投资学第7版Test Bank答案19.docx
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投资学第7版Test Bank答案19.docx
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投资学第7版TestBank答案19
MultipleChoiceQuestions
1.Afirmhasahigherquick(oracidtest)ratiothantheindustryaverage,whichimplies.
A)thefirmhasahigherP/Eratiothanotherfirmsintheindustry.
B)thefirmismorelikelytoavoidinsolvencyinshortrunthanotherfirmsintheindustry.
C)thefirmmaybelessprofitablethanotherfirmsintheindustry.
D)AandB.
E)BandC.
Answer:
EDifficulty:
Easy
Rationale:
Currentassetsearnlessthanfixedassets;thus,afirmwitharelativelyhighlevelofcurrentassetsmaybelessprofitablethanotherfirms.However,itshighlevelofcurrentassetsmakesitmoreliquid.
2.Anexampleofaliquidityratiois_______.
A)fixedassetturnover
B)currentratio
C)acidtestorquickratio
D)AandC
E)BandC
Answer:
EDifficulty:
Easy
Rationale:
BothBandCaremeasuresofliquidity;Arelatestofixedassets.
3.__________asnapshotofthefinancialconditionofthefirmataparticulartime.
A)Thebalancesheetprovides
B)Theincomestatementprovides
C)Thestatementofcashflowsprovides
D)Alloftheaboveprovide
E)Noneoftheaboveprovides
Answer:
ADifficulty:
Easy
Rationale:
Thebalancesheetisstatementofassets,liabilities,andequityatonepointintime.
4.__________ofthecashflowgeneratedbythefirm'soperations,investmentsandfinancialactivities.
A)Thebalancesheetisareport
B)Theincomestatementisareport
C)Thestatementofcashflowsisareport
D)theauditor'sstatementoffinancialcondition
E)Noneoftheaboveisareport
Answer:
CDifficulty:
Easy
Rationale:
OnlystatementCiscorrect;thebalancesheetreportsassets,liabilities,andequityatapointintime;theincomestatementisasummaryofearningsoveraperiodoftime.
5.Afirmhasahigherassetturnoverratiothantheindustryaverage,whichimplies
A)thefirmhasahigherP/Eratiothanotherfirmsintheindustry.
B)thefirmismorelikelytoavoidinsolvencyintheshortrunthanotherfirmsintheindustry.
C)thefirmismoreprofitablethanotherfirmsintheindustry.
D)thefirmisutilizingassetsmoreefficientlythanotherfirmsintheindustry.
E)thefirmhashigherspendingonnewfixedassetsthanotherfirmsintheindustry.
Answer:
DDifficulty:
Easy
Rationale:
Thehighertheassetturnoverratiothemoreefficientlythefirmisusingassets.
6.Ifyouwishtocomputeeconomicearningsandaretryingtodecidehowtoaccountforinventory,_______.
A)FIFOisbetterthanLIFO
B)LIFOisbetterthanFIFO
C)FIFOandLIFOareequallygood
D)FIFOandLIFOareequallybad
E)noneoftheabove
Answer:
BDifficulty:
Easy
Rationale:
LIFOreflectsthecurrentcostofgoodssold,andthusisabetterdeterminantofeconomicearnings.
7.__________oftheprofitabilityofthefirmoveraperiodoftimesuchasayear.
A)Thebalancesheetisasummary
B)Theincomestatementisasummary
C)Thatstatementofcashflowsisasummary
D)Theauditreportisasummary
E)Noneoftheaboveisasummary
Answer:
BDifficulty:
Easy
Rationale:
Theincomestatementsummarizesrevenuesandexpensesoveraperiodoftime.
8.GiventheresultsofthestudybyClayman,youwould__________thestocksoffirmswithhighROEsand__________thestocksoffirmswithlowROEs.
A)wanttobuy,wanttobuy
B)wanttobuy,notwanttobuy
C)notwanttobuy,wanttobuy
D)notwanttobuy,notwanttobuy
E)beunabletobuy,wanttobuy
Answer:
CDifficulty:
Moderate
Rationale:
ClaymanfoundthatinvestinginfirmswithhighROEsproducedresultsinferiortothoseobtainedbyinvestinginstockswithlowerROEs.
9.Overaperiodofthirty-oddyearsinmanaginginvestmentfunds,BenjaminGrahamusedtheapproachofinvestinginthestocksofcompanieswherethestocksweretradingatlessthantheirworkingcapitalvalue.Theaveragereturnfromusingthisstrategywasapproximately______.
A)5%
B)10%
C)15%
D)20%
E)noneoftheabove
Answer:
DDifficulty:
Moderate
Rationale:
AlthoughGrahamsaidin1976thatmarketsweresoefficientthatonecouldnotexpecttoidentifyundervaluedsecuritiesconsistentlyashehaddonethroughouthiscareer,hecontinuedtofindthisonevariableuseful.
10.AstudybySpeidellandBavishi(1992)foundthatwhenaccountingstatementsofforeignfirmswererestatedonacommonaccountingbasis,
A)theoriginalandrestatedP/Eratioswerequitesimilar.
B)theoriginalandrestatedP/Eratiosvariedconsiderably.
C)mostvariationwasexplainedbytaxdifferences.
D)mostfirmswereconsistentintheirtreatmentofgoodwill.
E)noneoftheabove.
Answer:
BDifficulty:
Moderate
Rationale:
ThisstudyfoundthatrestatedP/Eratiosvariedconsiderablyfromthoseoriginallyreported.
11.IftheinterestrateondebtishigherthanROA,thenafirmwill__________byincreasingtheuseofdebtinthecapitalstructure.
A)increasetheROE
B)notchangetheROE
C)decreasetheROE
D)changetheROEinanindeterminablemanner
E)noneoftheabove
Answer:
CDifficulty:
Moderate
Rationale:
IfROAislessthantheinterestrate,thenROEwilldeclinebyanamountthatdependsonthedebttoequityratio.
12.AfirmhasamarkettobookvalueratiothatisequivalenttotheindustryaverageandanROEthatislessthantheindustryaverage,whichimplies_______.
A)thefirmhasahigherP/Eratiothanotherfirmsintheindustry
B)thefirmismorelikelytoavoidinsolvencyintheshortrunthanotherfirmsintheindustry
C)thefirmismoreprofitablethanotherfirmsintheindustry
D)thefirmisutilizingitsassetsmoreefficientlythanotherfirmsintheindustry
E)noneoftheabove
Answer:
ADifficulty:
Moderate
Rationale:
TherelationshipP/E=(P/B)/ROEindicatesthatAispossible.
13.Inperiodsofinflation,accountingdepreciationis__________relativetoreplacementcostandrealeconomicincomeis________.
A)overstated,overstated
B)overstated,understated
C)understated,overstated
D)understated,understated
E)correctly,correctly
Answer:
CDifficulty:
Moderate
Rationale:
Fixedassetsaredepreciatedbasedonhistoricalcostsand,asaresult,areunderstatedrelativetoreplacementcostsduringperiodsofinflation;asaresult,realeconomicincomeisoverstated.
14.Ifafirmhasapositivetaxrate,apositiveROA,andtheinterestrateondebtisthesameasROA,thenROAwillbe________.
A)greaterthantheROE
B)equaltotheROE
C)lessthantheROE
D)greaterthanzerobutitisimpossibletodeterminehowROAwillcomparetoROE
E)negativeinallcases
Answer:
ADifficulty:
Moderate
Rationale:
Ifinterestrate=ROA;ROE=(1-taxrate)ROA;ROA>ROE.
15.AfirmhasaP/Eratioof12andaROEof13%andamarkettobookvalueof__________.
A)0.64
B)0.92
C)1.08
D)1.56
E)noneoftheabove
Answer:
DDifficulty:
Moderate
Rationale:
E/P=ROE/(P/B);1/12=0.13)P/B;0.0833=0.13/(P/B);0.0833(P/B)=0.13;P/B=1.56.
Usethefollowingtoanswerquestions16-26:
ThefinancialstatementsofFineFursCompanyaregivenbelow.
FineFursCompany
IncomeStatement(2005)
Sales
$4,000,000
Costofgoodssold
3,040,000
Grossprofit
960,000
Sellingandadministrativeexpenses
430,000
Operatingprofit
530,000
Interestexpense
160,000
Incomebeforetax
370,000
Taxexpense
148,000
Netincome
$222,000
BalanceSheet
2005
2004
Cash
$60,000
$50,000
Accountsreceivable
550,000
500,000
Inventory
690,000
620,000
Totalcurrentassets
1,300,000
1,170,000
Fixedassets
1,300,000
1,230,000
Totalassets
2,600,000
2,400,000
Accountspayable
270,000
250,000
Bankloan
580,000
500,000
Totalcurrentliabilities
850,000
750,000
Bondspayable
900,000
1,000,000
Totalliabilities
1,750,000
1,750,000
Commonstock(25,000shares)
250,000
250,000
Retainedearnings
600,000
400,000
Totalliabilities&equity
$2,600,000
$2,400,000
Note:
Thecommonsharesaretradinginthestockmarketfor$100each.
16.RefertothefinancialstatementsforFineFursCompany.Thefirm'scurrentratiofor2005is___________.
A)1.98
B)2.47
C)0.65
D)1.53
E)noneoftheabove
Answer:
DDifficulty:
Easy
Rationale:
$1,300,000/$850,000=1.53.
17.RefertothefinancialstatementsofFineFursCompany.Thefirm'squickratiofor2005is_______.
A)1.68
B)1.12
C)0.72
D)1.92
E)noneoftheabove
Answer:
CDifficulty:
Moderate
Rationale:
($1,300,000-$690,000)/$850,000=0.72.
18.RefertothefinancialstatementsofFineFursCompany.Thefirm'sleverageratiofor2005is_________.
A)2.25
B)3.53
C)2.61
D)3.06
E)noneoftheabove
Answer:
DDifficulty:
Moderate
Rationale:
$2,600,000/$850,000=3.06.
19.RefertothefinancialstatementsofFineFursCompany.Thefirm'stimesinterestearnedratiofor2005is__________.
A)2.26
B)3.16
C)3.84
D)3.31
E)noneoftheabove
Answer:
DDifficulty:
Moderate
Rationale:
$530,000/$160,000=3.31.
20.RefertothefinancialstatementsofFineFursCompany.Thefirm'saveragecollectionperiodfor2005is_______days.
A)47.90
B)48.53
C)46.06
D)47.65
E)noneoftheabove
Answer:
ADifficulty:
Moderate
Rationale:
(525,000/4,000,000)(365)=47.90.
21.RefertothefinancialstatementsofFineFursCompany.Thefirm'sinventoryturnoverratiofor2005is________.
A)4.64
B)4.16
C)4.41
D)4.87
E)noneoftheabove
Answer:
ADiff
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