HMWRK+2 - Question 1 Which of the following would,...

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Unformatted text preview: Question 1 Which of the following would, generally, indicate an I MPROVEMENT in a companys financial position, holding other things constant? a . The total assets turnover decreases. b . The current ratio declines. c. The quick ratio increases. d . The TIE declines. e.The DSO increases. Question 2 A firm wants to strengthen its financial position. Which of the following actions would INCREASE its current ratio? a . Use cash to repurchase some of the companys own stock. b . Use cash to increase inventory holdings. c. Issue new stock, then use some of the proceeds to purchase additional inventory and hold the remainder as cash. d . Reduce the companys days sales outstanding to the industry average and use the resulting cash savings to purchase plant and equipment. e . Borrow using short-term debt and use the proceeds to repay debt that has a maturity of more than one year. Question 3 Casey Communications recently issued new common stock and used the proceeds to pay off some of its short-term notes payable. This action had no effect on the companys total assets or operating income. Which of the following effects would occur as a result of this action? a . The companys current ratio increased. b . The companys times interest earned ratio decreased. c. The companys debt ratio increased. d . The companys equity multiplier increased. e.The companys basic earning power ratio increased. Question 4 Which of the following statements is CORRECT? a . There is no relationship between the days sales outstanding (DSO) and the average collection period (ACP). These ratios measure entirely different things. b . If a security analyst saw that a firms days sales outstanding (DSO) was higher than the industry average, and was increasing and trending still higher, this would be interpreted as a sign of strength. c. A high average DSO indicates that none of its customers are paying on time. In addition, it makes no sense to evaluate the firm's DSO with the firm's credit terms. d . If a firm increases its sales while holding its accounts receivable constant, then, other things held constant, its days sales outstanding will decline. e A reduction in accounts receivable would have no effect on the current ratio, . but it would lead to an increase in the quick ratio. Question 5 Which of the following statements is CORRECT? a . If two firms differ only in their use of debti.e., they have identical assets, sales, operating costs, interest rates on their debt, and tax ratesbut one firm has a higher debt ratio, the firm that uses more debt will have a lower profit margin on sales and a lower return on assets. b . The debt ratio as it is generally calculated makes an adjustment for the use of assets leased under operating leases, so the debt ratios of firms that lease different percentages of their assets are still comparable....
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This note was uploaded on 09/11/2011 for the course MGMT31- 310 taught by Professor Crossd during the Spring '11 term at PUCV Chile.

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HMWRK+2 - Question 1 Which of the following would,...

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