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FINANCE ASSIGNMENT 2013B 1. An increase in financial leverage generally results in a higher return on equity (ROE). o True o False 2. Leverage and

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FINANCE ASSIGNMENT 2013B 1. An increase in financial leverage generally results in a higher return on equity (ROE). o True o False 2. Leverage and liquidity generally rise or fall together. o True o False 3. It is possible for a company to grow faster than its sustainable growth rate. o True o False 4. Which of the following ratios uses sales in the denominator? o Days in inventory o Receivables turnover o Cash ratio o Average collection period 5. For a levered firm, EBIT is equivalent to: o Net income o Pro forma earnings o Operating profit o Net income before taxes 6. Common-size financial statements are constructed in order to: o Adjust for inflation and risk o Facilitate comparisons of different-sized companies o To comply with SEC requirements o All of the above 7. A firm has $100 of average inventory, operating profit of $500 and sales of $1,500. Its days in inventory is: o 36.5 days o 24.3 days o 73.0 days o Not enough information 8. For which of the following generic businesses would you expect a combination of high asset turnover and low profit margins? o Supermarkets o Banks o Software developers o Airlines
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FINANCE ASSIGNMENT 2013B 9. Analysis of a company's financial statements: Below are simplified versions of the balance sheet and income statement for Toys by Tom, Inc. Use this information to answer question 9. Toys by Tom, Inc. has a current ratio of ____, suggesting ________. o 9.6; reasonable ability to cover interest expense o 0.57; potential illiquidity o 0.21; potential collection problems o 1.75; reasonable liquidity 10. Analysis of a company's financial statements: Below are simplified versions of the balance sheet and income statement for Toys by Tom, Inc. Use this information to answer question 10.
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FINANCE ASSIGNMENT 2013B
1. An increase in financial leverage generally results in a higher return on equity (ROE).
o True
o False
Reasoning: It may or may not increase ROE, depending upon the...

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