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Test Bank for Principles of Managerial Finance, Arab World Edition

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    Exam Name___________________________________ TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 1) Finance can be defined as the science and art of managing money. 1) 2) Financial services are concerned with the duties of the financial manager. 2) 3) Financial managers actively manage the financial affairs of many types of business - financial and non - financial, private and public, for - profit and not - for - profit. 3) 4) A partnership is a business owned by two or more people and operated for profit. 4) 5) More businesses are organized as corporations than any other legal form. However, sole proprietorships are overwhelmingly dominant with respect to business receipts and net profits. 5) 6) The board of directors is responsible for managing day - to - day operations and carrying out the policies established by the chief executive officer. 6) 7) The sole proprietor has unlimited liability; his or her total investment in the business, but not his or her personal assets, can be taken to satisfy creditors. 7) 8) In limited partnerships, only one partner may assume limited liability. All other partners have to have unlimited liability. 8) 9) The president or chief executive officer is elected by the firm's stockholders and has ultimate authority to guide corporate affairs and make general policy. 9) 10) A financial analyst is responsible for maintaining and controlling the firm's daily cash balances. Frequently manages the firm's short - term investments and coordinates short - term borrowing and banking relationships. 10) 11) The capital expenditures analyst/manager is responsible for the evaluation and recommendation of proposed asset investments and may be involved in the financial aspects of implementation of approved investments. 11) 12) The financial analyst administers the firm's credit policy by analyzing or managing the evaluation of credit applications, extending credit, and monitoring and collecting accounts receivable. 12) 13) In large companies, the project finance manager is responsible for coordinating the assets and liabilities of the employees' pension fund. 13) 1

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    MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 14) Finance can be defined as 14) A) the system of debits and credits. B) the art of merchandising products and services. C) the science of the production, distribution, and consumption of wealth. D) the art and science of managing money. 15) ________ is concerned with the duties of the financial manager in the business firm. 15) A) Managerial Finance B) Financial Manager C) Financial Services D) None of the above 16) The part of finance concerned with design and delivery of advice and financial products to individuals, business, and government is called 16) A) Financial Services. B) Financial Manager. C) Managerial Finance. D) none of the above. 17) Managerial finance 17) A) involves the design and delivery of advice and financial products. B) devotes the majority of its attention to the collection and presentation of financial data. C) involves tasks such as budgeting, financial forecasting, cash management, and funds procurement. D) recognizes funds on an accrual basis. 18) Financial service 18) A) is concerned with the duties of the financial manager. B) handles accounting activities related to data processing. C) involves the design and delivery of advice and financial products. D) provides guidelines for the efficient operation of the business. 19) Career opportunities in financial services include all of the following EXCEPT 19) A) personal financial planning. B) capital expenditures management. C) investments. D) real estate and insurance. 20) Which of the following is a career opportunity in managerial finance? 20) A) Capital Expenditures Management. B) Personal Financial Planning. C) Real Estate and Insurance. D) Investment. 21) The dominant form of organization with respect to receipts and net profits is the 21) A) partnership. B) S - corporation. C) corporation. D) sole proprietorship. 22) Which of the following has the legal powers of an individual? 22) A) A corporation. B) A limited partnership. C) A partnership. D) A sole proprietorship. 23) Which of the following has stockholders who elect a board of directors? 23) A) Partnerships. B) Sole proprietorships. C) Limited partnership. D) Corporation. 2

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    24) The true owner(s) of the corporation is (are) the ________ . 24) A) stockholders B) creditors C) board of directors D) chief executive officer 25) The ________ has/have the ultimate responsibility in guiding corporate affairs and carrying out policies. 25) A) creditors B) stockholders C) board of directors D) chief executive officer 26) The responsibility for managing day - to - day operations and carrying out corporate policies belongs to the ________ . 26) A) chief executive officer B) board of directors C) stockholders D) creditors 27) In a corporation, the members of the board of directors are elected by the 27) A) creditors. B) chief executive officer. C) stockholders. D) employees. 28) More businesses are organized as ________ than any other legal form. 28) A) partnerships. B) sole proprietorships. C) corporations. D) S - corporations. 29) All of the following are key strengths of a corporation EXCEPT 29) A) readily transferable ownership. B) access to capital markets. C) limited liability. D) low organization costs. 30) Which of the following legal forms of organization is characterized by limited liability? 30) A) Partnership. B) Corporation. C) Professional partnership. D) Sole proprietorship. 31) The ________ is responsible for evaluating and recommending proposed asset investments. 31) A) Capital Expenditures Analyst B) Financial Analyst C) Pension Fund Manager D) Credit Analyst 32) The ________ primarily prepares the firm's financial plans and budgets. 32) A) Cash managers B) Project finance manager C) Financial analyst D) Capital expenditures managers TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 33) The size and importance of the managerial finance function depend on the size of the firm. 33) 34) The firm's controller (or chief accountant) typically handles the accounting activities, such as tax management, corporate accounting, and cost and financial accounting. 34) 35) The corporate treasurer typically handles the both cost accounting and financial accounting. 35) 36) The corporate treasurer is the officer responsible for the firm's accounting activities, such as corporate accounting, tax management, financial accounting, and cost accounting. 36) 3

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    37) The corporate controller is the officer responsible for the firm's financial activities such as financial planning and fund raising, making capital expenditure decisions, and managing cash, credit, the pension fund, and foreign exchange. 37) 38) The corporate treasurer's focus tends to be more external, while the controller's focus is more internal. 38) 39) Marginal cost - benefit analysis states that financial decisions should be made and actions taken only when added benefits exceed added costs. 39) 40) The accrual method recognizes revenue at the point of sale and recognizes expenses when incurred. 40) 41) Using certain standardized and generally accepted principles, the accountant prepares financial statements that recognize revenue at the point of sale and expenses when incurred. 41) 42) The financial manager places primary emphasis on cash flows, the inflow and outflow of cash. 42) 43) The financial manager prepares financial statements that recognize revenue at the point of sale and expenses when incurred. 43) 44) The accountant evaluates financial statements, develops additional data, and makes decisions based on his or her assessment of the associated returns and risks. 44) 45) The financial manager must look beyond financial statements to obtain insight into developing or existing problems since the accrual accounting data do not fully describe the circumstances of a firm. 45) MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 46) The controller is commonly responsible for 46) A) managing credit activities. B) managing cash. C) financial accounting. D) financial planning. 47) The treasurer is commonly responsible for 47) A) taxes. B) data processing. C) cost accounting. D) making capital expenditure decisions. 48) The officer responsible for the firm's accounting activities, such as corporate accounting, tax management, financial accounting, and cost accounting is the 48) A) treasurer. B) controller. C) foreign exchange manager. D) none of the above. 49) The officer responsible for the firm's financial activities such as financial planning and fund raising, making capital expenditure decisions, and managing cash, credit, the pension fund, and foreign exchange is 49) A) controller. B) foreign exchange manager. C) treasurer. D) none of the above. 4

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    50) The accountant's primary function is 50) A) making decisions based on financial data. B) planning cash flows. C) evaluating the financial statements. D) the collection and presentation of financial data. 51) The accountant recognizes revenues and expenses on 51) A) a revenue basis. B) a cash basis. C) an expense basis. D) an accrual basis. 52) Economic theories that the financial manager must be able to utilize for efficient business operations, include 52) A) supply - and - demand analysis. B) price theory. C) profit - maximizing strategies. D) marginal analysis. E) all of the above. 53) The primary economic principle used in managerial finance is 53) A) the liquidity trap. B) supply and demand. C) the crowding out effect. D) marginal analysis. 54) Marginal analysis states that financial decisions should be made and actions taken only when 54) A) added benefits are greater than zero. B) demand equals supply. C) added benefits exceed added costs. D) benefits equal costs. 55) The financial manager recognizes revenues and expenses utilizing 55) A) the standardized, generally accepted, accounting principles. B) the accrual method. C) the revenue method. D) the actual inflows and outflows of cash. 56) The financial manager is interested in the cash inflows and outflows of the firm, rather than the accounting data, in order to ensure 56) A) profitability. B) solvency. C) the ability to pay dividends. D) the ability to acquire new assets. 57) The accountant may be responsible for any of the following EXCEPT 57) A) analyzing the mix of current to fixed assets. B) preparing the monthly income statement. C) ensuring accounts payable are paid on time. D) processing purchase orders and invoices. 58) Johnson, Inc. has just ended the calendar year making a sale in the amount of US$10,000 of merchandise purchased during the year at a total cost of US$7,000. Although the firm paid in full for the merchandise during the year, it has yet to collect at year end from the customer. The net profit and cash flow from this sale for the year are 58) A) US$7,000 and - US$3,000, respectively. B) US$3,000 and US$7,000, respectively. C) US$3,000 and US$10,000, respectively. D) US$3,000 and - US$7,000, respectively. 5

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    59) A firm has just ended its calendar year making a sale in the amount of US$150,000 of merchandise purchased during the year at a total cost of US$112,500. Although the firm paid in full for the merchandise during the year, it has yet to collect at year end from the customer. The net profit and cash flow from this sale for the year are 59) A) US$0 and US$150,000, respectively. B) US$37,500 and - US$112,500, respectively. C) US$37,500 and - US$150,000, respectively. D) US$150,000 and US$112,500, respectively. 60) The primary emphasis of the financial manager is the use of 60) A) cash flow. B) profit incentives. C) accrued earnings. D) organization charts. 61) By concentrating on cash flows within the firm the financial manager should be able to 61) A) avoid insolvency. B) control expenses. C) speak authoritatively to stockholders. D) prepare tax returns. 62) A firm has just ended its calendar year making a sale in the amount of US$200,000 of merchandise purchased during the year at a total cost of US$150,500. Although the firm paid in full for the merchandise during the year, it has yet to collect at year end from the customer. The possible problem this firm may face is 62) A) low profitability. B) inability to receive credit. C) high leverage. D) lack of cash flow. TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 63) When considering each financial decision alternative or possible action in terms of its impact on the share price of the firm's stock, financial managers should accept only those actions that are expected to increase the firm's profitability. 63) 64) Financial analysis and planning is concerned with analyzing the mix of assets and liabilities. 64) 65) Financing decisions deal with the left - hand side of the firm's balance sheet and involve the most appropriate mix of current and fixed assets. 65) MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 66) The key role of the financial manager is 66) A) the presentation of financial statements. B) the collection of financial data. C) the preparation of data for future evaluation. D) decision making. 67) The key activities of the financial manager include all of the following EXCEPT 67) A) making financing decisions. B) making investment decisions. C) managing financial accounting. D) financial analysis and planning. 6

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    68) Included in the primary activities of the financial manager are 68) A) analyzing and planning cash flows. B) making investment decisions. C) making financing decisions. D) financial analysis and planning. E) all of the above. 69) The financial manager may be responsible for any of the following EXCEPT 69) A) analyzing the effects of more debt on the firm's capital structure. B) monitoring of quarterly tax payments. C) determining whether to accept or reject a capital asset acquisition. D) analyzing budget and performance reports. 70) Making investment decisions includes all of the following EXCEPT 70) A) notes payable. B) accounts receivable. C) fixed assets. D) inventory. 71) Making financing decisions includes all of the following EXCEPT 71) A) analyzing quarterly budget and performance reports. B) deciding which individual long - term sources are best at a given point in time. C) determining the appropriate mix of short - term and long - term financing. D) deciding which individual short - term sources are best at a given point in time. 72) The financial manager may be responsible for any of the following EXCEPT 72) A) determining whether to accept or reject a capital asset acquisition. B) analyzing quarterly budget and performance reports. C) analyzing the effects of more debt on the firm's capital structure. D) keeping track of quarterly tax payments. 73) Financial analysis and planning involve all of the following EXCEPT 73) A) evaluating the need for increased or reduced productive capacity. B) controlling the data processing activities. C) transforming data into a form that can be used to monitor the firm's financial position. D) determining the additional financing needs. 74) The financial manager's investment decisions determine 74) A) both the mix and the type of short - term and long - term financing. B) both the mix and the type of assets found on the firm's balance sheet. C) both the mix and the type of assets and liabilities found on the firm's balance sheet. D) both the mix and the type of liabilities found on the firm's balance sheet. 75) In planning and managing the requirements of the firm, the financial manager is concerned with 75) A) the type of financing utilized, but not the mix and type of assets. B) the acquisition of fixed assets, allowing someone else to plan the level of current assets required. C) the mix and type of assets, the type of financing utilized, and analysis in order to monitor the financial condition. D) the mix and type of assets, but not the type of financing utilized. 7

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    76) The financial manager's financing decisions determine 76) A) both the mix and the type of assets and liabilities found on the firm's balance sheet. B) the proportion of the firm's earnings to be paid as dividend. C) both the mix and the type of assets found on the firm's balance sheet. D) the most appropriate mix of short - term and long - term financing. TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 77) To achieve the goal of profit maximization for each alternative being considered, the financial manager would select the one that is expected to result in the highest monetary return. 77) 78) The wealth of corporate owners is measured by the share price of the stock. 78) 79) A high earnings per share (EPS) does not necessarily translate into a high stock price. 79) 80) The profit maximization goal ignores the timing of returns, does not directly consider cash flows, and ignores risk. 80) 81) When considering each financial decision alternative or possible action in terms of its impact on the share price of the firm's stock, financial managers should accept only those actions that are expected to maximize shareholder value. 81) 82) Dividend payments change directly with changes in earnings per share. 82) 83) Risk and the magnitude and timing of cash flows are the key determinants of share price, which represents the wealth of the owners in the firm. 83) 84) High cash flow is generally associated with a higher share price whereas higher risk tends to result in a lower share price. 84) 85) An increase in firm risk tends to result in a higher share price since the stockholder must be compensated for the greater risk. 85) 86) Stockholders expect to earn higher rates of return on investments of lower risk and lower rates of return on investments of higher risk. 86) 87) The goal of ethics is to motivate business and market participants to adhere to both the letter and the spirit of laws and regulations in all aspects of business and professional practice. 87) 88) Agents of corporate owners are themselves owners of the firm and have been elected by all the corporate owners to represent them in decision - making and management of the firm. 88) 89) Institutional investors are professional investors who work on behalf of national governments to ensure fairness in the financial markets. 89) 90) The likelihood that managers may place personal goals ahead of corporate goals is called the agency problem. 90) 8

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    91) The agency problem occurs when the firm selects an ineffective marketing advertising and PR firm to represent them. 91) 92) Market forces and incurring agency costs such as bonding and insurance help to prevent or minimize agency problems. 92) 93) Recent studies on executive compensation have failed to find a strong relationship between CEO compensation and share price. 93) MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 94) The primary goal of the financial manager is 94) A) minimizing return. B) maximizing wealth. C) minimizing risk. D) maximizing profit. 95) Corporate owner's receive realizable return through 95) A) earnings per share and cash dividends. B) increase in share price and earnings per share. C) profit and earnings per share. D) increase in share price and cash dividends. 96) The wealth of the owners of a corporation is represented by 96) A) share value. B) cash flow. C) profits. D) earnings per share. 97) Wealth maximization as the goal of the firm implies enhancing the wealth of 97) A) the firm's stockholders. B) the firm's employees. C) the Board of Directors. D) the federal government. 98) The amount earned during the accounting period on each outstanding share of common stock is called 98) A) net income. B) net profits after taxes. C) earnings per share. D) common stock dividend. 99) The goal of profit maximization would result in priority for 99) A) earnings per share. B) risk of the investment. C) timing of the returns. D) cash flows available to stockholders. 100) Profit maximization as a goal is not ideal because it does NOT directly consider 100) A) risk and EPS. B) risk and cash flow. C) cash flow and stock price. D) EPS and stock price. 9

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    101) A financial manager must choose between four alternative Assets: 1, 2, 3, and 4. Each asset costs US$35,000 and is expected to provide earnings over a three - year period as described below. Asset Year 1 Year 2 Year 3 1 $21,000 $15,000 $6,000 2 9,000 15,000 21,000 3 3,000 20,000 19,000 4 6,000 12,000 12,000 Based on the profit maximization goal, the financial manager would choose 101) A) Asset 1. B) Asset 2. C) Asset 3. D) Asset 4. 102) A financial manager must choose between three alternative investments. Each asset is expected to provide earnings over a three - year period as described below. Based on the wealth maximization goal, the financial manager would Year Asset 1 Asset 2 Asset 3 1 $21,000 $ 9,000 $15,000 2 15,000 15,000 15,000 3 9,000 21,000 15,000 $45,000 $45,000 $45,000 102) A) choose Asset 1. B) choose Asset 2. C) choose Asset 3. D) be indifferent between Asset 1 and Asset 2. 103) Profit maximization as the goal of the firm is NOT ideal because 103) A) profit maximization does not consider risk. B) profits are only accounting measures. C) cash flows are more representative of financial strength. D) profits today are less desirable than profits earned in future years. 104) Profit maximization fails because it ignores all EXCEPT 104) A) the timing of returns. B) earnings per share. C) risk. D) cash flows available to stockholders. 105) The key variables in the owner wealth maximization process are 105) A) cash flows and risk. B) earnings per share and risk. C) earnings per share and share price. D) profits and risk. 106) Cash flow and risk are the key determinants in share price. Increased cash flow results in ________ , other things remaining the same. 106) A) a higher share price B) an undetermined share price C) a lower share price D) an unchanged share price 107) Cash flow and risk are the key determinants in share price. Increased risk, other things remaining the same, results in 107) A) an undetermined share price. B) a lower share price. C) an unchanged share price. D) a higher share price. 10

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    108) Financial managers evaluating decision alternatives or potential actions must consider 108) A) both risk and return. B) only return. C) risk, return, and the impact on share price. D) only risk. 109) Higher cash flow and greater risk 109) A) have no effect on share price. B) have the same effect on share price. C) adversely affect share price. D) have an inverse effect on share price. 110) As the risk of a stock investment increases, investors' 110) A) required rate of return will decrease. B) required rate of return will increase. C) return will increase. D) return will decrease. 111) An ethics program is expected to have a ________ impact on the firm's share price. 111) A) no impact B) negative C) positive D) undetermined 112) A recent ethics survey indicated the opinion that maintaining high ethical standards 112) A) was difficult to enforce. B) had no effect on a firm's competitive position. C) strengthened a firm's competitive position. D) weakened a firm's competitive position, particularly in foreign markets. 113) ________ are the standards of conduct or moral judgment that apply to persons engaged in commerce. 113) A) Environmental concerns. B) Short - term and long - term financial goals of management C) The legal organization of ownership D) Business ethics 114) All of the following are measures that can be used as a guide for establishing a corporate ethics policy, EXCEPT 114) A) making sure violations are penalized, while at the same time not subjecting the employee to publicity. B) an effective internal control system. C) an effective internal audit system. D) making reference checks before hiring new employees. 115) Corporate ethics policies typically apply to ________ in dealing with ________ . 115) A) employee actions; customers, vendors, and regulators B) management actions; all corporate constituents C) employee actions; all corporate constituents D) employee actions; customers and creditors 11

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    116) The implementation of a pro - active ethics program is expected to result in 116) A) a positive corporate image and increased respect, but is not expected to affect share price. B) a positive corporate image and increased respect, but is not expected to affect cash flows. C) an increased share price resulting from a decrease in risk, but is not expected to affect cash flows. D) a positive corporate image and increased respect, a reduction in risk, and enhanced cash flow resulting in an increase in share price. 117) The board of directors is typically responsible for 117) A) developing strategic goals and plans. B) hiring and firing. C) both A and B. D) neither A nor B. 118) If a company's managers are NOT owners of the company, then they are 118) A) brokers. B) agents. C) dealers. D) outsiders. 119) The conflict between the goals of a firm's owners and the goals of its non - owner managers is 119) A) of little importance in most large U.S. firms. B) serious only when profits decline. C) incompatibility. D) the agency problem. 120) The agency problem may result from a manager's concerns about any of the following EXCEPT 120) A) corporate goals. B) company - provided perquisites. C) job security. D) personal wealth. 121) Among solutions to the agency problem in publicly - held corporations are all of the following EXCEPT 121) A) performance shares. B) cash bonuses tied to goal achievement. C) bonuses based on short - term results. D) stock options. 122) Agency costs include all of the following EXCEPT 122) A) opportunity costs. B) cost of goods sold. C) monitoring expenditures. D) bonding and structuring expenses. 123) Agency costs include all of the following EXCEPT 123) A) the cost of monitoring management behavior. B) performance incentives paid to managers. C) purchasing insurance against management misconduct. D) management reports to stockholders. 124) One way often used to insure that management decisions are in the best interest of the stockholders is to 124) A) remove management's perquisites. B) tie management compensation to the performance of the company's common stock price. C) tie management compensation to the level of earnings per share. D) threaten to fire managers who are seen as not performing adequately. 12

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    125) Emerging trends resulting from the agency problem are all of the following EXCEPT 125) A) large private corporations. B) restructuring through leveraged buyouts. C) prohibiting managers from maintaining an ownership interest. D) management by active investors. TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 126) A financial institution is an intermediary that channels the savings of individuals, businesses, and governments into loans or investments. 126) 127) Primary and secondary markets are markets for short - term and long - term securities, respectively. 127) 128) Financial markets are intermediaries that channel the savings of individuals, businesses and government into loans or investments. 128) 129) Money markets involve the trading of securities with maturities of one year or less while capital market involve the buying and selling of securities with maturities of more than one year. 129) 130) A public offering is the sale of a new security issue N typically debt or preferred stock N directly to an investor or group of investors. 130) 131) A primary market is a financial market in which pre - owned securities are traded. 131) 132) The money market is a financial relationship created by a number of institutions and arrangements that allows suppliers and demanders of long - term funds to make transactions. 132) 133) An efficient market is a market that allocates funds to their most productive use as a result of competition among wealth - maximizing investors. 133) MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 134) Which of the following is NOT a financial institution? 134) A) A commercial bank. B) A pension fund. C) An insurance company. D) A local government. 135) The key participants in financial transactions are individuals, businesses, and governments. Individuals are net ________ of funds, and businesses are net ________ of funds. 135) A) suppliers; demanders B) users; providers C) demanders; suppliers D) purchasers; sellers 136) Most businesses raise money by selling their securities in a 136) A) stock exchange. B) public offering. C) direct placement. D) private placement. 137) The two key financial markets are 137) A) primary market and secondary market. B) primary market and money market. C) capital market and secondary market. D) money market and capital market. 13

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    138) The ________ is created by a financial relationship between suppliers and demanders of short - term funds. 138) A) money market B) financial market C) capital market D) stock market 139) By definition, the money market involves the buying and selling of 139) A) funds that mature in more than one year. B) stocks and bonds. C) short - term funds. D) flows of funds. 140) Firms that require funds from external sources can obtain them from 140) A) financial markets. B) private placement. C) financial institutions. D) all of the above. 141) Most money market transactions are made in 141) A) stocks and bonds. B) common stock. C) marketable securities. D) preferred stock. 142) A competitive market that allocates funds to their most productive use is called a(n) 142) A) efficient market. B) liquid market. C) middleman's market. D) investor's market. 143) The ________ is created by a number of institutions and arrangements that allow the suppliers and demanders of long - term funds to make transactions. 143) A) financial market B) credit market C) money market D) capital market 14

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    Answer Key Testname: UNTITLED1 1) TRUE 2) FALSE 3) TRUE 4) TRUE 5) FALSE 6) FALSE 7) FALSE 8) FALSE 9) FALSE 10) FALSE 11) TRUE 12) FALSE 13) FALSE 14) D 15) A 16) A 17) C 18) C 19) B 20) A 21) C 22) A 23) D 24) A 25) C 26) A 27) C 28) B 29) D 30) B 31) A 32) C 33) TRUE 34) TRUE 35) FALSE 36) FALSE 37) FALSE 38) TRUE 39) TRUE 40) TRUE 41) TRUE 42) TRUE 43) FALSE 44) FALSE 45) TRUE 46) C 47) D 48) B 49) C 50) D 15

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    Answer Key Testname: UNTITLED1 51) D 52) E 53) D 54) C 55) D 56) B 57) A 58) D 59) B 60) A 61) A 62) D 63) FALSE 64) FALSE 65) FALSE 66) D 67) C 68) E 69) B 70) A 71) A 72) D 73) B 74) B 75) C 76) D 77) TRUE 78) TRUE 79) TRUE 80) TRUE 81) TRUE 82) FALSE 83) TRUE 84) TRUE 85) FALSE 86) FALSE 87) TRUE 88) FALSE 89) FALSE 90) TRUE 91) FALSE 92) TRUE 93) TRUE 94) B 95) D 96) A 97) A 98) C 99) A 100) B 16

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    Answer Key Testname: UNTITLED1 101) B 102) A 103) A 104) B 105) A 106) A 107) B 108) C 109) D 110) B 111) C 112) C 113) D 114) A 115) C 116) D 117) C 118) B 119) D 120) A 121) C 122) B 123) D 124) B 125) C 126) TRUE 127) FALSE 128) FALSE 129) TRUE 130) FALSE 131) FALSE 132) FALSE 133) TRUE 134) D 135) A 136) B 137) D 138) A 139) C 140) D 141) C 142) A 143) D 17

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    Exam Name___________________________________ TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 1) Accounting standards vary around the world, and that makes comparing the financial results of firms located in different countries quite challenging. 1) 2) GAAP refers to the generally accepted accounting principles used by all international public companies for the reporting of financial results. 2) 3) Many countries have adopted a system of accounting principles known as international financial reporting standards (IFRS). 3) 4) Financial statements are accounting reports issued by a firm periodically (usually quarterly and annually) that present past information and a snapshot of the firm's financial position. 4) 5) The Securities and Exchange Commission (SEC) is the federal regulatory body in the United States that requires publicly listed companies to provide their stockholders with an annual stockholders' report. Similar listing authorities exist around the world. 5) 6) The income statement is a financial summary of the firm's operating results during a specified period while the balance sheet is a summary statement of the firm's financial position at a given point in time. 6) 7) Common stock dividends paid to stockholders are equal to the earnings available for common stockholders divided by the number of shares of common stock outstanding. 7) 8) Earnings per share represents amount earned during the period on each outstanding share of common stock. 8) 9) Earnings per share results from dividing earnings available for common stockholders by the number of shares of common stock authorized. 9) 10) Paid - in capital in excess of par refers to the amount of proceeds in excess of the par value received from the original sale of common stock. 10) 11) Paid - in capital in excess of par represents the firm's book value received from the original sale of common stock. 11) 12) Net fixed assets represent the difference between gross fixed assets and the total expense recorded for the depreciation over then entire lives of the firm's fixed assets. 12) 13) Retained earnings represent the cumulative total of all earnings retained and reinvested in the firm since its inception. 13) 14) The balance sheet is a statement which balances the firm's assets (what it owns) against its financing (debt or equity). 14) 1

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    15) The amount paid in by the original purchasers of common stock is shown by two entries in the firm's balance sheet N common stock and paid - in capital in excess of par on common stock. 15) 16) The original price per share received by the firm on a single issue of common stock is equal to the sum of the common stock and paid - in capital in excess of par accounts divided by the number of shares outstanding. 16) 17) The statement of cash flows reconciles the net income earned during a given year, and any cash dividends paid, with the change in retained earnings between the start and end of that year. 17) 18) The statement of cash flows provides insight into the firm's assets and liabilities and reconciles them with changes in its cash and marketable securities during the period of concern. 18) MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 19) The rule - setting body that has established independent standards for financial reporting, adopted by many countries around the world in recent years, is 19) A) IASB. B) GAAP. C) Federal Reserve System. D) SEC. 20) Accounting practices and procedures used to prepare financial statements are called 20) A) SEC. B) IFRS. C) FASB. D) IRB. 21) The stockholder's annual report must include 21) A) a statement of stockholders' equity. B) an income statement. C) a statement of cash flows. D) a balance sheet. E) all of the above. 22) The ________ provides a financial summary of the firm's operating results during a specified period. 22) A) statement of cash flows B) income statement C) statement of retained earnings D) balance sheet 23) Total assets less net fixed assets equals 23) A) liabilities and equity. B) depreciation. C) gross assets. D) current assets. 24) Gross profits are defined as 24) A) operating profits minus depreciation. B) sales revenue minus cost of goods sold. C) sales revenue minus operating expenses. D) operating profits minus cost of goods sold. 25) Operating profits are defined as 25) A) gross profits minus operating expenses. B) earnings before depreciation and taxes. C) sales revenue minus depreciation expense. D) sales revenue minus cost of goods sold. 2

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    26) Net profits after taxes are defined as 26) A) sales revenue minus cost of goods sold. B) gross profits minus operating expenses. C) EBIT minus interest. D) operating profits minus interest expense and taxes. 27) Operating profits are defined as 27) A) earnings before interest and taxes. B) earnings before depreciation and taxes. C) earnings after tax. D) sales revenue minus cost of goods sold. 28) Earnings available to common shareholders are defined as net profits 28) A) after taxes minus preferred dividends. B) before taxes. C) after taxes minus common dividends. D) after taxes. 29) All of the following are examples of current assets EXCEPT 29) A) accounts receivable. B) accruals. C) inventory. D) cash. 30) All of the following are examples of fixed assets EXCEPT 30) A) equipment. B) automobiles. C) marketable securities. D) buildings. 31) All of the following are examples of current liabilities EXCEPT 31) A) accruals. B) notes payable. C) accounts payable. D) accounts receivable. 32) The net value of fixed assets is also called its 32) A) par value. B) market value. C) book value. D) price. 33) The ________ represents a summary statement of the firm's financial position at a given point in time. 33) A) balance sheet B) statement of cash flows C) statement of retained earnings D) income statement 34) The ________ summarizes the firm's funds flow over a given period of time 34) A) statement of retained earnings B) balance sheet C) statement of cash flows D) income statement 35) The statement of cash flows may also be called the 35) A) funds statement. B) statement of retained earnings. C) bank statement. D) sources and uses statement. 36) Retained earnings on the balance sheet represents 36) A) net profits after taxes minus preferred dividends. B) the cumulative total of earnings reinvested in the firm. C) net profits after taxes. D) cash. 3

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    37) The statement of retained earnings reports all of the following EXCEPT 37) A) preferred stock dividends. B) interest. C) common stock dividends. D) net profits after taxes. 38) A firm had the following accounts and financial data for 2013 Sales Revenue $3,060 Cost of goods sold $1,800 Accounts Receivable 500 Preferred stock dividends 18 Interest expense 126 Tax rate 40% Total oper. expenses 600 Number of shares of common 1,000 Accounts payable 240 stocks outstanding The firm's earnings available to common shareholders for 2013 were ________ . 38) A) US$516.60 B) US$302.40 C) US$195.40 D) - US$224.25 39) A firm had the following accounts and financial data for 2013: Sales Revenue $3,060 Cost of goods sold $1,800 Accounts receivable 500 Preferred stock dividends 18 Interest expense 126 Tax rate 40% Total operating expenses 600 Number of common shares 1,000 Accounts payable 240 outstanding The firm's earnings per share, rounded to the nearest cent, for 2013 was ________ . 39) A) US$0.5125 B) US$0.3204 C) US$0.5335 D) US$0.3024 40) A firm had the following accounts and financial data for 2013. Sales Revenue $3,060 Cost of goods sold $1,800 Accounts receivable 500 Preferred stock dividends 18 Interest expense 126 Tax rate 40% Total operating expenses 600 Number of common shares 1,000 Accounts payable 240 outstanding The firm's net profit after taxes for 2013 was ________. 40) A) US$206.25 B) US$320.40 C) US$213.80 D) - US$206.40 41) On the balance sheet net fixed assets represent 41) A) gross fixed assets at market value minus depreciation expense. B) gross fixed assets at cost minus accumulated depreciation. C) gross fixed assets at market value minus accumulated deprecation. D) gross fixed assets at cost minus depreciation expense. 42) Paid - in - capital in excess of par represents the amount of proceeds 42) A) at the current book value of common stock. B) in excess of the par value from the original sale of common stock. C) from the original sale of stock. D) at the current market value of common stock. 4

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    43) Firm ABC had operating profits of US$100,000, taxes of US$17,000, interest expense of US$34,000 and preferred dividends of US$5,000. What was the firm's net profit after taxes? 43) A) US$66,000 B) US$83,000 C) US$49,000 D) US$44,000 44) Khalil Corporation had pretax profits of US$1.2 million, an average tax rate of 34 percent, and it paid preferred stock dividends of US$50,000. There were 100,000 shares outstanding and no interest expense. What were Khalil Corporation's earnings per share? 44) A) US$3.91 B) US$4.52 C) US$7.59 D) US$7.42 45) A corporation had year end 2012 and 2013 retained earnings balances of US$320,000 and US$400,000, respectively. The firm reported net profits after taxes of US$100,000 in 2013. The firm paid dividends in 2013 of ________ . 45) A) US$20,000 B) US$0 C) US$80,000 D) US$100,000 46) A corporation had a year end 2012 retained earnings balance of US$220,000. The firm reported net profits after taxes of US$50,000 in 2013 and paid dividends in 2013 of US$30,000. The firm's retained earnings balance at year end 2013 was ________ . 46) A) US$270,000 B) US$300,000 C) US$250,000 D) US$240,000 47) A firm had year end 2010 and 2011 retained earnings balance of US$670,000 and US$560,000, respectively. The firm reported net profits after taxes of US$100,000 in 2011. The firm paid dividends in 2011 of ________ . 47) A) US$100,000 B) US$10,000 C) US$110,000 D) US$210,000 ESSAY. Write your answer in the space provided or on a separate sheet of paper. 48) Ag Silver Mining, Inc. has US$500,000 of earnings before interest and taxes at the year end. Interest expenses for the year were US$10,000. The firm expects to distribute US$100,000 in dividends. Calculate the earnings after taxes for the firm assuming a 40 percent tax on ordinary income. 49) At the end of 2013, the Long Life Light Bulb Company announced it had produced a gross profit of US$1 million. The company has also established that over the course of this year it has incurred US$345,000 in operating expenses and US$125,000 in interest expenses. The company is subject to a 30% tax rate and has declared US$57,000 total preferred stock dividends. (a) How much is the earnings available for common stockholders? (b) Compute the increased retained earnings for 2013 if the company were to declare a US$4.25 common stock dividend. The company has 15,000 shares of common stock outstanding. 5

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    50) Reliable Auto Parts has 5,000 shares of common stock outstanding. The company also has the following amounts in revenue and expense accounts. Sales revenue US$ 85,000 General and administrative expense 7,500 Interest expense 3,500 Depreciation expense 5,000 Preferred stock dividends 500 Selling expense 4,000 Cost of goods sold 50,000 Calculate (a) gross profits. (b) operating profits. (c) net profits before taxes. (d) net profits after taxes (assume a 40 percent tax rate). (e) cash flow from operations. (f) earnings available to common stockholders. (g) earnings per share. 51) Casablanca Furniture's net profits before taxes for 2012 totaled US$354,000. The company's total retained earnings were US$338,000 for 2011 year end and US$389,000 for 2012 year end. Casablanca is subject to a 26 percent tax rate. How large was the cash dividend declared by Casablanca Furniture in 2012? 52) On December 31, 2012, the Basim Corporation had US$485,000 as an ending balance for its retained earnings account. During 2013, the corporation declared a US$3.50/share dividend to its stockholders. The Basim Corporation has 35,000 shares of common stock outstanding. When the books were closed for 2013 year end, the corporation had a final retained earnings balance of US$565,000. What was the net profit earned by Basim Corporation during 2013? 53) The Sunshine Company had a retained earnings balance of US$850,000 at the beginning of 2011. By the end of 2011, the company's retained earnings balance was US$950,000. During 2011, the company earned US$245,000 as net profits after paying its taxes. The company was then able to pay its preferred stockholders US$45,000. Compute the common stock dividend per share in 2011 assuming 10,000 shares of common stock outstanding. 6

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    MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Table 2.1 Balance Sheet ACE (Amman Computer Enterprises) December 31, 2012 Cash US$4,500 Accounts Payable US$10,000 Accounts Receivable Notes Payable Inventory Accruals 1,000 Total Current Assets Total Current Liabilities Net Fixed Assets Long - Term Debt Total Assets Stockholders' Equity Total Liabilities & S.E. Information (2012 values) 1. Sales totaled US$110,000 2. The gross profit margin was 25 percent. 3. Inventory turnover was 3.0. 4. There are 360 days in the year. 5. The average collection period was 65 days. 6. The current ratio was 2.40. 7. The total asset turnover was 1.13. 8. The debt ratio was 53.8 percent. 54) Inventory for ACE in 2012 was ________ . (See Table 2.1) 54) A) US$27,500 B) US$36,667 C) US$ 9,167 D) US$32,448 55) Notes payable for ACE in 2012 was ________ . (See Table 2.1) 55) A) US$ 10,609 B) US$113,466 C) US$ 52,372 D) US$ 41,372 56) Accounts receivable for ACE in 2012 was ________ . (See Table 2.1) 56) A) US$18,333 B) US$19,861 C) US$14,056 D) US$14,895 57) Net fixed assets for ACE in 2012 were ________ . (See Table 2.1) 57) A) US$69,341 B) US$45,484 C) US$54,511 D) US$48,975 58) Total assets for ACE in 2012 were ________ . (See Table 2.1) 58) A) US$ 97,345 B) US$124,300 C) US$ 45,895 D) US$ 58,603 59) Long - term debt for ACE in 2012 was ________ . (See Table 2.1) 59) A) US$30,763 B) US$10,608 C) US$52,372 D) US$41,372 TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 60) Time - series analysis is the evaluation of the firm's financial performance in comparison to other firm(s) at the same point in time. 60) 61) As a rule, the necessary inputs to an effective financial analysis include, at minimum, the income statement and the statement of cash flow. 61) 7

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    62) The firm's creditors are primarily interested in the short - term liquidity of the company and its ability to make interest and principal payments. 62) 63) Cross - sectional ratio analysis involves comparing the firm's ratios to those of firms in other industries at the same point in time. 63) 64) Benchmarking is a type of cross - sectional analysis in which the firm's ratio values are compared to those of firms in other industries, primarily to identify areas for improvement. 64) 65) Time - series analysis evaluates performance of firms at the same point in time using financial ratios. 65) 66) Benchmarking is a type of time - series analysis in which the firm's ratio values are compared to those of a key competitor or group of competitors, primarily to isolate areas of opportunity for improvement. 66) 67) Ratio analysis merely directs the analyst to potential areas of concern; it does not provide conclusive evidence as to the existence of a problem. 67) 68) In a cross - sectional comparison of firms operating in several lines of business, the industry average ratios of any of the firm's product lines may be used to analyze the multiproduct firm's financial performance. 68) 69) Due to inflationary effects, inventory costs and depreciation write - offs can differ from their true values, thereby distorting profits. 69) 70) In ratio analysis, the financial statements being used for comparison should be dated at the same point in time during the year. If not, the effect of seasonality may produce erroneous conclusions and decisions. 70) 71) The use of the audited financial statements for ratio analysis may not be preferable because there may be no reason to believe that the data contained in them reflect the firm's true financial condition. 71) 72) Both present and prospective shareholders are interested in the firm's current and future level of risk and return. These two dimensions directly affect share price. 72) 73) The comparison of a particular ratio to the standard (industry average) is made in order to isolate any deviations from the norm. In the case of ratios for which higher values are preferred, as long as the firm that is being analyzed has a value in excess of the industry average it can be viewed favorably. 73) 74) The use of differing accounting treatments N especially relative to inventory and depreciation N can distort the results of ratio analysis, regardless of whether cross - sectional or time - series analysis is used. 74) 75) Inflationary effects typically have a greater impact the larger the differences in the age of the assets of the firms being compared. Without adjustment, inflation tends to cause older firms (with older fixed assets) to appear more efficient and profitable than newer firms (with newer fixed assets). 75) 8

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    76) Present and prospective shareholders and lenders pay close attention to the firm's degree of indebtedness and ability to repay debt. Shareholders are concerned since the claims of creditors must be satisfied prior to the distribution of earnings to them. Lenders are concerned since the more indebted the firm, the higher the probability that the firm will be unable to satisfy the claims of all its creditors. 76) MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 77) Ratios provide a ________ measure of a company's performance and condition. 77) A) qualitative B) definitive C) gross D) relative 78) ________ analysis involves the comparison of different firms' financial ratios at the same point in time. 78) A) Marginal B) Time - series C) Quantitative D) Cross - sectional 79) ________ analysis involves comparison of current to past performance and the evaluation of developing trends. 79) A) Quantitative B) Time - series C) Cross - sectional D) Marginal 80) The primary concern of creditors when assessing the strength of a firm is the firm's 80) A) share price. B) leverage. C) short - term liquidity. D) profitability. 81) Present and prospective shareholders are mainly concerned with a firm's 81) A) liquidity. B) leverage. C) risk and return. D) profitability. 82) To analyze the firm's financial performance, the following types of ratio analyses EXCEPT ________ may be used. 82) A) cross - section analysis B) marginal analysis C) time - series analysis D) combined analysis 83) Time - series analysis is often used to 83) A) reflect performance relative to some norm. B) standardize results. C) correct errors of judgment. D) assess developing trends. 84) In ratio analysis, a comparison to a standard industry ratio is made to isolate ________ deviations from the norm. 84) A) any B) positive C) standard D) negative 85) ________ evidence of the existence of a problem or outstanding management performance is provided by ratio analysis. 85) A) Conclusive B) Definitive C) Complete D) Inconclusive 9

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    86) The analyst should be careful when conducting ratio analysis to ensure that 86) A) audited statements are used. B) the overall performance of the firm is not judged on a single ratio. C) the same accounting procedures were used. D) the dates of the financial statements being compared are the same. E) all of the above. 87) The analyst should be careful when evaluating a ratio analysis that 87) A) pre - audited statements are used. B) the dates of the financial statements being compared are the same time. C) neither A nor B. D) both A and B. 88) ________ is where the firm's ratio values are compared to those of a key competitor or group of competitors, primarily to identify areas for improvement. 88) A) Combined analysis B) Benchmarking C) Time - series analysis D) None of the above 89) Cross - sectional ratio analysis is used to 89) A) isolate the causes of problems. B) reflect the symptoms of a possible problem. C) provide conclusive evidence of the existence of a problem. D) correct expected problems in operations. 90) Inflation can distort 90) A) inventory costs. B) cost of goods sold. C) salaries and wages. D) interest write - offs. 91) Without adjustment, inflation may tend to cause ________ firms to appear more efficient and profitable than ________ firms, all else being the same. 91) A) older; newer B) large; smaller C) newer; older D) smaller; larger 92) The following groups of ratios primarily measure risk. 92) A) liquidity, activity, and profitability B) activity, debt, and profitability C) liquidity, activity, and common stock D) liquidity, activity, and debt 93) The ________ ratios are primarily measures of return. 93) A) debt B) activity C) liquidity D) profitability ESSAY. Write your answer in the space provided or on a separate sheet of paper. 94) Discuss the limitations of ratio analysis and the cautions which must be taken when reviewing a cross - sectional and time - series analysis. TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 95) The liquidity of a business firm refers to the solvency of the firm's overall financial position. 95) 96) The liquidity of a business firm is measured by its ability to satisfy its long - term obligations as they come due. 96) 10

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    97) The current ratio provides a better measure of overall liquidity only when a firm's inventory cannot easily be converted into cash. If inventory is liquid, the quick ratio is a preferred measure of overall liquidity. 97) 98) The average age of inventory is viewed as the average length of time inventory is held by the firm or as the average number of days' sales in inventory. 98) 99) Total asset turnover commonly measures the liquidity of a firm's total assets. 99) 100) The average age of inventory can be calculated as inventory divided by 365. 100) 101) The average age of inventory can be calculated as inventory turnover divided by 365. 101) 102) The average age of inventory can be calculated as 365 divided by inventory turnover. 102) 103) The average payment period can be calculated as accounts payable divided by average sales per day. 103) 104) The average payment period can be calculated as accounts payable divided by average purchases per day. 104) MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 105) The ________ of a business firm is measured by its ability to satisfy its short - term obligations as they come due. 105) A) activity B) debt C) liquidity D) profitability 106) ________ ratios are a measure of the speed with which various accounts are converted into sales or cash. 106) A) Profitability B) Activity C) Liquidity D) Debt 107) The ________ is useful in evaluating credit and collection policies. 107) A) average payment period B) average collection period C) current asset turnover D) current ratio 108) The ________ measures the activity, or liquidity, of a firm's inventory. 108) A) inventory turnover B) quick ratio C) average collection period D) current ratio 109) The two basic measures of liquidity are 109) A) current ratio and total asset turnover. B) inventory turnover and current ratio. C) current ratio and quick ratio. D) gross profit margin and ROE. 110) The ________ is a measure of liquidity which excludes ________ , generally the least liquid asset. 110) A) current ratio; inventory B) quick ratio; accounts receivable C) quick ratio; inventory D) current ratio; accounts receivable 11

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    111) The ________ ratio may indicate the firm is experiencing stockouts and lost sales. 111) A) quick B) average payment period C) inventory turnover D) average collection period 112) The ________ ratio may indicate poor collections procedures or a lax credit policy. 112) A) quick B) inventory turnover C) average payment period D) average collection period 113) ABC Corp. extends credit terms of 45 days to its customers. Its credit collection would likely be considered poor if its average collection period was 113) A) 57 days. B) 47 days. C) 30 days. D) 36 days. 114) ________ are especially interested in the average payment period, since it provides them with a sense of the bill - paying patterns of the firm. 114) A) Lenders and suppliers B) Customers C) Borrowers and buyers D) Stockholders 115) A firm has a current ratio of 1; in order to improve its liquidity ratios, this firm might 115) A) improve its collection practices and pay accounts payable, thereby decreasing current liabilities and increasing the current and quick ratios. B) decrease current liabilities by utilizing more long - term debt, thereby increasing the current and quick ratios. C) increase inventory, thereby increasing current assets and the current and quick ratios. D) improve its collection practices, thereby increasing cash and increasing its current and quick ratios. 116) As a firm's cash flows become more predictable, 116) A) the current ratio should expand. B) the return on equity should increase. C) current assets should decrease. D) current liabilities should decrease. 117) If the inventory turnover is divided into 365, it becomes a measure of 117) A) sales turnover. B) the average collection period. C) the average age of the inventory. D) sales efficiency. 118) The ________ is useful in evaluating credit and collection policies. 118) A) average collection period B) current asset turnover C) average payment period D) current ratio 119) The two categories of ratios that should be utilized to assess a firm's true liquidity are the 119) A) current and quick ratios. B) liquidity and debt ratios. C) liquidity and activity ratios. D) liquidity and profitability ratios. 120) A firm with a total asset turnover that is lower than industry standard but with a current ratio which meets industry standard must have excessive 120) A) debt. B) inventory. C) accounts receivable. D) fixed assets. 121) A firm with a total asset turnover lower than industry standard may have 121) A) excessive cost of goods sold. B) insufficient sales. C) insufficient fixed assets. D) excessive debt. 12

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    122) If Nico Corporation has cost of goods sold of US$300,000 and inventory of US$30,000, then the inventory turnover is ________ and the average age of inventory is ________ . 122) A) 10; 36.5 B) 36.0; 10 C) 10; 36.0 D) 36.5; 10 123) If Nico Corporation has annual purchases of US$300,000 and accounts payable of US$30,000, then average purchases per day are ________ and the average payment period is ________ . 123) A) 821.9; 36.5 B) 36.0; 833.3 C) 833.3; 36.0 D) 36.5; 821.9 TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 124) The magnification of risk and return introduced through the use of fixed - cost financing such as debt and preferred stock is called financial leverage. 124) 125) The less fixed - cost debt (financial leverage) a firm uses, the greater will be its risk and return. 125) 126) The higher the value of the times interest earned ratio, the higher the proportion of the firm's interest income compared to its contractual interest payments. 126) 127) In general, the more debt (other people's money) a firm uses in relation to its assets, the smaller its financial leverage. 127) 128) The lower the fixed - payment coverage ratio, the lower is the firm's financial leverage. 128) 129) The higher the debt ratio, the more financial leverage a firm has and, thus, the greater will be its risk and return. 129) 130) Typically, higher coverage ratios are preferred, but too high a ratio may indicate under - utilization of fixed - payment obligations, which may result in unnecessarily low risk and return. 130) MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 131) The ________ ratio measures the proportion of total assets financed by the firm's creditors. 131) A) total asset turnover B) current C) debt D) fixed asset turnover 132) The ________ ratio measures the firm's ability to pay contractual interest payments. 132) A) average payment period B) fixed - payment coverage C) debt D) times interest earned 133) The ________ ratio may indicate that the firm will not be able to meet interest obligations due on outstanding debt. 133) A) times interest earned B) return on total assets C) debt D) net profit margin 134) The higher the value of ________ ratio, the better able the firm is to fulfill its interest obligations. 134) A) debt B) average payment period C) average collection period D) times interest earned 13

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