Multiple Choice Questions
1. Which one of the following statements concerning market and book values is correct?
a. The market value of accounts receivable is generally much lower than the book value of those
receivables.
b. The market and book values of current assets tend to be relatively equal.
c. The market value of fixed assets will always exceed the book value of those assets.
d. Book values represent the amount of cash that will be received if an asset is sold.
e. The current book value of equipment purchased last year is equal to the initial cost
of the equipment.
2. The internal growth rate is best described as the _____ growth rate achievable _____.
a. minimum; if a firm retains all of its net income
b. minimum; if a firm maintains a constant debt-equity ratio
c. maximum; without any additional external equity financing
d. maximum; without any additional external financing of any type
e. maximum; if external debt financing is maximized
3. . A firm has a days' sales in inventory value of 46. This means the firm:
a. has sufficient inventory to support its sales for 46 weeks.
b. has sufficient inventory to support its sales for 46 days.
c. pays its suppliers in 46 days.
d. grants its customers 46 days to pay for their purchases.
e. sells its inventory an average of 46 times each year.
4. Which of the following will increase the profit margin of a firm, all else constant?
I. increasing depreciation
II. decreasing cost of goods sold
III. decreasing the tax rate
IV. increasing interest expense
a. I and III only
b. II and IV only
c. II and III only
d. I, II, and III only
e. I, II, III, and IV
5. . The Du Pont identity helps financial managers determine:
I. why a firm's return on equity is lower than anticipated.
II. the operating efficiency of a firm.
III. the utilization rate of a firm's assets.
IV. the rate of return on a firm's assets.
a. II and III only
b. I and III only
c. II, III, and IV only
d. I, II, and III only
e. I, II, III, and IV
6. Which of the following represent problems encountered when analyzing financial statements?
I. Conglomerates do not fit neatly into any one industrial classification.
II. Firms use different methods of accounting.
III. Firms with seasonal sales may have different fiscal years.
IV. Many firms have global operations.
a. I and II only
b. II and IV only
c. I, II, and III only
d. I, II, and IV only
e. I, II, III, and IV
7. The Book & Magazine Co. has inventory of RM193,000, equity of RM395,100, total assets of
RM578,800, and sales of RM612,300. What is the common-size percentage for the inventory
account?
a. 16.20 percent
b. 19.82 percent
c. 31.52 percent
d. 33.34 percent
e. 48.85 percent
8. The Endicott Co. has net income of RM72,700, total assets of RM285,000, total equity of
RM196,000, and total sales of RM523,200. What is the common-size percentage for the net
income?
a. 9.00 percent
b. 13.90 percent
c. 15.11 percent
d. 25.51 percent
e. 37.09 percent
9. You are analyzing a company that has cash of RM2,000, accounts receivable of RM3,700, fixed
assets of RM10,900, accounts payable of RM6,600, and inventory of RM4,100. What is
the quick ratio?
a. .30
b. .67
c .86
d. 1.48
e. 3.30
10. Thayer, Inc. has earnings before interest and taxes of RM10,350 and net income of
RM2,528.50. The tax rate is 35 percent. What is the times interest earned ratio?
a. .22
b. .62
c. .96
d. 1.04
e. 1.60
