FINANCE Questions

FINANCE Questions - Practice Questions for Finance 3000...

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Practice Questions for Finance 3000, Exam II, Fall 2009 Chapter 3 1. Ratios are used to compare different firms in the same industry. TRUE 2. Financial ratios are used to weigh and evaluate the operational performance of the firm. TRUE 3. Liquidity ratios indicate how fast a firm can generate cash to pay bills. TRUE 4. A banker or trade creditor is most concerned about a firm's profitability ratios. FALSE 5. Ratios are only useful for those areas of business that involve investment decisions. FALSE 6. Debt utilization ratios are used to evaluate the firm's debt position with regard to its asset base and earning power. TRUE 7. The DuPont system of analysis emphasizes that profit generated by assets can be derived by various combinations of profit margins and asset turnover. TRUE 8. During disinflation, stock prices tend to go up because the investor's required rate of return goes down. TRUE 9. Analysts agree that extraordinary gains/losses should be excluded from ratio analysis because they are one time events, and do not measure annual operating performance. TRUE 10. Intangible assets are becoming an important part of the assets in a company's financial statements because accountants are recognizing the growing impact of brand names. FALSE 11. Absolute values taken from financial statements are more useful than relative values. FALSE Page 1 of 32
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12. Ratio analysis can be useful for A. historical trend analysis within a firm. B. comparison of ratios within a single industry. C. measuring the effects of financing. D. All of these are true. 13. In examining the liquidity ratios, the primary emphasis is the firm's A. ability to effectively employ its resources. B. overall debt position. C. ability to pay short-term obligations on time. D. ability to earn an adequate return. 14. Which of the following is not an asset utilization ratio? A. Inventory turnover B. Return on assets C. Fixed asset turnover D. Average collection period 15. A short-term creditor would be most interested in A. profitability ratios. B. asset utilization ratios. C. liquidity ratios. D. debt utilization ratios. 16. Which of the following is not considered to be a profitability ratio? A. profit margin B. times interest earned C. return on equity D. return on assets (investment) 17. Which two ratios are used in the DuPont system to create return on assets? A. Return on assets and asset turnover B. Profit margin and asset turnover C. Return on total capital and the profit margin D. Inventory turnover and return on fixed assets 18. The Bubba Corp. had earnings before taxes of $200,000 and sales of $2,000,000. If it is in the 50% tax bracket its after-tax profit margin is: A. 5% B. 12% C. 20% D. 25% 19. A firm has a debt to equity ratio of 50%, debt of $300,000, and net income of $90,000. The return on equity is A. 60% B. 15% C. 30% D. not enough information Page 2 of 32
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20. A firm has a debt to asset ratio of 75%, $240,000 in debt, and net income of $48,000. Calculate return on equity. A.
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FINANCE Questions - Practice Questions for Finance 3000...

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