Chapter3 Practice Questions

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the
question.

1) Swenson Motors has total debt of $682,400 and a debt-equity ratio of .65. What is the 1)
value of the total assets?
A) $1,414,141
B) $1,732,246
C) $1,578,002
D) $1,364,800
E) $1,049,846

2) Calculate net income given the following information: tax rate = 30%; times interest 2)
earned = 10.75 times; sales = $4,500; cost of goods sold = $1,600; general and
administrative expenses = $750.
A) $1,165 B) $965 C) $1,365 D) $1,065 E) $1,265

3) Determine the value of cash given the following information: cash ratio = 2; cash 3)
equivalents = $600 ; current liabilities = $800.
A) $1,300 B) $1,100 C) $1,400 D) $1,000 E) $1,200

4) Calculate total asset value given the following information: ROA = 5%; Total equity = 4)
$600,000 and ROE = 8%.
A) $1,100,000
B) $1,400,000
C) $1,300,000
D) $960,000
E) $1,200,000

5) Calculate net income given the following information: tax rate = 30%; accounts 5)
receivable = $900; receivable turnover = 5 times; inventory = $500; inventory turnover
= 3.20 times; operating expenses = $700; interest expense = $200.
A) $1,465 B) $1,565 C) $1,765 D) $1,400 E) $1,665

6) Calculate sales given the following data. Total fixed assets $400,000; long-term 6)
liabilities $155,000; total liabilities $280,000; total shareholders' equity $320,000; net
working capital turnover 20.
A) $1,500,000
B) $2,100,000
C) $2,250,000
D) $1,700,000
E) $1,900,000

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 7) A firm has a total debt ratio of .47. This means that that firm has 47 cents in debt for 7)
every:
A) $1.00 in current assets.
B) $0.53 in equity.
C) $1.00 in equity.
D) $0.53 in total assets.
E) $1.00 in total sales.

8) Bentley and Moore has net working capital of $6,900, net fixed assets of $86,100, sales 8)
of $156,000, and current liabilities of $41,700. How many dollars' worth of sales are
generated from every $1 in total assets?
A) $1.22 B) $1.16 C) $1.27 D) $1.13 E) $1.25

9) The financial ratio measured as total assets minus total equity, divided by total assets, is 9)
the:
A) Equity multiplier.
B) Times interest earned ratio.
C) Total debt ratio.
D) Debt-equity ratio.
E) Current ratio.

10) The financial ratio measured as the price per share of stock divided by earnings per share 10)
is known as the:
A) Debt-equity ratio.
B) Return on assets.
C) Du Pont identity.
D) Return on equity.
E) Price-earnings ratio.

11) A reduction in interest expense, all else constant, will cause a(n): 11)
A) Decrease in the return on equity.
B) Decrease in the long-term debt ratio.
C) Increase in the price earnings ratio.
D) Increase in the cash coverage ratio.
E) Decrease in the times interest earned ratio.

12) When a firm wishes to increase its net working capital turnover rate, it should 12)
________, all else constant.
A) decrease its current liabilities
B) increase its current assets
C) increase its sales
D) decrease its total liabilities
E) increase its total assets

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13) Which one of the following is found in the operating activity section of a statement of 13)
cash flows?
A) Decrease in long-term debt.
B) Decrease in common stock.
C) Fixed asset acquisition.
D) Increase in accounts payable.
E) Dividends paid.

14) Creditors are most likely interested in the: 14)

A) Times interest earned ratio.
B) Fixed asset turnover.
C) Price-earnings ratio.
D) Earnings per share ratio.
E) Return on assets ratio.

15) Which ratio does NOT focus on financial leverage? 15)

A) Debt/equity ratio.
B) Times interest earned.
C) Total debt ratio.
D) Equity multiplier.
E) Cash ratio.

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Answer Key
Testname:

1) B
2) C
3) D
4) D
5) D
6) A
7) B
8) B
9) C
10) E
11) D
12) C
13) D
14) A
15) E