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Which of the following transactions will result in a decrease in cash flow from investments?


A) Acquisition of another business
B) Capital gain from sale of a subsidiary
C) Decrease in net investments
D) Sale of equipment

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

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) A) and D)

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

Correct Answer

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The financial statements of Burnaby Mountain Trading Company are given below. The financial statements of Burnaby Mountain Trading Company are given 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 equity ratio for 2008 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) 0.0409 B) 0.0429 C) 0.0462 D) 0.0923 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 equity ratio for 2008 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) 0.0409
B) 0.0429
C) 0.0462
D) 0.0923

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

Correct Answer

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If a firm has a positive tax rate,a positive operating ROA,and the interest rate on debt is the same as the operating ROA,then operating ROA will be _________.


A) greater than zero but it is impossible to determine how operating ROA will compare to ROE
B) equal to ROE
C) greater than ROE
D) less than ROE

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

Correct Answer

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The financial statements of Burnaby Mountain Trading Company are given below. The financial statements of Burnaby Mountain Trading Company are given 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 current ratio for 2008 is _________. A) 1.30 B) 1.50 C) 1.69 D) 2.83 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 current ratio for 2008 is _________.


A) 1.30
B) 1.50
C) 1.69
D) 2.83

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

Correct Answer

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The financial statements of Burnaby Mountain Trading Company are given below. The financial statements of Burnaby Mountain Trading Company are given 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 asset turnover ratio for 2008 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) 1.30 B) 1.50 C) 1.69 D) 2.83 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 asset turnover ratio for 2008 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) 1.30
B) 1.50
C) 1.69
D) 2.83

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

Correct Answer

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The financial statements of Burnaby Mountain Trading Company are given below. The financial statements of Burnaby Mountain Trading Company are given 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 fixed asset turnover ratio for 2008 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) 2.80 B) 6.00 C) 9.00 D) 11.11 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 fixed asset turnover ratio for 2008 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) 2.80
B) 6.00
C) 9.00
D) 11.11

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

Correct Answer

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The practice of 'selling' large quantities of goods to customers in order to get quarterly sales up while allowing these customers to return the goods next quarter is termed _____________.


A) channel stuffing
B) clogging the network
C) spamming the johns
D) artificial sales

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

Correct Answer

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The process of decomposing ROE into a series of component ratios is called ______________.


A) DuPont analysis
B) technical analysis
C) comparative analysis
D) liquidity analysis

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

Correct Answer

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The financial statements of Flathead Lake Manufacturing Company are given below: The financial statements of Flathead Lake Manufacturing Company are given 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 return on equity ratio for 2005 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) 6.5% B) 26.5% C) 33.4% D) 38.0% 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 return on equity ratio for 2005 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) 6.5%
B) 26.5%
C) 33.4%
D) 38.0%

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

Correct Answer

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The financial statements of Flathead Lake Manufacturing Company are given below: The financial statements of Flathead Lake Manufacturing Company are given 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 cash flow from operating activities for 2007 was _______. A) $810,000 B) $775,000 C) $755,000 D) $735,000 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 cash flow from operating activities for 2007 was _______.


A) $810,000
B) $775,000
C) $755,000
D) $735,000

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

Correct Answer

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The financial statements of Flathead Lake Manufacturing Company are given below: The financial statements of Flathead Lake Manufacturing Company are given 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 P/E ratio for 2007 is _________. A) 3.39 B) 3.60 C) 13.33 D) 10.67 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 P/E ratio for 2007 is _________.


A) 3.39
B) 3.60
C) 13.33
D) 10.67

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

Correct Answer

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A firm increases its financial leverage when its ROA is greater than the cost of debt.Everything else equal this change will probably increase the firm's _______. I.beta II.earnings variability over the business cycle III.ROE IV.stock price


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

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

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 Book Value of B = $155 - $35 = $120; Firm A pays $175, goodwill = $175 - $120 = $55

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

Correct Answer

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Depreciation expense is in what broad category of expenditures?


A) Cost of goods sold
B) General and administrative expenses
C) Debt interest expense
D) Tax expenditures

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

Correct Answer

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Operating ROA is calculated as __________ while ROE is calculated as _________.


A) EBIT/Total Assets; Net Profit/Total Assets
B) Net Profit/Total Assets; EBIT/Total Assets
C) EBIT/Total Assets; Net Profit/Equity
D) Net Profit/EBIT; Sales/Total Assets

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

Correct Answer

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What must cash flow from financing have been in 2008 for Interceptors,Inc.?


A) $5
B) $28
C) $30
D) $33

E) None of the above
F) All of the above

Correct Answer

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