1. Considered alone, which of the following would in- crease a company's current ratio? 2. Which of the following would, generally, indicate an improvement in a company's financial position, hold- ing other things constant? 3. A firm wants to strengthen its financial position. Which of the followin...
FINANCE TEST BANK (pt. 1)
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1. Considered alone, which of the following would
An increase in
in- crease a company's current ratio?
ac- counts
2. Which of the following would, generally, indicate an receivable
improvement in a company's financial position,
The quick ratio
hold- ing other things constant?
in- creases
3. A firm wants to strengthen its financial position.
Which of the following actions would increase its
Issue new stock
cur- rent ratio?
then use some
of the proceeds
to purchase
addition- al
inventory and
4. Which of the following statements is correct? hold the
remainder as
a. A reduction in inventories would have no effect cash
on the current ratio.
b. An increase in inventories would have no effect C. If a firm in-
on the current ratio. creases its
c. If a firm increases its sales while holding its sales while
inven- tories constant, then, other things held holding its
constant, its inventory turnover ratio will increase. inventories con-
d. A reduction in the inventory turnover ratio will stant, then,
gen- erally lead to an increase in the ROE. other things
e. If a firm increases its sales while holding its held con- stant,
inven- tories constant, then, other things held its inventory
constant, its fixed assets turnover ratio will decline. turnover ratio
will increase.
5. Companies E and P each reported the same
earnings per share (EPS), but Company E's stock
trades at
a higher price. Which of the following statements is
CORRECT?
a. Company E probably has fewer growth E. Company E
opportuni- ties. trades at a
b. Company E is probably judged by investors to HIGH- ER P/E
be riskier. ratio
1/
, FINANCE TEST BANK (pt. 1)
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c. Company E must have a higher market-to-
book ratio.
d. Company E must pay a lower dividend.
e. Company E trades at a higher P/E ratio.
6. Which of the following statements is CORRECT? B. Borrowing
on a long-
a. Borrowing by using short-term notes payable and term ba- sis
then using the proceeds to retire long-term debt is and using the
an example of "window dressing." Offering proceeds to
discounts to customers who pay with cash rather retire short-
than buy on credit and then using the funds that term debt
come in quicker to purchase additional inventories is would im-
another example of "window dressing." prove the cur-
b. Borrowing on a long-term basis and using the rent ratio and
pro- ceeds to retire short-term debt would improve thus could be
the current ratio and thus could be considered to be consid- ered to
an example of "window dressing." be an ex- ample
c. Offering discounts to customers who pay with of "window
cash rather than buy on credit and then using the dressing."
funds that come in quicker to purchase fixed assets
is an example of "window dressing."
d. Using some of the firm's cash to reduce long-
term debt is an example of "window dressing."
e. "Window dressing" is any action that does not im-
prove a firm's fundamental long-run position and
thus increases its intrinsic value.
7. Casey Communications recently issued new
common stock and used the proceeds to pay off
some of its short-term notes payable. This action
had no effect on the company's total assets or
operating income. Which of the following effects The
would occur as a result of this action? company's
current ratio
8. A firm's new president wants to strengthen the in- creased
com- pany's financial position. Which of the
following ac- tions would make it financially
stronger?
2/
, FINANCE TEST BANK (pt. 1)
Study online at
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Increase EBIT while holding sales and assets
constant
3/
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