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The impact of using LIFO over FIFO is to ________.


A) bias ROE downward since investments are undervalued
B) bias ROE downward since investments are overvalued
C) bias ROE upward since investments are undervalued
D) bias ROE upward since investments are overvalued

E) A) and B)
F) None of the above

Correct Answer

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All of the following ratios are related to efficiency except ________.


A) total asset turnover
B) fixed-asset turnover
C) average collection period
D) cash ratio

E) B) and C)
F) C) and D)

Correct Answer

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Which of the following would result in a cash inflow under the heading "Cash flow from investing" in the statement of cash flows?


A) purchase of capital equipment
B) payments to suppliers for inventory
C) collections on receivables
D) sale of production machinery

E) B) and C)
F) A) and D)

Correct Answer

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Use the following cash flow data of Haven Hardware for the year ended December 31, 2017. Use the following cash flow data of Haven Hardware for the year ended December 31, 2017. What is the cash at the end of 2017 for Haven Hardware? A) $6,000 B) $94,000 C) $736,000 D) $188,000 What is the cash at the end of 2017 for Haven Hardware?


A) $6,000
B) $94,000
C) $736,000
D) $188,000

E) A) and B)
F) A) and C)

Correct Answer

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When assessing the sustainability of a firm's cash flows, analysts will prefer to see cash growth generated from which of the following sources?


A) cash flow from investment activities
B) cash flow from operating activities
C) cash flow from financing
D) cash flow from extraordinary events

E) None of the above
F) B) and C)

Correct Answer

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A firm has a lower inventory turnover, a longer ACP, and a lower fixed-asset turnover than the industry averages. You should not be surprised to find that this firm has: I. Lower ATO than the industry average II. Lower ROA than the industry average III. Lower ROE than the industry average


A) I only
B) I and II only
C) II and III only
D) I, II, and III

E) B) and C)
F) A) and B)

Correct Answer

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A firm purchases goods on credit worth $100. The same firm pays off $80 in old credit purchases. An investment is made via the purchase of a new facility, and equity is issued in the amount of $200 to pay for the purchase. What is the change in net cash provided by financing?


A) $20 increase
B) $80 increase
C) $100 increase
D) $200 increase

E) None of the above
F) A) and B)

Correct Answer

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A firm has an ROE equal to the industry average, but its price-to-book ratio is below the industry average. You know that the firm's ________.


A) earnings yield is above the industry average
B) P/E ratio is above the industry average
C) dividend payout ratio is too high
D) interest burden must be below the industry average

E) B) and C)
F) A) and D)

Correct Answer

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Which of the following is NOT a liquidity ratio?


A) Inventory turnover ratio
B) Current ratio
C) Quick ratio
D) Cash ratio

E) All of the above
F) C) and D)

Correct Answer

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Operating ROA can be found as the product of ________.


A) return on sales × ATO
B) tax burden × interest burden
C) interest burden × leverage ratio
D) ROE × dividend payout ratio

E) A) and B)
F) A) and C)

Correct Answer

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The ABS company has a capital base of $100 million, an opportunity cost of capital (k) of 15%, a return on assets (ROA) of 9%, and a return on equity (ROE) of 18%. What is the economic value added (EVA) for ABS?


A) $8 million
B) -$6 million
C) $3 million
D) -$4 million

E) C) and D)
F) B) and D)

Correct Answer

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The financial statements of Flathead Lake Manufacturing Company are shown below. The financial statements of Flathead Lake Manufacturing Company are shown below. Note: The common shares are trading in the stock market for $15 per share. Refer to the financial statements of Flathead Lake Manufacturing Company. The firm's current ratio for 2017 indicates that Flathead's liquidity has ________ since 2016. A) risen B) fallen C) stayed the same D) The answer cannot be determined from the information given. The financial statements of Flathead Lake Manufacturing Company are shown below. Note: The common shares are trading in the stock market for $15 per share. Refer to the financial statements of Flathead Lake Manufacturing Company. The firm's current ratio for 2017 indicates that Flathead's liquidity has ________ since 2016. A) risen B) fallen C) stayed the same D) The answer cannot be determined from the information given. Note: The common shares are trading in the stock market for $15 per share. Refer to the financial statements of Flathead Lake Manufacturing Company. The firm's current ratio for 2017 indicates that Flathead's liquidity has ________ since 2016.


A) risen
B) fallen
C) stayed the same
D) The answer cannot be determined from the information given.

E) A) and B)
F) A) and C)

Correct Answer

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What ratio will definitely increase when a firm increases its annual sales with no corresponding increase in assets?


A) asset turnover
B) current ratio
C) liquidity ratio
D) quick ratio

E) A) and B)
F) All of the above

Correct Answer

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A firm purchases goods on credit worth $90. The same firm pays off $100 in old credit purchases. An investment is made via the purchase of a new facility, and equity is issued in the amount of $180 to pay for the purchase. What is the change in net cash provided by investments?


A) $10 decrease
B) $90 decrease
C) $180 decrease
D) $190 decrease

E) None of the above
F) B) and C)

Correct Answer

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The financial statements of Burnaby Mountain Trading Company are shown below. The financial statements of Burnaby Mountain Trading Company are shown below. Note: The common shares are trading in the stock market for $27 each. Refer to the financial statements of Burnaby Mountain Trading Company. The firm's return-on-sales ratio for 2017 is ________. A) 0.0409 B) 0.0429 C) 0.0475 D) 0.0753 The financial statements of Burnaby Mountain Trading Company are shown below. Note: The common shares are trading in the stock market for $27 each. Refer to the financial statements of Burnaby Mountain Trading Company. The firm's return-on-sales ratio for 2017 is ________. A) 0.0409 B) 0.0429 C) 0.0475 D) 0.0753 Note: The common shares are trading in the stock market for $27 each. Refer to the financial statements of Burnaby Mountain Trading Company. The firm's return-on-sales ratio for 2017 is ________.


A) 0.0409
B) 0.0429
C) 0.0475
D) 0.0753

E) C) and D)
F) None of the above

Correct Answer

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Firm A acquires firm B when firm B has a book value of assets of $155 million and a book value of liabilities of $35 million. Firm A actually pays $175 million for firm B. This purchase would result in goodwill for firm A equal to ________.


A) $175 million
B) $155 million
C) $120 million
D) $55 million

E) B) and C)
F) A) and D)

Correct Answer

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A high price-to-book ratio may indicate which one of the following?


A) The firm expanded its plant and equipment in the past few years.
B) The firm is doing a poorer job controlling its inventory expense than other related firms.
C) Investors may believe that this firm has opportunities for earning a rate of return in excess of the market capitalization rate.
D) All of these options.

E) A) and C)
F) A) and D)

Correct Answer

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A firm has a net profit/pretax profit ratio of 0.6, a leverage ratio of 1.5, a pretax profit/EBIT of 0.7, an asset turnover ratio of 4, a current ratio of 2, and a return-on-sales ratio of 6%. Its ROE is ________.


A) 7.56%
B) 15.12%
C) 20.16%
D) 30.24%

E) B) and D)
F) All of the above

Correct Answer

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The financial statements of Flathead Lake Manufacturing Company are shown below. The financial statements of Flathead Lake Manufacturing Company are shown below. Note: The common shares are trading in the stock market for $15 per share. Refer to the financial statements of Flathead Lake Manufacturing Company. The firm's compound leverage ratio is ________. (Please keep in mind that when a ratio involves both income statement and balance sheet numbers, the balance sheet numbers for the beginning and end of the year must be averaged.) A) 1.5 B) 2 C) 2.5 D) 3 The financial statements of Flathead Lake Manufacturing Company are shown below. Note: The common shares are trading in the stock market for $15 per share. Refer to the financial statements of Flathead Lake Manufacturing Company. The firm's compound leverage ratio is ________. (Please keep in mind that when a ratio involves both income statement and balance sheet numbers, the balance sheet numbers for the beginning and end of the year must be averaged.) A) 1.5 B) 2 C) 2.5 D) 3 Note: The common shares are trading in the stock market for $15 per share. Refer to the financial statements of Flathead Lake Manufacturing Company. The firm's compound leverage ratio is ________. (Please keep in mind that when a ratio involves both income statement and balance sheet numbers, the balance sheet numbers for the beginning and end of the year must be averaged.)


A) 1.5
B) 2
C) 2.5
D) 3

E) B) and C)
F) All of the above

Correct Answer

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Which one of the following ratios is used to calculate the times-interest-earned ratio?


A) Net profit/Interest expense
B) Pretax profit/EBIT
C) EBIT/Sales
D) EBIT/Interest expense

E) A) and B)
F) A) and C)

Correct Answer

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