Finance – Chapter 4

Considered alone, which of the following would INCREASE a company’s current ratio?A. An increase in net fixed assets.B. An increase in accrued liabilities.C. An increase in notes payable.D. An increase in accounts receivable.E. An increase in accounts payable. D. An increase in accounts receivable.
Which of the following statements is CORRECT?A. A reduction in inventories would have no effect on the current ratio?B. An increase in inventories would have no effect on the current ratio.C. If a firm increases its sales while holding its inventories constant, then other things held constant, its inventory turnover ratio will increase.D. A reduction in the inventory turnover ratio will generally lead to an increase in ROE.E. If a firm increases its sales while holding its inventories constant, then, other things held constant, its fixed assets turnover ratio will decline. C. If a firm increases its sales while holding its inventories constant, then other things held constant, its inventory turnover ratio will increase.
Casey communication recently issued new common stock and used the proceeds to pay off some of its short-term notes payable. This action had o effect on the company’s total assets or operating income. Which of the following effects would occur as a result of this action?A. The company’s current ratio increased.B. The company’s times interest earned ratio decreased.C. The company’s basic earning power ratio increased.D. The company’s equity multiplier increased.E. The company’s total debt to capital ratio increased. A. The company’s current ratio increased.
If a bank loan officer were considering a company’s loan request, which of the following statements would you consider to be CORRECT?A. The lower the company’s inventory turnover ratio, other things held constant, the lower the interest rate the bank would charge the firm.B. Other things held constant, the higher the days sales outstanding ratio, the lower the interest rate the bank would charge.C. Other things held constant, the lower, the total debt to total capital ratio, the lower the interest rate the bank would charge.D. The lower the company’s TIE ratio, other things held constant, the lower the interest rate the bank would charge.E. Other things held constant, the lower the current ratio, the lower the interest rate the bank would charge the firm. C. Other things held constant, the lower, the total debt to total capital ratio, the lower the interest rate the bank would charge.
Amram Company’s current ratio is 2.0. Considered alone, which of the following actions would lower the current ratio?A. Borrow using short-term notes payable and use the proceeds to reduce accruals.B. Borrow using short-term notes payable and use the proceeds to reduce long-term debt.C. Use cash to reduce accruals.D. Use cash to reduce short-term notes payableE. Use cash to reduce accounts payable. B. Borrow using short-term notes payable and use the proceeds to reduce long-term debt.
Which of the following statements is CORRECT?A. If firms X and Y have the same P/E ratios, then their market-to-book ratios must also be equal.B. If firms X and Y have the same net income, number of shares outstanding, and price per share, then their P/E ratios must also be the sameC. If X and Y have the same earnings per share and market-to-book ratio, they must have the same price/earnings ratio.D. If firms Xs P/E ratio exceeds that of firm y, then y is likely to be less risky and/or be expected to grow at a faster rate.E. If firms X and Y have the same net income, number of shares outstanding, and price per share, then their market-to-book ratios must also be the same. B. If firms X and Y have the same net income, number of shares outstanding, and price per share, then their P/E ratios must also be the same
Taggart Tech. is considering issuing new common stock and using the proceeds to reduce its outstanding debt. The stock issue would have no effect on total assets, the interest rate Taggart pays, EBIT, or the tax rate. Which of the following is likely to occur if the company goes ahead with the stock issue?A.The ROA will decline.B.Taxable income will declineC. The tax bill will increaseD. Net income will decrease.E. The times-interest-earned ratio will decrease C. The tax bill will increase
2 companies HD and LD have same sales, tax rate, interest rate on their debt, total assets, and basic earning power. Both firms finance using only debt and common equity and total assets equal total invested capital. Both companies have positive net incomes. Company HD has a higher total debt to total capital ratio, higher interest expense. Which of the following statements is CORRECT?A. Company HD pays less in taxesB. Company HD has lower equity multiplierC. Company HD has a higher ROAD. Company HD has a higher times-increase-earned ratio (TIE)E. Company HD has more net income A. Company HD pays less in taxes
Which of the following statements is CORRECT?A. Other things held constant, the more debt a firm uses, the higher its operating margin will beB. Debt management ratios shows the extent to which a firms managers are attempting to magnify returns on owners capital through the use of financial leverage.C.Other things held constant, the more a debt firm uses, the higher its profit margin will be.D. Other things held constant, the higher a firms total debt to toal capital ratio, the higher its TIE ratio will be.E. AJax Corp. sales last year were $435,000, its operating costs were $362,500, and its interest charges were $12,500. What was the firms times-interest-earned (TIE)A. 4.72B. 4.97C. 5.23D. 5.51E. 5.80 E. 5.80

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