FIN 303 Sample Exam Questions

FIN 303 Samples of Possible Exam Questions (for Chapter 4)

1.)Ruby Corp's sales last year were $435,500, its operating costs were $350,000, and its interest charges were $10,000. What was the firm's times interest earned (TIE) ratio?

a. 8.29 b. 8.42 c. 8.55 d. 8.68 e. 8.81

(Answer: c)

2.)Raleigh Corp's total common equity at the end of last year was $300,000 and its net income after taxes was $55,000. What was its ROE?

a. 18.33% b. 18.67% c. 19.00% d. 19.33% e. 19.67%

(Answer: a)

3.)Midwest Lumber had a profit margin of 5.1%, a total assets turnover of 1.6, and an equity multiplier of 1.8. What was the firm's ROE?

a. 14.39% b. 14.69% c. 14.99% d. 15.29% e. 15.59%

(Answer: b)

4.)Rand Corp's stock price at the end of last year was $40.00, and its book value per share was $24.50. What was its Market/Book ratio?

a. 1.03 b. 1.18 c. 1.33 d. 1.48 e. 1.63

(Answer: e)

of 3 5.)Rutland Corp's stock price at the end of last year was $30.25 and its earnings per share for the year were $2.45. What was its P/E ratio?

a. 11.65 b. 12.00 c. 12.35 d. 12.70 e. 13.05

(Answer: c)

6.)Brady Corp has applied for a loan. Brady Corp’s current ratio is 2.2, while the industry average is 1.2. Brady Corp’s quick ratio is 1.1, while the industry average is 0.4. Based on these liquidity ratios:

a. Brady Corp probably will have less difficulty obtaining a short-term loan than will its average competitor. b. Brady Corp probably will have more difficulty obtaining a short-term loan than will its average competitor. c. Brady Corp probably will have about equal difficulty obtaining a short-term loan than will its average competitor. d. Comparison of these 2 ratios for Brady Corp and the industry average provides conflicting information. e. None of the above.

(Answer: a)

7.)Hatho Inc has an equity multiplier of 3.6. The industry’s equity multiplier averages 4.7. Based on this information, we know that:

a. Hatho Inc has a lower debt ratio than the industry. b. Hatho Inc has a higher debt ratio than the industry. c. Hatho Inc’s debt ratio equals that of the industry. d. We cannot calculate the debt ratios. e. None of the above.

(Answer: a)

8.)The Radar Company has $1,200,000 in current assets and $370,000 in current liabilities. It will raise funds as additional notes payable and use them to increase inventory. How much can its short-term debt (notes payable) increase without pushing its current ratio below 2.5?

a. $146,666.67 b. $161,333.33 c. $183,333.33 d. $201,666,67 e. None of the above. (If you choose this as your answer, please write the number you believe is correct here ______.)

(Answer: c)

of 3 9.)Billings Co has an ROA of 12%, a 3% profit margin, and an ROE of 15%. What is its equity multiplier?

a. 0.75 b. 1.25 c. 2.00 d. 3.33 e. None of the above. (If you choose this as your answer, please write the number you believe is correct here ______.)

(Answer: b)

10.) Billings Co has an ROA of 12%, a 3% profit margin, and an ROE of 15%. What is its total assets turnover?

a. 2.0 b. 3.6 c. 4.0 d. 5.2 e. None of the above. (If you choose this as your answer, please write the number you believe is correct here ______.)

(Answer: c)

11.) Lily Inc has a DSO of 50 days, and its annual sales are $800,000. What is its accounts receivable balance? (Assume a 365-day year.)

a. $ 109,589 b. $ 160,000 c. $ 234,450 d. $ 560,000 e. None of the above. (If you choose this as your answer, please write the number you believe is correct here ______.)

(Answer: a)

12.) Some potential problems of using financial ratios are:

a. It is sometimes hard to tell if a ratio is good or bad. b. “Average” industry performance may not be good. c. Seasonal factors can distort ratios. d. Different companies may use different accounting practices. e. All of the above. f. None of the above.

(Answer: e)