Chapter 3 Corporate Finance

In an ideal world, which of the following would be used to evaluate firm performance? A) corporate retained earnings from the day of incorporation B) book value of assets C) market value of assets D) accounting assets and profits C
Williams Inc. has a current ratio equal to 3, a quick ratio equal to 1.8, and total current assets of $6 million (William Inc.’s current asset include only cash, accounts receivable and inventory). Williams’ inventory balance is A) $2,000,000. B) $4,000,000. C) $4,800,000. D) $2,400,000. D
All of the following will improve a firm’s liquidity position EXCEPT A) increase inventory turnover. B) increase the average collection period. C) increase long-term debt and invest the money in marketable securities. D) increase accounts receivable turnover B
The acid-test ratio of a firm would be unaffected by which of the following? A) Accounts payable are reduced by obtaining a short-term loan. B) Inventories are sold for cash. C) Common stock is sold and the money is invested in marketable securities. D) Inventories are sold on a short-term credit basis. A
The current ratio of a firm would equal its quick ratio whenever A) the firm’s inventory is equal to its other current assets. B) the firm’s current ratio is equal to one. C) the firm has no inventory. D) the firm’s inventory is equal to its current liabilities. C
Benkart Corporation has sales of $5,000,000, net income of $800,000, total assets of $2,000,000, and 100,000 shares of common stock outstanding. If Benkart’s P/E ratio is 12, what is the company’s current stock price? A) $240 per share B) $360 per share C) $60 per share D) $96 per share D
Jones, Inc. has a current ratio equal to 1.40. Which of the following transactions will increase the company’s current ratio? A) The company pays back $50,000 of its long-term debt. B) The company collects $500,000 of its accounts receivable. C) The company writes a $30,000 check to pay off some existing accounts payable. D) The company sells $1 million of inventory on credit. C
When comparing inventory turnover ratios, other things being equal A) a lower inventory turnover is preferred in order to keep inventory costs low. B) higher inventory turnover results from an increase in the selling price of the product. C) a higher inventory turnover is preferred to improve liquidity. D) higher inventory turnover results from old or obsolete inventory increasing the inventory balance on the balance sheet. C

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