FIN575 - Quiz - 6 - SOLUTION - Graded 30/30

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1. (TCO A) Using LIFO rather than FIFO in a time of rising prices:

I. lowers the current ratio.
II. increases inventory turnover.
III. increases profit margin.
IV. increases debt/equity ratio.
 

(Points : 3)

      [removed] I, II, and IV
      [removed] 
I and II
      [removed] 
II and III
      [removed] 
I only

 

Question 2.2. (TCO A) Which of the following will not affect the calculation of leverage ratios?  (Points : 3)

      [removed] Existence of non-capitalized operating leases
      [removed] 
Existence of assets where market value is much higher than book value
      [removed] 
Existence of significant debt covenants
      [removed] 
Existence of pension liabilities where projected benefit liability is much greater than plan assets and accumulated benefit obligation

 

Question 3.3. (TCO A) When calculating debt to equity ratio:  (Points : 3)

      [removed] convertible bonds should be treated as debt.
      [removed] 
convertible bonds should be excluded from debt but not included in equity.
      [removed] 
convertible bonds should be treated as equity.
      [removed] 
half the convertible bonds should be treated as debt, and the other half as equity.

 

Question 4.4. (TCO A) The earnings to fixed charges ratio:  (Points : 3)

      [removed] indicates how efficiently assets are used.
      [removed] 
typically includes depreciation in the denominator.
      [removed] 
typically excludes extraordinary gains and losses from the numerator.
      [removed] 
indicates the proportion of debt used to finance the company.

 

Question 5.5. (TCO A) Which of the following would be least likely to affect the quality of receivables?  (Points : 3)

      [removed] Credit policy
      [removed] 
Right of return policy
      [removed] 
Collection procedures
      [removed] 
Sales commissions

 

Question 6.6. (TCO A) Which of the following statements concerning the current ratio are true?

I. It is always larger than the acid-test (quick) ratio.
II. Companies can window-dress their current ratios.
III. In isolation, the current ratio has little meaning.
IV. It is a good indicator of solvency of a company.
 

(Points : 3)

      [removed] I, II, III, and IV
      [removed] 
I, II, and III
      [removed] 
II, III, and IV
      [removed] 
I, II, and IV

 

Question 7.7. (TCO A) Which of the following statements are correct with respect to the times interest earned ratio?
 
I. It is independent of operating income
II. It is independent of the interest rate paid on debt
III. It is independent of the tax rate
IV. It is independent of the amount of dividends paid
  (Points : 3)

      [removed] I, II, and III
      [removed] 
I and III
      [removed] 
I and IV
      [removed] 
III and IV

 

Question 8.8. (TCO A) Which of the following best describes the current ratio?  (Points : 3)

      [removed] Debt ratio
      [removed] 
Operating performance ratio
      [removed] 
Liquidity ratio
      [removed] 
Efficiency ratio

 

Question 9.9. (TCO A) Selling accounts receivable increases which of the following?  (Points : 3)

      [removed] Current ratio
      [removed] 
Accounts receivable turnover
      [removed] 
Debt/equity
      [removed] 
Effective tax rate

 

Question 10.10. (TCO A) Which of the following statements are true?
 
I. Pre-tax cost of debt is generally higher than the pre-tax cost of equity.
II. Interest is tax deductible.
III. Preferred dividends are tax deductible.
IV. Total cost of capital is normally less than or equal to cost of equity.
  (Points : 3)

      [removed] II and IV
      [removed] 
II, III, and IV
      [removed] 
I, II, and IV
      [removed] 
II only

 

 

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    FIN575 - Quiz - 6 - SOLUTION - Graded 30/30
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