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B only company as current ratio will be increased c

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*B.Only Company A’s current ratio will be increased.C.The current ratios of both firms will be increased.D.Only Company B’s current ratio will be increased.E.The current ratios of both firms will be decreased.Company A:Before:Current Ratio = $50 / $100=0.50After:Current Ratio = $150 / $200=0.75Company B:Before:Current Ratio = $150 / $100=1.50After:Current Ratio = $250 / $200=1.254.Company A and Company B have the same tax rate, total assets, and basic earningpower.Both companies have positive net incomes.Company A has a higher debtratio, and therefore, higher interest expense than Company B.Which of the followingstatements is most correct?A.Company A has a higher ROA than Company B.B.Company A has a higher times interest earned (TIE) ratio than Company B.C.Company A has a higher net income than Company B.*D.Company A pays less in taxes than Company B.E.Company A has a lower equity multiplier than Company B.5.Your company recently issued new common stock and used the proceeds to reduce itsshort-term notes payable and accounts payable.This action had no effect on thecompany's total assets or operating income.Which of the following effects did occuras a result of this action?*A.The company's equity multiplier decreased.B.The company's current ratio decreased.C.The company's basic earning power ratio increased.D.The company's time interest earned ratio decreased.E.The company's debt ratio increased.6.Which of the following statements is least correct (most incorrect)?
Old Exam Questions - Analysis of Financial Statements - SolutionsPage4of52Pages*A.In an inflationary environment, a firm’s use of FIFO rather than LIFO can leadto higher reported earnings, higher taxes, and lower cash flows.In the samemanner, basing depreciation expense on historical costs rather than actualreplacement values in an inflationary environment may lead to lower reportedearnings, lower taxes, and higher cash flows.B.Financial ratio analysis is conducted by managers, equity investors, long-termcreditors, and short-term creditors.However, it is not unusual for them to beconcerned about different aspects of the firm.For instance, equity investorsmay be more concerned about the strength of the firm’s income statement,while long-term creditors may be more concerned about the strength of thefirm’s balance sheet.C.We must be concerned about seasonal factors when comparing two firms or afirm against the industry average.For instance, it may be inappropriate todirectly compare the year-end balance sheets of two toy companies if theyhave differing fiscal year ends.D.A firm that faces pure competition might wish to increase its ROA by increasingits profit margin, but may find itself constrained to increasing its asset turnover.In any event, the firm may be able to increase its ROE by increasing its degreeof debt financing (that is, financial leverage).

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