Bfin 3321 exam | Business & Finance homework help

BFIN 3321 Review
1. In the financial crisis that started in 2006, a significant indicator of the U.S. economic decline
was:
A. a significant drop in interest rates.
B. a sharp increase in unregulated Ponzi-type security sales.
C. rising defaults by subprime mortgage borrowers.
D. a large increase in loan default due to unemployment.
2. The financial crisis that started in 2006 was magnified by which of the following?
A. Public concern over the war in Afghanistan
B. Consistently increasing oil and gas prices
C. Ethical issues affecting high value investment
D. Mortgage lenders securitizing large quantities of their loans
3. Not all cash a company generates will be returned to the investors. Which of the following will
NOT reduce the amount of capital returned to the investors?
A. Retained earnings
B. Taxes
C. Dividends
D. None of these will reduce the amount of capital returned to the investors.
4. This subarea of finance involves methods and techniques to make appropriate decisions about
what kinds of securities to own, which firms’ securities to buy, and how to be paid back in the
form that the investor wishes.
A. Real markets
B. Investments
C. Financial management
D. None of these
5. This subarea of finance looks at firm decisions in acquiring and utilizing cash received from
investors or from retained earnings.
A. Investments
B. Financial management
C. Treasury management
D. None of these
6. Financial management involves decisions about which of the following?
A. Which projects to fund
B. How to minimize taxation
C. What type of capital should be raised
D. All of these
7. This subarea of finance helps facilitate the capital flows between investors and companies.
A. Investments
B. Financial management
C. Treasury management
D. Financial institutions and markets
8. This subarea of finance is important for adapting to the global economy.
A. Investments
B. Financial management
C. International finance
D. Financial institutions and markets
9. A potential future negative impact to value and/or cash flows is often discussed in terms of
probability of loss and the expected magnitude of the loss. This is called:
A. options.
B. standard deviation.
C. coefficient of variation.
D. risk.
10. This is a general term for securities like stocks, bonds, and other assets that represent ownership
in a cash flow.
A. Investment
B. Financial asset
C. Real asset
D. Financial markets
11. Which of the following is defined as a group of securities that exhibit similar characteristics,
behave similarly in the marketplace, and are subject to the same laws and regulations?
A. Investments
B. Asset classes
C. Market instruments
D. Financial markets
12. The most commonly accepted groups of asset classes include all of the following except:
A. Stocks
B. Bonds
C. Machinery and equipment
D. Real estate
13. Which of the following is the firm’s highest-level financial manager?
A. Chief executive officer
B. Chief financial officer
C. Board of directors
D. Corporate governance
14. Which of the following managers would NOT use finance?
A. Operational managers
B. Marketing managers
C. Human resource managers
D. All of these would use finance.
15. Which of the following personal decisions is NOT impacted by finance?
A. Borrowing money to purchase cars or homes
B. Making credit card payments
C. Making retirement decisions
D. All of these are impacted by finance.
16. When determining a form of business organization, all of the following are considered EXCEPT:
A. who owns the firm.
B. the owners’ risks.
C. the tax ramifications.
D. the physical location of the business.
17. This type of business organization is relatively easy to start, and it is subject to much lighter
regulatory and paperwork burden than other business forms.
A. Sole proprietorship
B. Partnership
C. Corporation
D. Hybrid organization
18. This type of business organization is entirely legally independent from its owners.
A. Sole proprietorship
B. Partnership
C. Public corporations
D. Hybrid organizations
19. Which of the following is NOT considered a hybrid organization?
A. S corporation
B. Limited liability partnership
C. Limited liability company
D. Limited partnership
E. All of these are considered hybrid organizations.
20. The practice generally known as double taxation is due to:
A. shareholders’ dividends being taxed at both the federal and state levels.
B. corporate income being taxed at both the federal and state levels.
C. interest on shareholders’ dividends being taxed as income.
D. corporate incomes being taxed at the corporate level, then again at the shareholder level when
corporate profits are paid out as dividends.
21. As individual legal entities, corporations assume liability for their own debts, so the shareholders
hold:
A. only limited liability.
B. unlimited liability.
C. shared liability.
D. joint liability.
22. In order for an angel investor or venture capitalist to exchange capital for ownership in a business
that is a sole proprietorship, which of these must happen?
A. The business must be re-formed as a partnership
B. The owner must give up some control
C. The owner must co-sign on all loans
D. Both A and B
23. For corporations, maximizing the value of owner’s equity can also be stated as:
A. maximizing retained earnings.
B. maximizing earnings per share.
C. maximizing net income.
D. maximizing the stock price.
24. A metaphor used to illustrate how an individual pursuing his own interests also tends to promote
the good of the community.
A. Agency theory
B. Angel investor
C. Invisible hand
D. Perks or perquisites
25. This should be the primary objective of a firm as it may actually be the most beneficial for society
in the long run.
A. Minimizing layoffs
B. Maximizing market share
C. Minimizing costs
D. Maximizing shareholder value
26. Nonwage compensation that might actually enhance owner value, in that such items may boost
managers’ productivity.
A. Agency theory
B. Angel investor
C. Invisible hand
D. Perks or perquisites
27. Which of these are NOT basic approaches to minimizing the agency problem?
A. Ignore the conflict of interest
B. Monitor managers’ actions
C. Align managers’ personal interest with those of the owners by making the managers owners
D. All of these are basic approaches to minimizing the agency problem.
28. Which of the following is an example of aligning managers’ personal interests with those of the
owners?
A. Allow the managers to have as many perks as they request.
B. Pay the managers high salaries.
C. Offer the managers an equity stake in the firm.
D. Trust the managers’ actions as they will always act in the owners’ best interest.
29. This is the set of laws, policies, incentives, and monitors designed to handle the issues arising
from the separation of ownership and control.
A. Agency theory
B. Corporate governance
C. Defined benefit plan
D. Invisible hand
30. This group is elected by stockholders to oversee management in a corporation.
A. Chief counselors
B. Chief executives
C. Board of directors
D. Auditors
31. These individuals examine the firm’s accounting systems and comment on whether financial
statements fairly represent the firm’s financial position.
A. Accounting departments
B. Chief financial officers
C. Board of directors
D. Auditors
32. These individuals follow a firm, conduct their own evaluations of the company’s business
activities, and report to the investment community.
A. Auditors
B. Investment analysts
C. Investment bankers
D. Credit analysts
33. These individuals help firms access capital markets and advise managers about how to interact
with those capital markets.
A. Auditors
B. Investment analysts
C. Investment bankers
D. Credit analysts
34. These individuals examine a firm’s financial strength for its debt holders.
A. Auditors
B. Investment analysts
C. Investment bankers
D. Credit analysts
35. Which of the following is legal duty between two parties where one party must act in the interest
of the other party?
A. Agency theory
B. Angel investor
C. Fiduciary
D. Investment banker
36. Which of the following can create ethical dilemmas between corporate managers and
stockholders?
A. Agency relationship
B. Auditors
C. Boards of directors
D. Venture capitalist
37. Individuals who provide small amounts of capital and expert business advice to small firms in
exchange for an ownership stake in the firm are referred to as:
A. institutional investors.
B. corporate investors.
C. angel investors.
D. capital investors.
38. The opportunity to buy stock at a fixed price over a specific period of time is referred to as:
A. stock opportunities.
B. stock options.
C. real assets.
D. restricted stock.
39. The portion of a company’s profits that are kept by the company rather than distributed to the
stockholders as cash dividends is referred to as:
A. restricted earnings.
B. venture capital.
C. retained earnings.
D. institutional investment.
40. An employee stock option plan is:
A. a perk usually only given to the board of directors as compensation.
B. a plan that only partnerships can use to defer compensation to partners.
C. a way to align the interests of employees with those of the owners.
D. None of these answers is correct.
41. Outside parties that monitor the firm include all of the following EXCEPT:
A. credit agencies.
B. the New York Stock Exchange.
C. analysts.
D. bankers.
42. Which of the following is NOT a function of the board of directors?
A. Hire the CEO
B. Evaluate the CEO
C. Design compensation contracts for the CEO
D. Provide reports to the auditors
43. The overall goal of the financial manager is to:
A. minimize total costs.
B. maximize net income.
C. maximize earnings per share.
D. maximize shareholder wealth.
44. Maximizing owners’ equity value means carefully considering all of the following EXCEPT:
A. how to best bring additional funds into the firm.
B. which projects to invest in.
C. how best to increase the firm’s risk.
D. how best to return the profits from those projects to the owners over time.
45. The agency relationship in corporate finance refers to:
A. when the shareholders hire a manager to run their company.
B. when the corporate hires an advertising agency to market their new product or service.
C. when the board of directors are elected to staggered terms.
D. when the board of directors oversee the CEO.
46. The most common type of business in the United States is the:
A. corporation.
B. partnership.
C. sole proprietorship.
D. hybrid organization such as a limited liability company.
47. The biggest disadvantage of the sole proprietorship is:
A. unlimited liability.
B. double taxation.
C. limited access to capital.
D. total control.
48. Which of the following statements is incorrect?
A. Sole proprietorships are subject to less regulation.
B. Both angel investors and venture capitalists exchange capital for ownership.
C. Shareholders are responsible for paying off the corporate bonds in the event of a bankruptcy.
D. All of these statements are correct.
49. All of the following are advantages to organizing as a corporation EXCEPT:
A. limited liability.
B. double taxation.
C. easy access to capital.
D. easy to transfer ownership.
50. Which of the following statements is correct?
A. Sole proprietorships are easy to start.
B. If the sole proprietorship gets sued, the owner is not liable.
C. It is relatively easy for sole proprietorships to raise money.
D. Profits from the sole proprietorship are subject to double taxation.
51. From a taxation perspective, the form of business organization with the highest business level
taxes is the:
A. sole proprietorship.
B. corporation.
C. partnership.
D. S corporation.
52. From the perspective of access to capital, the best form of business organization is the:
A. sole proprietorship.
B. corporation.
C. partnership.
D. S corporation.
53. From the perspective of ownership risk, the best form of business organization is the:
A. sole proprietorship.
B. corporation.
C. partnership.
D. S corporation.
54. From the perspective of control, the best form of business organization is the:
A. sole proprietorship.
B. corporation.
C. partnership.
D. S corporation.
55. Which of the following statements is incorrect?
A. Partnerships have unlimited liability.
B. Most sole proprietors raise money by borrowing from banks.
C. An advantage of sole proprietorships is that the owner has complete control.
D. S corporations are considered a hybrid organization.
56. Which statement is incorrect regarding hybrid organizations?
A. They offer single taxation.
B. They offer limited risk to the owners.
C. They offer the same type of control as a sole proprietorship.
D. All of these answers are correct statements.
57. Agency problems exist in which forms of business ownership?
A. Sole proprietorship
B. S corporation
C. Partnership
D. Corporation
58. Methods to minimize agency problem include all EXCEPT:
A. offer the managers an equity stake in the firm.
B. award the CEO stock options.
C. allow the CEO to purchase stock via an employee stock option plan.
D. allow the CEO to purchase bonds via an employee bond option plan.
59. All of the following are an example of a fiduciary relationship EXCEPT:
A. a bank employee manages deposits.
B. a financial advisor advises her clients.
C. a CEO manages the firm.
D. the shareholder elects a board member.
60. Restricted stock is:
A. a special type of stock that is not transferable from the current holder to others until specific
conditions are satisfied.
B. a special type of stock that can be converted into corporate bonds after a specific amount of
time has elapsed.
C. a special type of stock that is a result of offering an employee stock ownership plan.
D. None of these answers is correct.
61. The board of directors:
A. are hired by the CEO.
B. are elected by shareholders.
C. have unlimited liability since they oversee the day-to-day operations of the firm.
D. are employed by the Securities Exchange Commission to ensure its rules and regulations
have been met.
62. Which of these does NOT act as a monitor of how the firm is being run outside the firm?
A. Auditors
B. Analysts
C. Credit rating agencies
D. Members of the board of directors
63. An angel investor differs from a venture capitalist because of the:
A. type of investment.
B. investment time frame.
C. size of investment.
D. voting rights.
64. Corporate stakeholders include all of the following EXCEPT:
A. employees.
B. shareholders.
C. suppliers.
D. auditors.
65. What is the difference in perspective between finance and accounting?
A. Timing
B. Risk
C. Liability
D. Ownership
66. Which of the following statements is correct?
A. Accountants are focused on what happened in the past.
B. Financial managers are focused on what happened in the past.
C. Both accountants and financial managers use total quality management systems to
standardize data.
D. Financial managers double-check the accountant’s statements.
67. Which financial statement reports the amounts of cash that the firm generated and distributed
during a particular time period?
A. Balance sheet
B. Income statement
C. Statement of retained Earnings
D. Statement of cash Flows
68. When a firm alters its capital structure to include more or less debt (and, in turn, less or more
equity), it impacts which of the following?
A. The residual cash flows available for stock holders
B. The number of shares of stock outstanding
C. The earnings per share (EPS)
D. All of the choices
69. These are cash inflows and outflows associated with buying and selling of fixed or other longterm
assets.
A. Cash flows from operations
B. Cash flows from investing activities
C. Cash flows from financing activities
D. Net change in cash and cash equivalents
70. If a company reports a large amount of net income on its income statement during a year, the firm
will have:
A. positive cash flow.
B. negative cash flow.
C. zero cash flow.
D. Any of these scenarios are possible.
71. Income Statement Consider a firm with an EBIT of $500,000. The firm finances its assets with
$2,000,000 debt (costing 6 percent) and 50,000 shares of stock selling at $20.00 per share. To
reduce the firm’s risk associated with this financial leverage, the firm is considering reducing its
debt by $1,000,000 by selling an additional 50,000 shares of stock. The firm is in the 40 percent
tax bracket. The change in capital structure will have no effect on the operations of the firm. Thus,
EBIT will remain $500,000. What is the change in the firm’s EPS from this change in capital
structure?
A. Decrease EPS by $1.68
B. Decrease EPS by $1.92
C. Decrease EPS by $3.20
D. Increase EPS by $0.72
72. Statement of Retained Earnings Night Scapes, Corp. began the year 2013 with $10 million in
retained earnings. The firm suffered a net loss of $2 million in 2013 and yet paid $2 million to its
preferred stockholders and $1 million to its common stockholders. What is the year-end 2013
balance in retained earnings for Night Scapes?
A. $5 million
B. $8 million
C. $9 million
D. $15 million
73. Statement of Retained Earnings Use the following information to find dividends paid to common
stockholders during 2013.
A. $3 million
B. $4 million
C. $10 million
D. $17 million
74. Income Statement You have been given the following information for Romeo’s Rockers Corp.:
Net sales = $5,200,000;
Cost of goods sold = $2,100,000;
Addition to retained earnings = $1,000,000;
Dividends paid to preferred and common stockholders = $400,000;
Interest expense = $200,000.
The firm’s tax rate is 30 percent. What is the depreciation expense for Romeo’s Rockers Corp.?
A. $900,000
B. $1,100,000
C. $1,500,000
D. $1,600,000
75. Income Statement You have been given the following information for Nicole’s Neckties Corp.:
Net sales = $2,500,000;
Cost of goods sold = $1,300,000;
Addition to retained earnings = $30,000;
Dividends paid to preferred and common stockholders = $300,000;
Interest expense = $50,000.
The firm’s tax rate is 40 percent. What is the depreciation expense for Nicole’s Neckties Corp.?
A. $550,000
B. $600,000
C. $650,000
D. $820,000
76. Income Statement You have been given the following information for Kaye’s Krumpet Corp.:
Net sales = $150,000;
Gross profit = $100,000;
Addition to retained earnings = $20,000;
Dividends paid to preferred and common stockholders = $8,000;
Depreciation expense = $50,000.
The firm’s tax rate is 30 percent. What are the cost of goods sold and the interest expense for
Kaye’s Krumpet Corp.?
A. $10,000, and $50,000, respectively
B. $50,000, and $10,000, respectively
C. $50,000, and $22,000, respectively
D. $62,000, and $10,000, respectively
77. Income Statement You have been given the following information for Ross’s Rocket Corp.:
Net sales = $1,000,000;
Gross profit = $400,000;
Addition to retained earnings = $60,000;
Dividends paid to preferred and common stockholders = $90,000;
Depreciation expense = $50,000.
The firm’s tax rate is 40 percent. What are the cost of goods sold and the interest expense for
Ross’s Rocket Corp.?
A. $100,000, and $600,000, respectively
B. $600,000, and $100,000, respectively
C. $600,000, and $200,000, respectively
D. $700,000, and $100,000, respectively
78. Corporate Taxes The AOK Corporation had a 2013 taxable income of $2,200,000 from
operations after all operating costs but before
(1) interest charges of $90,000,
(2) dividends received of $750,000,
(3) dividends paid of $80,000, and
(4) income taxes.
Using the tax schedule in Table 2.3, what is AOK’s income tax liability?
What are AOK’s average and marginal tax rates on taxable income from operations?
A. $793,900, 34%, 34%, respectively
B. $793,900, 36.0864%, 34%, respectively
C. $972,400, 34%, 34%, respectively
D. $972,400, 44.2%, 34%, respectively
79. Statement of Cash Flows Fina’s Faucets, Inc. has net cash flows from operating activities for the
last year of $17 million. The income statement shows that net income is $15 million and
depreciation expense is $6 million. During the year, the change in inventory on the balance sheet
was an increase of $4 million, change in accrued wages and taxes was an increase of $1 million
and change in accounts payable was an increase of $1 million. At the beginning of the year the
balance of accounts receivable was $5 million. What was the end of year balance for accounts
receivable?
A. $2 million
B. $3 million
C. $7 million
D. $9 million
80. Statement of Cash Flows Crispy Corporation has net cash flow from financing activities for the
last year of $20 million. The company paid $5 million in dividends last year. During the year, the
change in notes payable on the balance sheet was an increase of $2 million, and change in
common and preferred stock was an increase of $3 million. The end of year balance for long-term
debt was $45 million. What was their beginning of year balance for long-term debt?
A. $15 million
B. $20 million
C. $25 million
D. $35 million
81. Reed’s Birdie Shot, Inc.’s 2013 income statement lists the following income and expenses: EBIT
= $550,000, interest expense = $43,000, and net income = $300,000. Calculate the 2013 taxes
reported on the income statement.
A. $85,000
B. $107,000
C. $309,000
D. $207,000
82. Reed’s Birdie Shot, Inc.’s 2013 income statement lists the following income and expenses: EBIT
= $555,000, interest expense = $178,000, and taxes = $148,000. Reed’s has no preferred stock
outstanding and 100,000 shares of common stock outstanding. Calculate the 2013 earnings per
share.
A. $3.49
B. $2.29
C. $3.14
D. $2.79
83. You have been given the following information for Corky’s Bedding Corp.:
Net sales = $15,250,000;
Cost of goods sold = $5,750,000;
Addition to retained earnings = $4,000,000;
Dividends paid to preferred and common stockholders = $995,000;
Interest expense = $1,150,000.
The firm’s tax rate is 30 percent. Calculate the depreciation expense for Corky’s Bedding Corp.
A. $1,210,000
B. $1,970,000
C. $1,520,000
D. $1,725,000
84. The 2011 income statement for Duffy’s Pest Control shows that depreciation expense is $180
million, EBIT is $420 million, EBT is $240 million, and the tax rate is 30 percent. At the beginning
of the year, the balance of gross fixed assets was $1,500 million and net operating working
capital was $500 million. At the end of the year gross fixed assets was $1,803 million. Duffy’s free
cash flow for the year was $425 million. Calculate the end of year balance for net operating
working capital.
A. $403 million
B. $300 million
C. $203 million
D. $103 million
85. Is it possible for a firm to have positive net income and yet to have cash flow problems?
A. No, this is impossible since net income increases the firm’s cash.
B. Yes, this can occur when a firm is growing very rapidly.
C. Yes, this is possible if the firm window-dressed its financial statements.
D. No, this is impossible since net income and cash are highly correlated.
86. Cash flows available to pay the firm’s stockholders and debt holders after the firm has made the
necessary working capital investments, fixed asset investments, and developed the necessary
new products to sustain the firm’s ongoing operations is referred to as:
A. operating cash flow.
B. net operating working capital.
C. free cash flow.
D. None of the above.
87. Which of the following is an example of a capital structure?
A. 15 percent current assets and 85 percent fixed assets
B. 10 percent current liabilities and 90 percent long-term debt
C. 20 percent debt and 80 percent equity
D. None of the above
88. Which of the following statements is correct?
A. The bottom line on the statement of cash flows equals the change in the retained earnings on
the balance sheet.
B. The reason the statement of cash flows is important is because cash is what pays the firm’s
obligations, not accounting profit.
C. If a firm has accounting profit, its cash account will always increase.
D. All of these statements are correct.
89. Which of the following activities will increase a firm’s current ratio?
A. Purchase inventory using cash
B. Buy equipment with a short-term bank loan
C. Accrued wages and taxes increase
D. None of these statements will increase a firm’s current ratio
90. A firm reported year-end sales of $20 million. It listed $7 million of inventory on its balance sheet.
Using a 365-day year, how many days did the firm’s inventory stay on the premises?
A. 127.75 days
B. 157.75 days
C. 97.75 days
D. 87.75 days
91. To interpret financial ratios, managers, analysts, and investors use which of the following type of
benchmarks?
A. Competitive analysis
B. Cross-industry analysis
C. Time-industry analysis
D. Time series analysis
92. Which is true? Ratio analysis:
A. can provide useful information on a firm’s current position but should never be used to forecast
future performance.
B. can provide useful information on a firm’s current position and hint at future performance.
C. can provide useful information on a firm’s past but not current position.
D. can provide useful information on a firm’s past and current position, but should never be used
to forecast future performance.
93. Which of the following statements is correct?
A. The cash ratio measures a firm’s ability to pay long-term debt with its available cash and
marketable securities.
B. Holding extremely high levels of liquidity to guard against liquidity crises is an inappropriate
goal for the firm.
C. The quick (or acid-test) ratio measures a firm’s ability to pay off short-term obligations with
long-term debt.
D. The current ratio is a more stringent measure of liquidity than the quick (or acid-test) ratio.
94. A strong liquidity position means that:
A. the firm is able to meet its short-term obligations.
B. the firm uses little debt in its capital structure.
C. the firm pays out a large portion of its net income in the form of dividends.
D. the firm pays its creditors on time.
95. Which type of ratio measures the dollars of current assets available to pay each dollar of current
liabilities?
A. Cross-section
B. Current
C. Internal-growth
D. Quick or acid test
96. Which statement is true?
A. The less liquid assets a firm holds, the less likely it is that the firm will experience financial
distress.
B. The lower the liquidity ratios, the less liquidity risk a firm has.
C. Liquid assets generate profits for the firm.
D. Extremely high levels of liquidity guard against liquidity crises, but at the cost of lower returns
on assets.
97. Liquidity Ratios Ernie’s Mufflers has current liabilities of $45 million. Cash makes up 5 percent of
the current assets and accounts receivable makes up another 50 percent of current assets.
Ernie’s current ratio = 1.5 times. What is the value of inventory listed on the firm’s balance sheet?
A. $13.75m
B. $20.25m
C. $30.375m
D. $33.75m
98. DuPont Analysis If Epic, Inc. has an ROE = 25 percent, equity multiplier = 4, a profit margin of 12
percent, what is the total asset turnover ratio?
A. 0.0833
B. 0.192
C. 0.5208
D. 0.75
99. DuPont Analysis If Apex, Inc. has an ROE = 10 percent, equity multiplier = 3, and profit margin of
5 percent, what is the total asset turnover ratio?
A. 0.0600
B. 0.0667
C. 0.1667
D. 0.6667
100.DuPont Analysis Last year Café Creations, Inc. had an ROA of 25 percent, a profit margin of 12
percent, and sales of $4 million. What is Café Creations’ total assets?
A. $0.12m
B. $0.48m
C. $1.00m
D. $1.92m
101.DuPont Analysis Last year Mocha Java, Inc. had an ROA of 10 percent, a profit margin of 5
percent, and sales of $25 million. What is Mocha Java’s total assets?
A. $0.125m
B. $1.25m
C. $12.5m
D. $12m
102.Internal Growth Rate Last year Umbrellas Unlimited Corporation had an ROA of 10 percent and a
dividend payout ratio of 50 percent. What is the internal growth rate?
A. 1.00 percent
B. 2.25 percent
C. 5.26 percent
D. 100.00 percent
103.Internal Growth Rate Last year Rain Repel Corporation had an ROA of 5 percent and a dividend
payout ratio of 90 percent. What is the internal growth rate?
A. 4.75 percent
B. 0.50 percent
C. 50.00 percent
D. 52.63 percent
104.Internal Growth Rate Last year Poncho Villa Corporation had an ROA of 16 percent and a
dividend payout ratio of 25 percent. What is the internal growth rate?
A. 1.19 percent
B. 13.64 percent
C. 25.40 percent
D. 33.33 percent
105.Sustainable Growth Rate Last year Umbrellas Unlimited Corporation had an ROE of 16.5 percent
and a dividend payout ratio of 40 percent. What is the sustainable growth rate?
A. 13.17 percent
B. 10.99 percent
C. 27.50 percent
D. 32.93 percent
106.Sustainable Growth Rate Last year Rain Repel Corporation had an ROE of 10 percent and a
dividend payout ratio of 80 percent. What is the sustainable growth rate?
A. 1.11 percent
B. 2.04 percent
C. 44.44 percent
D. 50.00 percent
107.Market Value Ratios Lab R Doors’ year-end price on its common stock is $40. The firm has a
profit margin of 10 percent, total assets of $30 million, a total asset turnover ratio of 2, no
preferred stock, and there are 4 million shares of common stock outstanding. What is the PE
ratio for Lab R Doors?
A. 0.375
B. 0.750
C. 6.667
D. 26.667
108.Market Value Ratios Fancy Paws’ year-end price on its common stock is $20. The firm has a
profit margin of 12 percent, total assets of $20 million, a total asset turnover ratio of 0.5, no
preferred stock, and there are 2 million shares of common stock outstanding. What is the PE
ratio for Fancy Paws?
A. 3.33
B. 8.33
C. 10.00
D. 33.33
109.DuPont Analysis You are considering investing in Totally Tire Services. You have been able to
locate the following information on the firm: total assets = $50 million, accounts receivable = $10
million, ACP = 15 days, net income = $4.5 million, and debt-to-equity ratio = 0.75 times. What is
the ROE for the firm?
A. 1.58 percent
B. 9.00 percent
C. 15.75 percent
D. 28.81 percent
110.DuPont Analysis You are considering investing in Lenny’s Lube, Inc. You have been able to
locate the following information on the firm: total assets = $20 million, accounts receivable = $6
million, ACP = 20 days, net income = $5 million, and debt-to-equity ratio = 2.5 times. What is the
ROE for the firm?
A. 2.5000 percent
B. 13.9882 percent
C. 35.0000 percent
D. 87.50 percent
111.Internal Growth Rate Leash N Collar reported a profit margin of 8 percent, total asset turnover
ratio of 1.5 times, debt-to-equity ratio of 0.75 times, net income of $400,000, and dividends paid
to common stockholders of $200,000. The firm has no preferred stock outstanding. What is
Leash N Collar’s internal growth rate?
A. 5.2632 percent
B. 7.3333 percent
C. 8.6956 percent
D. 6.383 percent
112.Internal Growth Rate Saddle and Bridle reported a profit margin of 12 percent, total asset
turnover ratio of 2 times, debt-to-equity ratio of 1.9 times, net income of $1 million, and dividends
paid to common stockholders of $250,000. The firm has no preferred stock outstanding. What is
Saddle and Bridle’s internal growth rate?
A. 13.64 percent
B. 18.00 percent
C. 24.00 percent
D. 21.95 percent
113.Sustainable Growth Rate You have located the following information on Rock Company: debt
ratio = 40 percent, capital intensity ratio = 2.25 times, profit margin = 8 percent, and dividend
payout ratio = 25 percent. What is the sustainable growth rate for Rock?
A. 3.56 percent
B. 6.00 percent
C. 4.65 percent
D. 8.00 percent
114.Sustainable Growth Rate You have located the following information on Greenwich Company:
debt ratio = 60 percent, capital intensity ratio = 0.75 times, profit margin = 13.5 percent, and
dividend payout ratio = 80 percent. What is the sustainable growth rate for Greenwich?
A. 2.70 percent
B. 10.80 percent
C. 25.00 percent
D. 9.89 percent
115.Sustainable Growth Rate You have located the following information on Maize Company: debt
ratio = 20 percent, capital intensity ratio = 1.25 times, profit margin = 12 percent, and dividend
payout ratio = 10 percent. What is the sustainable growth rate for Maize?
A. 1.20 percent
B. 10.10 percent
C. 12.11 percent
D. 73.26 percent
116.Sustainable Growth Rate You have located the following information on Tyler Company: debt
ratio = 50 percent, capital intensity ratio = 1.5 times, profit margin = 9 percent, and dividend
payout ratio = 40 percent. What is the sustainable growth rate for Tyler?
A. 12.00 percent
B. 7.76 percent
C. 20.00 percent
D. 30.00 percent
117.A firm has a profit margin of 12 percent; total asset turnover of 0.55 and an equity multiplier of
2.2. What is the firm’s ROA and ROE?
A. ROA = 6.6 percent; ROE = 14.52 percent
B. ROA = 7.2 percent; ROE = 15.84 percent
C. ROA = 9.5 percent; ROE = 20.9 percent
D. ROA = 8.1 percent; ROE = 17.82 percent
118.A firm reported sales of $10 million. It had a debt ratio of 40 percent and total debt amounted to
$3 million. What was the firm’s capital intensity ratio?
A. 1.25 times
B. 2.02 times
C. 0.40 times
D. 0.75 times
119.You are considering a stock investment in one of two firms (A and B), both of which operate in
the same industry. A finances its $20 million in assets with $18 million in debt and $2 million in
equity. B finances its $20 million in assets with $2 million in debt and $18 million in equity.
Calculate the equity multiplier for the two firms.
A. Firm A: 15 times; Firm B: 1.00 times
B. Firm A: 10 times; Firm B: 1.11 times
C. Firm A: 10 times; Firm B: 9.99 times
D. Firm A: 20 times; Firm B: 1.11 times
120.Common-size financial statements:
A. allow for an easy comparison of balance sheets and income statements across firms in the
industry.
B. provide quantitative clues about the direction that the firm is moving.
C. are obtained by dividing all income statement accounts by net sales and all balance sheet
accounts by total assets.
D. All of these describe common-size financial statements.
121.A firm reported a profit margin of 8.5 percent, total asset turnover of 0.85 times, debt-to-equity
ratio of 0.90 times, net income of $550,000, and dividends paid to common stockholders of
$100,000. The firm has no preferred stock outstanding. What is the firm’s internal growth rate?
A. 3.61 percent
B. 6.29 percent
C. 5.91 percent
D. 11.04 percent
122.A firm has a debt ratio of 45 percent, capital intensity ratio is 1.3 times, profit margin is 10
percent, and dividend payout ratio is 30 percent. Calculate the sustainable growth rate for the
firm.
A. 1.56 percent
B. 2.96 percent
C. 3.05 percent
D. 4.79 percent
123.A firm reported an ROE of 19 percent. The firm’s debt ratio was 45 percent, sales were $12
million, and the capital intensity ratio was 1.1 times. Calculate the net income for the firm.
A. 0.34 million
B. 1.38 million
C. 1.93 million
D. 2.06 million
124.Firm A and Firm B have the same total assets, ROA and profit margin (greater than 0). However,
Firm B has a higher debt ratio and interest expense than Firm A. Which of the following
statements is correct?
A. Firm B must have a higher ROE than firm A.
B. Firm B must have a higher capital intensity ratio than Firm A.
C. Firm B must have a higher fixed asset turnover than Firm A.
D. Firm B must have a lower ACP than Firm A.
125.A firm has an ROE of 14 percent and a debt ratio of 40 percent. If the total asset turnover is 3.4,
what is the firm’s profit margin?
A. 2.94 percent
B. 3.86 percent
C. 4.29 percent
D. 5.67 percent
126.What is the debt ratio for a firm with an equity multiplier of 3.5?
A. 44.09 percent
B. 58.51 percent
C. 66.25 percent
D. 71.43 percent
127.A firm has an ROA of 12 percent and an ROE of 52 percent. What is the firm’s equity multiplier?
A. 0.23
B. 4.33
C. 1.63
D. 2.90
128.The maximum growth rate that can be achieved financing asset growth with new debt and
retained earnings is called the:
A. internal growth rate.
B. retention rate.
C. sustainable growth rate.
D. operating expansion rate.
129.The maximum growth rate that can be achieved by financing asset growth with internal financing
or retained earnings is called the:
A. internal growth rate.
B. retention rate.
C. sustainable growth rate.
D. operating expansion rate.

130.The term “spreading the financial statements” refers to:
A. creating common-size financial statements.
B. comparing the statements to the industry average.
C. calculating the internal and sustainable growth rate.
D. evaluating the debt levels.
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