FSA Chapter 5 Test Questions with
All Correct Answers
Which of the following ratios is not a measure of long-term solvency risk?
a. Debt /Equity Ratio
b. Interest Coverage Ratio
c. Operating Cash Flows to Current Liabilities Ratio
D. Liabilities to Assets Ratio - Answer-Operating cash flows to current liabilities ratio
Univariate bankruptcy prediction models help identify factors related to bankruptcy, but
they do not provide information about
a. specific ratios that are important. b. the amount of Type I and Type II errors.
c. which specific company will go bankrupt.
d. the relative importance of individual financial statement ratios - Answer-The relative
importance of individual financial statement ratios
Bankruptcy prediction research has identified three broad factors influencing long-term
solvency risk, which of the following is not one of the factors?
a. Investment factors
b. Financing factors
c. Operating factors
d. Credit factors - Answer-Credit factors
Which of the following is not one of the three explanatory variables that determine a
firm's market beta?
a. Degree of investing leverage.
b. Degree of operating leverage.
c. Degree of financial leverage.
d. Variability of sales. - Answer-Degree of investing leverage
How many days of working capital financing does Midas need to obtain from other
sources?
a. 39 days
b. 36 days
c. 56 days
d. 26 days - Answer-39
Which of the following states of financial distress would be considered the most
troubling for an investor or creditor?
a. failing to make a required interest payment on time
, b. paying an accounts payable after the billing date '
c. restructuring debt
d. defaulting on a principal payment on debt - Answer-Defaulting on a principle payment
on debt
If a customer wanted to obtain bank financing which of the following will the bank inquire
about before granting a loan?
a. Firms credit history
b. financial position of the firms creditors
c. firms cash flow
d. a and - Answer-firms credit history and cash flow
Doran Corp. has a current ratio of 6. Under which of the following scenarios might this
indicate a problems?
a. inventories are increasing due to the introduction of a new product b. the company is
holding cash in expectation of making a large investment in equipment
c. receivables are increasing due to increasing sales
d. inventories are increasing and the industry in which Doran Corp. operates is
experiencing a recession - Answer-inventories are increasing and the industry in which
doran corp operates is experiencing a recession.
Marker's Liabilities to Assets Ratio for 2012 is:
a. 105.1%
b. 63.1%
c. 78.3%
d. 100.0% - Answer-63.1%
Marker's 2012 Liabilities to Shareholders' Equity ratio is:
a. 100.0%
b. 170.9%
c. 63.1%
d. 129.3% - Answer-170.9%
Marker's 2012 Long-term Debt to Long-Term Capital ratio is:
a. 31.4%
b. 29.4%
c. 34.0%
d. 25.4% - Answer-31.4%
Marker's 2012 Long-term Debt to Shareholders' Equity ratio is:
a. 31.4%
b. 29.4%
c. 34.0%
d. 45.8% - Answer-45.8%
Marker's 2012 Interest Coverage ratio is:
All Correct Answers
Which of the following ratios is not a measure of long-term solvency risk?
a. Debt /Equity Ratio
b. Interest Coverage Ratio
c. Operating Cash Flows to Current Liabilities Ratio
D. Liabilities to Assets Ratio - Answer-Operating cash flows to current liabilities ratio
Univariate bankruptcy prediction models help identify factors related to bankruptcy, but
they do not provide information about
a. specific ratios that are important. b. the amount of Type I and Type II errors.
c. which specific company will go bankrupt.
d. the relative importance of individual financial statement ratios - Answer-The relative
importance of individual financial statement ratios
Bankruptcy prediction research has identified three broad factors influencing long-term
solvency risk, which of the following is not one of the factors?
a. Investment factors
b. Financing factors
c. Operating factors
d. Credit factors - Answer-Credit factors
Which of the following is not one of the three explanatory variables that determine a
firm's market beta?
a. Degree of investing leverage.
b. Degree of operating leverage.
c. Degree of financial leverage.
d. Variability of sales. - Answer-Degree of investing leverage
How many days of working capital financing does Midas need to obtain from other
sources?
a. 39 days
b. 36 days
c. 56 days
d. 26 days - Answer-39
Which of the following states of financial distress would be considered the most
troubling for an investor or creditor?
a. failing to make a required interest payment on time
, b. paying an accounts payable after the billing date '
c. restructuring debt
d. defaulting on a principal payment on debt - Answer-Defaulting on a principle payment
on debt
If a customer wanted to obtain bank financing which of the following will the bank inquire
about before granting a loan?
a. Firms credit history
b. financial position of the firms creditors
c. firms cash flow
d. a and - Answer-firms credit history and cash flow
Doran Corp. has a current ratio of 6. Under which of the following scenarios might this
indicate a problems?
a. inventories are increasing due to the introduction of a new product b. the company is
holding cash in expectation of making a large investment in equipment
c. receivables are increasing due to increasing sales
d. inventories are increasing and the industry in which Doran Corp. operates is
experiencing a recession - Answer-inventories are increasing and the industry in which
doran corp operates is experiencing a recession.
Marker's Liabilities to Assets Ratio for 2012 is:
a. 105.1%
b. 63.1%
c. 78.3%
d. 100.0% - Answer-63.1%
Marker's 2012 Liabilities to Shareholders' Equity ratio is:
a. 100.0%
b. 170.9%
c. 63.1%
d. 129.3% - Answer-170.9%
Marker's 2012 Long-term Debt to Long-Term Capital ratio is:
a. 31.4%
b. 29.4%
c. 34.0%
d. 25.4% - Answer-31.4%
Marker's 2012 Long-term Debt to Shareholders' Equity ratio is:
a. 31.4%
b. 29.4%
c. 34.0%
d. 45.8% - Answer-45.8%
Marker's 2012 Interest Coverage ratio is:
