Accounting 4356 Test 2 Questions and Verified Answers

Assuming no changes in other variables, which of the following would decrease ROA? A) A decrease in the effective tax rate. B) A decrease in interest expense. C) An increase in average assets C) An increase in average assets An analyst applied the DuPont System to the following data for a company: Equity turnover 4.2 Net profit margin 5.5% Total asset turnover 2.0 Dividend payout ratio 31.8% The company's return on equity is closest to: A) 1.3% B) 11.1% C) 23.1% C) 23.1% ROE= Net Profit Margin X Equity Turnover Ratio ROE= 0.055 x 4.2= .231 or 23.1% Generally speaking, any "turnover" ratio (like total asset turnover, equity turnover, etc) has as the numerator: A) Sales B) Return on Equity C) Stock Price A) Sales A high P/E indicates: A) That a firm may have very low earnings per share. B) That the firm is valued highly by market. C) both a) and b) could be true C) both a) and b) could be true Ch. 8- Inventories Ch. 8- Inventories In a period of rising prices, when compared with a company that uses weighted average cost for inventory, a company using FIFO will most likely report higher values for its: A) debt to equity ratio B) inventory turnover C) return on sales C) return on sales