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(Difficulty Levels:
Easy, Easy/Medium, Medium, Medium/Hard, and Hard)
PART I – New and Revised Carryover Problems and Questions
Multiple Choice:
Problems
Notes to Professors:
A good bit of relatively simple arithmetic is involved in some of these
problems, and although the calculations are simple, it will take students time to set up the
problems and do the arithmetic.
Please allow for this when assigning problems for a timed test.
Also, note that students must know the definitions of a number of ratios to answer the questions.
We recommend allowing them to use a formula sheet on exams, and we use the relevant sections of
Appendix D at the end of the text.
The difficulty of the problems depends significantly on (1) whether or not students are
provided with a formula sheet and (2) the amount of time they have to work the problems.
Our
difficulty assessments assume that they have a formula sheet and a "reasonable" amount of time
for the test.
Note that problems designated EASY are really trivially easy if students have formula
sheets, and we use them for inclass quizzes but only on real exams if we want to give out some
easy points.
To work many of the problems, students must transpose equations and solve for items that
are normally inputs.
For example, the equation for the profit margin is given as Profit margin =
Net income / Sales .
We might have a problem where sales and the profit margin are given and
then require students to find the firm's net income.
Please explain to students in class before the
exam that they will have to transpose terms in the formulas to work some of the exam problems.
This should be obvious, but it doesn't hurt to point it out before the first exam.
Note too that problems 1 to 30 are all standalone problems with individualized data, but
problem 31 has parts a through w, where students are required to calculate ratios based on a
given set of financial statements.
The statements can be changed algorithmically, and this
changes the calculated ratios.
Total assets turnover
Answer: a
EASY
1
.
Ramala Corp's sales last year were $48,000, and its total assets were
$25,500.
What was its total assets turnover ratio (TATO)?
a. 1.88
b. 1.99
c. 1.10
d. 1.21
e. 1.32
Chapter 4:
Analysis of Financial Statements
Page 199
CHAPTER
4
ANALYSIS
OF
FINANCIAL
STATEMENTS
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View Full DocumentTimes interest earned
Answer: c
EASY
2
.
Ruby Corp's sales last year were $435,500, its operating costs were
$350,000, and its interest charges were $10,000.
What was the firm's
times interest earned (TIE) ratio?
a. 8.29
b. 8.42
c. 8.55
d. 8.68
e. 8.81
Profit margin on sales
Answer: e
EASY
3
.
Roberts Corp's sales last year were $300,000, and its net income after
taxes was $25,000.
What was its profit margin on sales?
a. 7.65%
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 Spring '10
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