A) If two firms differ only in their use of debt-i.e., they have identical assets, sales, operating costs, and tax rates-but one firm has a higher debt ratio, the firm that uses more debt will have a higher profit margin on sales.
B) If one firm has a higher debt ratio than another, we can be certain that the firm with the higher debt ratio will have the lower TIE ratio, as that ratio depends entirely on the amount of debt a firm uses.
C) A firm's use of debt will have no effect on its profit margin on sales.
D) If two firms differ only in their use of debt-i.e., they have identical assets, sales, operating costs, interest rates on their debt, and tax rates-but one firm has a higher debt ratio, the firm that uses more debt will have a lower profit margin on sales.
E) The debt ratio as it is generally calculated makes an adjustment for the use of assets leased under operating leases, so the debt ratios of firms that lease different percentages of their assets are still comparable.
G) C) and D)
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A) 5.66%
B) 5.95%
C) 6.27%
D) 6.58%
E) 6.91%
G) D) and E)
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A) $158,750
B) $166,688
C) $175,022
D) $183,773
E) $192,962
G) C) and E)
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A) If a firm increases its sales while holding its inventories constant, then, other things held constant, its inventory turnover ratio will decrease.
B) A reduction in inventories held would have no effect on the current ratio.
C) An increase in inventories would have no effect on the current ratio.
D) If a firm increases its sales while holding its inventories constant, then, other things held constant, its inventory turnover ratio will increase.
E) A reduction in the inventory turnover ratio will generally lead to an increase in the ROE.
G) A) and D)
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B) False
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A) An increase in accounts payable.
B) An increase in net fixed assets.
C) An increase in accrued liabilities.
D) An increase in notes payable.
E) An increase in accounts receivable.
G) A) and E)
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A) 0.56
B) 0.66
C) 0.78
D) 0.92
E) 1.08
G) A) and C)
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B) False
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B) False
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A) $10.06
B) $10.59
C) $11.15
D) $11.74
E) $12.35
G) None of the above
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A) Use cash to reduce accounts payable.
B) Borrow using short-term notes payable and use the proceeds to reduce accruals.
C) Borrow using short-term notes payable and use the proceeds to reduce long-term debt.
D) Use cash to reduce accruals.
E) Use cash to reduce short-term notes payable.
G) B) and D)
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A) Company A trades at a higher P/E ratio.
B) Company A probably has fewer growth opportunities.
C) Company A is probably judged by investors to be riskier.
D) Company A must have a higher market-to-book ratio.
E) Company A must pay a lower dividend.
G) A) and C)
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A) 2.70%
B) 2.97%
C) 3.26%
D) 3.59%
E) 3.95%
G) B) and C)
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A) If a firm has the highest price/earnings ratio of any firm in its industry, then, other things held constant, this suggests that the board of directors should fire the president.
B) If a firm has the highest market/book ratio of any firm in its industry, then, other things held constant, this suggests that the board of directors should fire the president.
C) Other things held constant, the higher a firm's expected future growth rate, the lower its P/E ratio is likely to be.
D) The higher the market/book ratio, then, other things held constant, the higher one would expect to find the Market Value Added (MVA) .
E) If a firm has a history of high Economic Value Added (EVA) numbers each year, and if investors expect this situation to continue, then its market/book ratio and MVA are both likely to be below average.
G) B) and D)
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D
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A) $2.62
B) $2.91
C) $3.20
D) $3.53
E) $3.88
G) A) and C)
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B) False
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True
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B) False
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A) If a firm increases its sales while holding its accounts receivable constant, then, other things held constant, its days' sales outstanding will decline.
B) If a security analyst saw that a firm's days' sales outstanding (DSO) was higher than the industry average and was also increasing and trending still higher, this would be interpreted as a sign of strength.
C) If a firm increases its sales while holding its accounts receivable constant, then, other things held constant, its days' sales outstanding (DSO) will increase.
D) There is no relationship between the days' sales outstanding (DSO) and the average collection period (ACP) . These ratios measure entirely different things.
E) A reduction in accounts receivable would have no effect on the current ratio, but it would lead to an increase in the quick ratio.
G) None of the above
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A) Issue new common stock and use the proceeds to acquire additional fixed assets.
B) Offer price reductions along with generous credit terms that would (1) enable the firm to sell some of its excess inventory and (2) lead to an increase in accounts receivable.
C) Issue new common stock and use the proceeds to increase inventories.
D) Speed up the collection of receivables and use the cash generated to increase inventories.
E) Use some of its cash to purchase additional inventories.
G) B) and D)
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A) 18.49%
B) 19.47%
C) 20.49%
D) 21.52%
E) 22.59%
G) A) and C)
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C
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