Chapter 3 Practice Quiz
MBA 6130
ACCOUNTING 333 CHAPTER 3
PRACTICE QUIZ.
1. Financial ratios that measure a firm's ability to pay its bills over the short run without undue stress
are often referred to as:
o asset management ratios.
o liquidity measures.
o leverage ratios.
o profitability ratios.
o utilization ratios.
2. Which one of these measures a firm's long-run ability to meet its obligations?
o Cash ratio
o Total asset turnover
o Quick ratio
o Return on equity
o Equity multiplier
3. Which ratio measures the number of times a firm lends money to customers, collects that money,
and relends it within a year?
o Total asset turnover
o Days' sales in receivables
o Total debt ratio
o Receivables turnover
o Quick ratio
4. Which ratio calculates the amount of sales generated by each $1 invested in assets?
o Total asset turnover
o Return on equity
o Return on assets
o Equity multiplier
o DuPont identity
5. The return on equity can be calculated as:
o Profit margin × 1/Capital intensity ratio × Equity multiplier.
o Return on assets × b.
o Profit margin × Total asset turnover × Debt-equity ratio
o Profit margin × 1/Equity multiplier × (1 + Debt-equity ratio).
o Return on assets × Debt-equity ratio
6. If a firm decreases its operating costs, all else constant, then:
o the profit margin increases while the cash coverage ratio decreases.
o the return on assets increases while the return on equity decreases.
1
, Chapter 3 Practice Quiz
MBA 6130
o both the return on assets and the return on equity increase.
o both the profit margin and the equity multiplier increase.
o the total asset turnover rate decreases while the profit margin increases.
7. Assume a firm is operating at full capacity. Which one of these accounts is least apt to vary directly
with sales?
o Inventory
o Cash
o Long-term debt
o Accounts payable
o Fixed assets
8. Financial planning, when properly executed:
o helps ensure that adequate financing is in place to support the desired level of growth.
o ensures that the primary goals of senior management are fully achieved.
o reduces the necessity of daily management oversight of the business operations.
o ignores the normal restraints encountered by a firm.
o eliminates the need to plan more than one year in advance.
9. Juno's has sales of $389,000, a tax rate of 34 percent, a dividend payout ratio of 45 percent, and a
profit margin of 6 percent. What is the addition to retained earnings?
o $10,503.00
o $12,837.00
o $141,207.00
o $8,472.42
o $15,913.64
Addition to retained earnings = $389,000 × .06 × (1 - .45) = $12,837.00
10. A firm has total assets of $162,000, long-term debt of $46,000, stockholders' equity of $95,000,
and current liabilities of $21,000. The dividend payout ratio is 60 percent and the profit margin is 8
percent. Assume all assets and current liabilities change spontaneously with sales and the firm is
currently operating at full capacity. What is the external financing need if the current sales of
$150,000 are projected to increase by 10 percent?
o $4,220
o $54,820
o $16,200
o $38,700
o $8,820
Projected total assets = 1.1($162,000) = $178,200
Projected current liabilities = 1.1($21,000) = $23,100
Projected long-term debt = $46,000 (no change)
Projected shareholders equity = $95,000 + (1.1 × $150,000 × .08 × (1 - .60) = $100,280
EFN = $178,200 - 23,100 - 46,000 - $100,280 = $8,820
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MBA 6130
ACCOUNTING 333 CHAPTER 3
PRACTICE QUIZ.
1. Financial ratios that measure a firm's ability to pay its bills over the short run without undue stress
are often referred to as:
o asset management ratios.
o liquidity measures.
o leverage ratios.
o profitability ratios.
o utilization ratios.
2. Which one of these measures a firm's long-run ability to meet its obligations?
o Cash ratio
o Total asset turnover
o Quick ratio
o Return on equity
o Equity multiplier
3. Which ratio measures the number of times a firm lends money to customers, collects that money,
and relends it within a year?
o Total asset turnover
o Days' sales in receivables
o Total debt ratio
o Receivables turnover
o Quick ratio
4. Which ratio calculates the amount of sales generated by each $1 invested in assets?
o Total asset turnover
o Return on equity
o Return on assets
o Equity multiplier
o DuPont identity
5. The return on equity can be calculated as:
o Profit margin × 1/Capital intensity ratio × Equity multiplier.
o Return on assets × b.
o Profit margin × Total asset turnover × Debt-equity ratio
o Profit margin × 1/Equity multiplier × (1 + Debt-equity ratio).
o Return on assets × Debt-equity ratio
6. If a firm decreases its operating costs, all else constant, then:
o the profit margin increases while the cash coverage ratio decreases.
o the return on assets increases while the return on equity decreases.
1
, Chapter 3 Practice Quiz
MBA 6130
o both the return on assets and the return on equity increase.
o both the profit margin and the equity multiplier increase.
o the total asset turnover rate decreases while the profit margin increases.
7. Assume a firm is operating at full capacity. Which one of these accounts is least apt to vary directly
with sales?
o Inventory
o Cash
o Long-term debt
o Accounts payable
o Fixed assets
8. Financial planning, when properly executed:
o helps ensure that adequate financing is in place to support the desired level of growth.
o ensures that the primary goals of senior management are fully achieved.
o reduces the necessity of daily management oversight of the business operations.
o ignores the normal restraints encountered by a firm.
o eliminates the need to plan more than one year in advance.
9. Juno's has sales of $389,000, a tax rate of 34 percent, a dividend payout ratio of 45 percent, and a
profit margin of 6 percent. What is the addition to retained earnings?
o $10,503.00
o $12,837.00
o $141,207.00
o $8,472.42
o $15,913.64
Addition to retained earnings = $389,000 × .06 × (1 - .45) = $12,837.00
10. A firm has total assets of $162,000, long-term debt of $46,000, stockholders' equity of $95,000,
and current liabilities of $21,000. The dividend payout ratio is 60 percent and the profit margin is 8
percent. Assume all assets and current liabilities change spontaneously with sales and the firm is
currently operating at full capacity. What is the external financing need if the current sales of
$150,000 are projected to increase by 10 percent?
o $4,220
o $54,820
o $16,200
o $38,700
o $8,820
Projected total assets = 1.1($162,000) = $178,200
Projected current liabilities = 1.1($21,000) = $23,100
Projected long-term debt = $46,000 (no change)
Projected shareholders equity = $95,000 + (1.1 × $150,000 × .08 × (1 - .60) = $100,280
EFN = $178,200 - 23,100 - 46,000 - $100,280 = $8,820
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