01 Jan A major issue

Part 1 of 2 – 50.0/ 50.0 Points

Question 1 of 40

2.5/ 2.5 Points

Because financial ratios can vary across industries, it is __________ these ratios by industry.

A. not necessary to study

B. unimportant to benchmark

C. important to benchmark

D. futile to examine

Question 2 of 40

2.5/ 2.5 Points

Comparing two companies using __________ may point out differences in management styles.

A. common-size financial statements

B. sales growth

C. historical share prices

D. earnings per share

Question 3 of 40

2.5/ 2.5 Points

Which of the statements below is true?

A. Inventory turnover is cost of goods sold divided by accounts receivables.

B. Receivables turnover is accounts receivable divided by sales.

C. Total asset turnover is profits divided by total assets.

D. A higher inventory turnover ratio signifies that inventory is moving faster.

Question 4 of 40

2.5/ 2.5 Points

To convert an income statement into a common-size income statement, we restate all the numbers as percentages of:

A. total revenues.

B. cost of goods sold.

C. net income.

D. total assets.

Question 5 of 40

2.5/ 2.5 Points

Income statements are often prepared:

A. monthly for external use and quarterly for internal reporting.

B. annually for internal use and quarterly for external reporting.

C. monthly for internal use and quarterly for external reporting.

D. monthly for internal use and annually for external reporting.

Question 6 of 40

2.5/ 2.5 Points

Which of the following statements is true about benchmarking?

A. It compares a company’s current performance against its own previous performance.

B. It compares a company’s performance against that of its competitors.

C. It provides a standard of comparison for financial measurement.

D. All of the above statements are true about benchmarking.

Question 7 of 40

2.5/ 2.5 Points

Earnings per share is the:

A. price per share divided by the earnings per share.

B. net income divided by the number of outstanding shares.

C. market value per shares divided by the book value per share.

D. P/E ratio divided by the earnings growth rate times 100.

Question 8 of 40

2.5/ 2.5 Points

__________ is the listing of all assets and all claims against the assets of a company.

A. The Balance Sheet or Statement of Financial Position

B. Income Statement

C. The Sources and Uses of Cash

D. All of the above

Question 9 of 40

2.5/ 2.5 Points

Which of the statements below is false?

A. The acid ratio test equals current assets minus inventories divided by current liabilities.

B. Examples of liquidity ratios include the current ratio, the cash coverage ratio, and the quick ratio.

C. The current ratio is current assets divided by current liabilities.

D. Inventory turnover equals cost of goods sold divided by inventory.

Question 10 of 40

2.5/ 2.5 Points

Financial ratios __________ industries.

A. can vary across

B. are unchanging across

C. are homogeneous across

D. are always different across

Question 11 of 40

2.5/ 2.5 Points

Which of the following statements is true?

A. The current ratio is current assets divided by current liabilities.

B. Total asset turnover is net income divided by total assets.

C. The cash coverage ratio equals cash divided by current liabilities.

D. The quick ratio equals current assets – current liabilities divided by current liabilities.

Question 12 of 40

2.5/ 2.5 Points

__________ can be helpful for managers to understand short-term cash obligations.

A. Profitability ratios

B. Asset management ratios

C. Solvency ratios

D. Liquidity ratios

Question 13 of 40

2.5/ 2.5 Points

Total current liabilities are $100,000 and total owners’ equity is

$2,000,000. What are total assets?

A. We need to know retained earnings before we can compute total assets.

B. We need more information on long-term liabilities before we can compute

total assets.

C. $2,000,000

D. $2,100,000

Question 14 of 40

2.5/ 2.5 Points

Once financial statements are made public, the external analysis of the company begins by:

A. financial analysts.

B. certified tax planners.

C. the advertising department.

D. All of the above

Question 15 of 40

2.5/ 2.5 Points

Orange Electronics Inc. has a profitability ratio of 0.14, an asset turnover ratio of 1.7, a debt to equity ratio of 0.60, and a total asset to equity ratio of 1.60. What is the firm’s ROE?

A. 14.28%

B. 22.85%

C. 38.08%

D. 41.76%

Question 16 of 40

2.5/ 2.5 Points

Which industry has the lowest average industry debt-to-equity ratio?

A. Auto

B. Retail

C. Oil and gas

D. Airlines

Question 17 of 40

2.5/ 2.5 Points

EBIT is $10,000 and interest expense is $4,000. If the tax rate is 30%, what is the net income?

A. $3,800

B. $4,200

C. $5,200

D. $8,400

Question 18 of 40

2.5/ 2.5 Points

Financial analysts provide recommendations to their clients about what company:

A. to buy.

B. to invest in.

C. to sell or divest.

D. All of the above

Question 19 of 40

2.5/ 2.5 Points

Profit margin is equal to:

A. net income divided by total assets.

B. net income divided by total owners’ equity.

C. net income divided by sales.

D. None of the above

Question 20 of 40

2.5/ 2.5 Points

Which of the statements below is FALSE?

A. When the current ratio is greater than 1, we are also saying that net working capital is positive as current assets are greater than current liabilities.

B. Financial leverage ratios deal with long-term solvency and the use of debt as a financing tool.

C. The debt ratio is total assets minus total equity divided by equity.

D. Times interest earned equals EBIT divided by interest expense.

Part 2 of 2 – 30.0/ 50.0 Points

Question 21 of 40

2.5/ 2.5 Points

Which of the following statements is FALSE about sole proprietorships?

A. They mix the assets of the company with the personal assets of the owner.

B. The owner receives some, but not all, of the profits.

C. The limitation of capital may constrain growth.

D. The owner makes all decisions.

Question 22 of 40

0.0/ 2.5 Points

U.S. Small Business Administration (SBA) guarantee loans have an interest rate that is on average:

A. the same as current market rates on business loans.

B. lower than current market rates on business loans.

C. higher than current market rates on business loans.

D. the same as mortgage loans.

Question 23 of 40

2.5/ 2.5 Points

If you go to your bank and it grants you a lump sum loan today that requires monthly payments for a fixed period of time to repay the borrowed money, you have most likely received a:

A. discount loan.

B. line of credit.

C. straight loan with a preset payment schedule.

D. compensating balance loan.

Question 24 of 40

0.0/ 2.5 Points

Commercial paper and bankers’ acceptances are two forms of corporate financing typically undertaken by:

A. start-up firms.

B. mature firms.

C. sole proprietorships.

D. All of the above

Question 25 of 40

2.5/ 2.5 Points

Commercial paper has a maturity of:

A. less than 270 days.

B. nine to eighteen months.

C. greater than one year.

D. three to five years.

Question 26 of 40

0.0/ 2.5 Points

Starting a business with __________ is by far the most common start-up financing.

A. bonds and equity

B. personal and family funds

C. bank loans

D. venture capital

Question 27 of 40

0.0/ 2.5 Points

Typical U.S. Small Business Administration (SBA) guarantee loans carry an interest rate equal to:

A. the prime rate.

B. current market rates.

C. the prime rate plus a 1% default risk premium.

D. the prime rate less 1% due to the SBA guarantee.

Question 28 of 40

2.5/ 2.5 Points

With a line of credit, the bank is compensated:

A. based on the outstanding balance of the loan.

B. based on the principal value of the credit line.

C. exclusively with a fixed annual payment.

D. based on a fixed interest rate tied to the T-bill rate.

Question 29 of 40

0.0/ 2.5 Points

Which of the following answer choices is more characteristic of a venture capitalist than an angel investor?

A. Usually individuals or groups; invests own money; early stages of the business

B. Usually corporate entities; often tied to individual or group expertise; early stages of the business

C. Usually individuals or groups; pooled money from range of investors; all stages of the business

D. Usually corporate entities; pooled money from range of investors; all stages of the business

Question 30 of 40

2.5/ 2.5 Points

What is the street name for the advertisement issued during the period of time when a firm is waiting for approval from the SEC to issue new securities? This advertisement typically contains the name of the issuing firm and the list of investment bankers involved in underwriting and marketing the new issue.

A. Indenture

B. Tombstone

C. Red herring

D. Letter of comment

Question 31 of 40

0.0/ 2.5 Points

A __________ type of loan is similar to a line of credit. However, even though only a portion of the loan is available to the borrower, interest is paid on the entire face value of the loan.

A. line of credit

B. compensating balance

C. straight loan with preset payment schedule

D. discount

Question 32 of 40

0.0/ 2.5 Points

By making a __________, the investment banker agrees to buy an entire issue of new securities from a firm from a firm followed by resale of the securities to the public.

A. firm commitment

B. best-efforts

C. IPO

D. due diligence

Question 33 of 40

2.5/ 2.5 Points

Bonds may be issued through either a __________ or a __________.

A. private auction; federal auction

B. state agency; federal agency

C. public auction; private placement

D. None of the above

Question 34 of 40

2.5/ 2.5 Points

The __________ is the formal contract for the bond between the issuing company and the buyer.

A. debenture

B. sinking fund

C. indenture

D. prospectus

Question 35 of 40

0.0/ 2.5 Points

If the U.S. Small Business Administration (SBA) makes a loan guarantee, the guarantee is only __________. If the original borrower defaults, the government will repay the obligation up to the __________.

A. to the borrower; loan balance

B. to the public at large; percentage of the SBA guarantee

C. to the lending institution; percentage of the SBA guarantee

D. to the lending institution; loan balance

Question 36 of 40

2.5/ 2.5 Points

In the life cycle of a business, a stable life cycle stage is most closely identified with:

A. old age.

B. youth.

C. maturity.

D. infancy.

Question 37 of 40

2.5/ 2.5 Points

A letter of credit or line of credit is a preapproved borrowing amount that works much like a:

A. premium loan.

B. discount loan.

C. syndicated loan.

D. credit card.

Question 38 of 40

2.5/ 2.5 Points

Syndicated loans are:

A. loans where multiple banks join together to make a loan to a single company.

B. loans made to television stations to purchase re-runs.

C. loans where one bank makes several loans to firms in the same industry in an effort to diversify the bank’s loan portfolio.

D. loans bought by other banks that have unused funds available for loans.

Question 39 of 40

2.5/ 2.5 Points

The two chapters for commercial businesses to handle financial difficulties under the Bankruptcy Reform Act of 1978 are:

A. Chapters 7 and 11.

B. Chapters 7 and 13.

C. Chapters 9 and 11.

D. Chapters 11 and 13.

Question 40 of 40

2.5/ 2.5 Points

A major issue with venture capitalists and angel investors is the rate at which their funds will be used up. This is called the:

A. consumption or constriction rate.

B. burn rate or bleed rate.

C. IV rate.

D. depreciation rate.