Spring 2006 Exam 2 Answer Key

Spring 2006 Exam 2 Answer Key - Version A 54 Questions Page...

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Version A – 54 Questions – Page 1 Start Strategic Signatures Questions Consider the following data table. Each column represents a different firm – Dell Computer, Microsoft, and Wal-Mart. Dell is one of the world’s leading manufacturers of personal computers. It is renowned for its ability to take orders directly from customers, pull the parts necessary to fill those orders from its supply chain, assemble them, and deliver them to customers within days of receiving the orders. Microsoft holds dominant shares in the world's markets for personal computer operating systems and business- applications software. Wal-Mart is the largest retailer in the world. It built its reputation on value pricing, effective supply-chain integration, and hard bargaining. This company, founded in a small town in Arkansas, is at the top of the Fortune 500 list and is rapidly creating a global presence. 1) Column A best fits a) Dell Computer b) Microsoft c) Wal-Mart 2) Column B best fits a) Dell Computer b) Microsoft c) Wal-Mart 3) Column C best fits a) Dell Computer b) Microsoft c) Wal-Mart End Strategic Signature Questions 4) A firm with only modest long-term debt will have a degree of financial leverage less than one. a) True b) False – degree of financial leverage is always greater than or equal to one 5) A company’s quick ratio is always greater than or equal to its current ratio. a) True b) False – the quick ratio differs from the current ratios only in that inventories are subtracted from the current assets before they are divided by current liabilities. Since inventories will always be greater than or equal to zero, the quick ratio will always be less than or equal to the current ratio. A B C Inventory Turn 87.5 97.1 9.8 Gross Profit 84.8% 17.8% 23.1% Net Income 31.6% 6.7% 3.7% ROA 17.3% 15.5% 9.0%
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Version A – 54 Questions – Page 2 6) If working capital is negative, the quick ratio is also negative. a) True b) False – both current assets and current liabilities will always be greater than or equal to 0, so the ratio of the two must always be positive. Start Jenna Company Questions What follows is the 2004 income statement for the Jenna Company. Revenues $ 320,000 352,000 +10% COGS $ 240,000 264,000 Gross Profit $ 80,000 88,000 SG&A Expenses $ 20,000 20,000 EBIT $ 60,000 68,000 +13.3% Interest Expense $ 10,000 10,000 EBT $ 50,000 58,000 Income Taxes (20%) $ 10,000 11,600 Net Income $ 40,000 46,400 +16% 7) The Jenna Company’s Degree of Total Leverage is greater than its Degree of Operating Leverage. a) True b) False 8) The Jenna Company’s Degree of Operating Leverage is a) Less than 1 b) Between 1 and 1.15 c) Between 1.15 and 1.3 d) Between 1.3 and 1.45 e) Greater than 1.45 End Jenna Company Questions 9) To use financial ratios effectively, it is recommended that an analyst a) Compare the ratios of several companies operating in the same industry. b)
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Spring 2006 Exam 2 Answer Key - Version A 54 Questions Page...

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