Ch.3 Quiz

Instructions
Read the questions carefully.

This assessment is worth 100 points.

  1. Heavy use of long-term debt can be of benefit to a firm.   (5 points)

      
      

  2. Return on equity will be higher than return on assets if there is debt in the capital structure.   (5 points)

      
      

  3. The DuPont system of profitability analysis emphasizes that profit generated by assets can be derived by various combinations of profit margins and asset turnover.   (5 points)

      
      

  4. Ratios are not distorted by inflation.   (5 points)

      
      

  5. Return on equity will not change if the firm increases its use of debt.   (5 points)

      
      

  6. Financial ratios are used to weigh and evaluate the operational performance of the firm.   (5 points)

      
      

  7. A firm with heavy long-term debt can benefit during inflationary times, as debt can be repaid with "cheaper" dollars.   (5 points)

      
      

  8. Industries most sensitive to inflation-induced profits are those with cyclical products such as lumber, copper, etc.   (5 points)

      
      

  9. The current ratio is a more severe test of a firm's liquidity than the quick ratio.   (5 points)

      
      

  10. Satisfactory return on assets may be achieved through high profit margins or rapid turnover of assets, but not a combination of both.   (5 points)

      
      

  11. Total asset turnover indicates the firm's   (5 points)

    a.  
    b.  
    c.  
    d.  

  12. ABC Co. has an average collection period of 60 days. Total credit sales for the year were $3,000,000. What is the balance in accounts receivable at year-end?   (5 points)

    a.  
    b.  
    c.  
    d.  

  13. A firm has operating profit of $120,000 after deducting lease payments of $20,000. Interest expense is $40,000. What is the firm's fixed charge coverage?   (5 points)

    a.  
    b.  
    c.  
    d.  

  14. Which of the following is a potential problem of utilizing ratio analysis?   (5 points)

    a.  
    b.  
    c.  
    d.  

  15. Replacement cost accounting (current cost method) will usually   (5 points)

    a.  
    b.  
    c.  
    d.  

  16. Disinflation may cause   (5 points)

    a.  
    b.  
    c.  
    d.  

  17. A quick ratio much smaller than the current ratio reflects   (5 points)

    a.  
    b.  
    c.  
    d.  

  18. A firm has a debt to asset ratio of 75%, $240,000 in debt, and net income of $48,000. Calculate return on equity.   (5 points)

    a.  
    b.  
    c.  
    d.  

  19. For a given level of profitability as measured by profit margin, the firm's return on equity will   (5 points)

    a.  
    b.  
    c.  
    d.  

  20. A decreasing average collection period could be associated with (select the one best answer)   (5 points)

    a.  
    b.  
    c.  
    d.  



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