BU 440 BU440 EXAM 6 ANSWERS - ASHWORTH

BU 440 BU440 EXAM 6 ANSWERS - ASHWORTH

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BU440 Managerial Finance II Exam 6 Answers
Question 1

2.5 / 2.5 points
Which of the statements below is TRUE?
Question options:
a) 
Inventory turnover is cost of goods sold divided by accounts receivables.

b) 
Receivables turnover is accounts receivable divided by sales.

c) 
Total asset turnover is profits divided by total assets.

d) 
A higher inventory turnover ratio signifies that inventory is moving faster.

Question 2

2.5 / 2.5 points
The debt-to-equity ratios for Firm 1, Firm 2, Firm 3, and Firm 4 are 0.25, 0.35, 0.35, and 0.45, respectively. The earnings per share for Firm 1, Firm 2, Firm 3, and Firm 4 are $4.5, $3.5, $3, and $2.5, respectively. Generally speaking, which firm is placing fewer burdens on its borrowing?
Question options:
a) 
Firm 1

b) 
Firm 2

c) 
Firm 3

d) 
Firm 4

Question 3

2.5 / 2.5 points
The revenue is $40,000, the cost of goods sold is $26,000, the selling, general and administrative expenses are $7,000, interest expense is $2,000, and depreciation is $3,000. What is the EBIT?
Question options:
a) 
$2,000

b) 
$4,000

c) 
$7,000

d) 
$14,000

Question 4

2.5 / 2.5 points
Debt is a good when we:
Question options:
a) 
pay for everything later, allowing more positive cash flow today.

b) 
enjoy the benefits of acquiring an asset early but can still pay for it over time.

c) 
borrow at low rates.

d) 
use it very sparingly.

Question 5

2.5 / 2.5 points
To convert a balance sheet into a common-size balance sheet statement, we restate all the numbers as percentages of total:
Question options:
a) 
revenue.

b) 
assets.

c) 
owners' equity.

d) 
liabilities.

Question 6

2.5 / 2.5 points
Which of the statements below is FALSE?
Question options:
a) 
When the current ratio is greater than 1, we are also saying that net working capital is positive since current assets are greater than current liabilities.

b) 
Financial leverage ratios deal with long-term solvency and the use of debt as a financing tool.

c) 
The debt ratio is total assets minus total equity divided by equity.

d) 
Times interest earned equals EBIT divided by interest expense.

Question 7

2.5 / 2.5 points
Total liabilities are $100,000 and total owners' equity is $200,000. What are total assets?
Question options:
a) 
We need to know retained earnings before we can compute total assets.

b) 
We need more information on current and long-term assets before we can compute total assets.

c) 
$100,000

d) 
$300,000

Question 8

2.5 / 2.5 points
Which of the statements below is FALSE?
Question options:
a) 
Financial statements are a collection of historical and current activities of the company.

b) 
The collection of value over time found in financial statements requires us to pay attention to how we construct financial ratios to glean information for analysis.

c) 
Financial statements are constructed with the same accounting principles so you can compare different firms based solely on these statements.

d) 
We want to analyze financial statements to compare different companies and their performance relative to our company.

Question 9

2.5 / 2.5 points
Once financial statements are made public, the external analysis of the company begins by:
Question options:
a) 
financial analysts.

b) 
certified tax planners.

c) 
tax advisors.

d) 
legal counsel.

Question 10

2.5 / 2.5 points
__________ ratios can be helpful for managers to understand short-term cash obligations.
Question options:
a) 
Profitability

b) 
Asset management

c) 
Solvency

d) 
Liquidity  

Question 11

2.5 / 2.5 points
Because financial ratios can vary across industries, it is important to _________ these ratios by industry.
Question options:
a) 
study

b) 
categorize

c) 
benchmark

d) 
calculate

Question 12

2.5 / 2.5 points
Which of the statements below is FALSE?
Question options:
a) 
The cash coverage ratio is EBIT plus depreciation divided by interest expense.

b) 
Times interest earned equals EBIT divided by interest expense.

c) 
The times interest earned ratio tells us the number of times a company has resorted to debt financing over the year.

d) 
The debt ratio basically tells us the amount of debt for every dollar of assets.

Question 13

2.5 / 2.5 points
Which of the following is true about benchmarking?
Question options:
a) 
It compares a company's current performance against its own previous performance.

b) 
It compares a company's performance against that of its competitors.

c) 
It provides a standard of comparison for financial measurement.

d) 
All of the above statements are true about benchmarking.

Question 14

2.5 / 2.5 points
Total current liabilities are $100,000 and the owners' total equity is $2,000,000. What are total assets?
Question options:
a) 
We need to know retained earnings before we can compute total assets.

b) 
We need more information on long-term liabilities before we can compute total assets.

c) 
$2,000,000

d) 
$2,100,000

Question 15

2.5 / 2.5 points
The financial statements of a company are the primary sources of information that enable us to communicate the financial results:
Question options:
a) 
of the company externally.

b) 
of the company internally.

c) 
to internal managers but not externally to the public.

d) 
of the company, both internally and externally.

Question 16

2.5 / 2.5 points
Which of the statements below is FALSE?
Question options:
a) 
The acid ratio test equals current assets minus inventories divided by current liabilities.

b) 
Examples of liquidity ratios include the current ratio, the cash coverage ratio, and the quick ratio.

c) 
The current ratio is current assets divided by current liabilities.

d) 
Inventory turnover is the cost of goods sold divided by inventory.

Question 17

2.5 / 2.5 points
Profit margin is equal to net income divided by:
Question options:
a) 
total assets.

b) 
total owners' equity.

c) 
sales.

d) 
None of the above

Question 18

2.5 / 2.5 points
To convert an income statement into a common-size income statement, we restate all the numbers as percentages of:
Question options:
a) 
total sales.

b) 
cost of goods sold.

c) 
net income.

d) 
total assets.

Question 19

2.5 / 2.5 points
EBIT is $10,000 and interest expense is $4,000. If the tax rate is 30%, what is the net income?
Question options:
a) 
$3,800

b) 
$4,200

c) 
$5,200

d) 
$8,400

Question 20

2.5 / 2.5 points
Which industry has the lowest average industry debt-to-equity ratio?
Question options:
a) 
Auto

b) 
Retail

c) 
Oil and gas

d) 
Airlines


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