1> of financial leverage 2> of the use of debt financing 3> of asset utilization a. 1 and 2 b. 1 and 3 c. 2 and 3 d. all of the above

Q: the return on equity a. is the ratio of sales to equity b. measures what the firm earns on assets c. is the ratio of net income to total equity d. measures what the firm earns on sales

Q: as timesinterestearned increases, a. bondholders' position deteriorates b. net income decreases c. interest payments become more assured d. taxes decrease

Q: as the debt ratio increases, 1> fewer assets are debt financed 2> more assets are debt financed 3> the ratio of debt to equity increases 4> the ratio of debt to equity decreases a. 1 and 3 b. 1 and 4 c. 2 and 3 d. 2 and 4

Q: coverage ratios measure a firm's a. ability to use debt financing b. use of plant and equipment c. ability to cover (i.e., sell) its inventory d. ability to meet fixed payments such as interest

Q: days sales outstanding (receivables turnover) measures a. the speed with which accounts payable are paid b. the speed with which accounts receivable are collected c. the safety of accounts receivable d. the safety of accounts payable

Q: inventory turnover may increase if a. the firm increases its accounts payable b. the firm uses less debt financing c. the firm increases its inventory d. the firm lowers the prices of its goods

Q: activity ratios measure a. how rapidly assets flow through the firm b. how frequently the firm's stock is traded c. how rapidly employees turn over d. the profitableness of accounts receivable

Q: the quick ratio a. excludes accounts payable b. excludes accounts receivable c. includes inventory d. includes cash and cash equivalents

Q: the current ratio is unaffected by a. using cash to retire an account payable b. the collection of an account receivable c. selling inventory for a profit d. selling bonds and using the funds to finance inventory

Q: earnings per preferred share are a. earnings before interest and taxes b. the ratio of earnings to number of preferred shares c. the ratio of ebit to number of preferred shares d. the ratio of preferred shares to common shares

Q: analysis of preferred stock uses a. operating income (ebit) b. earnings after dividends to common stock c. earnings after taxes d. earnings after interest but before taxes

Q: preferred stock dividends are 1> a legal obligation 2> not a legal obligation 3> exempt from federal income taxation 4> not exempt from federal income taxation a. 1 and 3 b. 1 and 4 c. 2 and 3 d. 2 and 4

Q: preferred stock and longterm bonds are similar because a. they both have voting power b. interest and dividend payments are fixed c. interest and dividend payments are legal obligations d. interest and dividend payments are taxdeductible expenses

Q: preferred stock generally pays a. a variable dividend b. a fixed dividend c. a stock dividend d. no dividend

Q: dividend reinvestment plans offer which advantage(s)? 1> deferment of federal income taxes 2> a convenient means to accumulate shares 3> dollar cost averaging a. 1 and 2 b. 1 and 3 c. 2 and 3 d. only 2

Q: if a firm has substantial excess cash, it may 1> repurchase some of its shares 2> increase its cash dividends 3> increase its liabilities a. 1 and 2 b. 1 and 3 c. 2 and 3 d. only 2

Q: which of the following occurs when a 10 percent stock dividend is paid? a. the firm's retained earnings decrease b. the firm's equity is increased c. the stock's par value is decreased d. the stock's price is increased

Q: which of the following occurs when a stock is split twoforone? a. the price of the stock decreases b. the firm's assets decrease c. the firm's liabilities decrease d. the firms equity decreases

Q: stock dividends cause a. the price of a share of stock to rise b. the price of a share of stock to fall c. the value of the firm to rise d. the value of the firm to fall

Q: stock dividends increase a. the number of shares outstanding b. the firm's assets c. the firm's equity d. the stock's price

Q: dividend policy depends on 1> the firm's earnings 2> investment opportunities available to the firm 3> corporate income taxes a. 1 and 2 b. 1 and 3 c. 2 and 3 d. all of the above

Q: the procedure for the distribution of dividends does not include a. the exdividend date b. the date of record c. the settlement date d. the date of announcement

Q: cash dividends 1> are paid from earnings 2> increase the capacity of the firm to grow 3> reduce the firm's assets a. 1 and 2 b. 1 and 3 c. 2 and 3 d. all of the above

Q: preemptive rights permit stockholders to a. collect dividends before they are reinvested b. participate in dividend reinvestment plans c. maintain the proportionate share of ownership d. vote their shares

Q: earnings are a. retained b. distributed c. invested d. retained and/or distributed

Q: cumulative voting permits a stockholder to a. collect extra dividends b. vote all the shares for one individual c. cast the total number of votes for one individual d. vote by proxy

Q: stockholders generally have which of the following rights? 1> right to vote 2> right to share in the firm's earnings 3> right to sell the stock a. 1 and 2 b. 1 and 3 c. 2 and 3 d. all of the above

Q: advantages of the corporate form of business include a. limited liability for stockholders b. avoidance of state taxation c. limited life d. deductibility of dividends

Q: an increase in an asset is a cash inflow.

Q: lower cash flow may be the result of higher depreciation expense.

Q: the statement of cash flow places emphasis on management's ability to retire debt.

Q: lower depreciation increases earnings and cash flow.

Q: cash flow depends on depreciation as well as the firm's earnings.

Q: the net profit margin increases as the firms interest expense declines.

Q: if the ratio of debt to equity increases, the proportion of assets financed by debt is increased.

Q: when a firm makes a profitable sale, its total assets increase.

Q: the more financially leveraged a firm, the smaller is its debt ratio.

Q: firms with too much debt are undercapitalized.

Q: the greater the numerical value of the debt ratio, the riskier the firm.

Q: an increase in assets financed by equity increases the debt ratio.

Q: an increase in retained earnings will increase the debt to equity ratio.

Q: the proportion of a firm's assets that are financed by debt is measured by the debt ratio.

Q: the return on equity measures earnings before interest and taxes.

Q: the return on assets employs operating income instead of net income.

Q: the gross profit margin on sales tends to exceed the operating profit margins on sales.

Q: ratios may be used in both timeseries and cross section types of analysis.

Q: coverage ratios may be used to measure the safety of debt and other fixed obligations.

Q: a timesinterestearned of 0.9 means that interest will not be paid.

Q: if a firm's inventory turnover is 4 and days sales outstanding (average collection period) is 60, then it takes about five months for newly acquired inventory to generate cash.

Q: if accounts receivable are collected more rapidly, the average collection period (days sales outstanding) is reduced.

Q: if the firm's current ratio exceeds 1:1 and the firm retires an account payable, the quick ratio increases.

Q: if inventory is sold for cash, inventory turnover is increased, but inventory turnover is not affected if inventory is sold on credit.

Q: an inventory turnover of 3.0 suggests that inventory is sold every four months.

Q: the quick ratio is a better measure of liquidity than the current ratio for manufacturers.

Q: if accounts receivable are collected, the quick ratio is unaffected.

Q: the quick ratio excludes inventory, plant, and equipment.

Q: the current ratio and the quick ratio are measures of asset usage.

Q: preferred stock dividends are usually cumulative.

Q: preferred stock pays a fixed amount of interest.

Q: if a cumulative preferred stock pays a dividend, it is said to be in arrears.

Q: since preferred stock represents equity, it generally has the right to vote.

Q: preferred stock is legally equity and represents ownership.

Q: a higher payout ratio implies a lower growth rate.

Q: a major advantage associated with dividend reinvestment plans is forced saving.

Q: repurchases of shares may be viewed as an alternative to paying cash dividends.

Q: dividend reinvestment plans are a means to postpone federal income tax on dividends.

Q: a onefortwo reverse split increases a stocks price.

Q: stock splits and stock dividends increase the earning capacity of the firm.

Q: a twoforone stock split doubles the number of shares and their price.

Q: stock dividends increase the firm's cash.

Q: stock dividends reduce the firm's total equity.

Q: the price of a stock generally adjusts downward for the distribution of dividends.

Q: if an investor buys stock on the exdividend date, that individual will not receive the dividend.