Q&A Hero

Q: As compared to U.S banks, foreign banks are less regulated and have fewer restrictions concerning the types of business activities they can pursue. Therefore, foreign banks often engage in numerous aspects of multilayer financial deals. a. True b. False

Q: Whole-life polices offer both insurance coverage and a savings feature, whereas term life policies do not. a. True b. False

Q: The existence of financial intermediaries greatly increases the efficiency of financial markets because, without them, savers would have to provide funds directly to borrowers, which would be a costlier process. a. True b. False

Q: Under a best efforts arrangement, the investment banker purchases all of the shares from the issuing firm and then resells them to the public. Under this arrangement, the investment bank assumes significant risk. a. True b. False

Q: In an underwritten arrangement, the investment banker assures the company that is issuing new securities that the entire issue will be sold, which means the investment banker bears significant risks in such an offering. a. True b. False

Q: Primary markets are exchanges with physical locations, whereas secondary markets are over-the-counter markets. a. True b. False

Q: The debt markets are segmented based on the maturity of the debt instruments, the type of debt instruments, and the participants in the market. a. True b. False

Q: An over-the-counter (OTC) market is a physical exchange, much like the New York Stock Exchange, where securities dealers provide trading in unlisted securities. a. True b. False

Q: If an individual investor uses the services of a broker to buy and sell stocks that are currently being traded in the stock market, the transaction is referred to as a primary market transaction. a. True b. False

Q: An over-the-counter market is a network of brokers and dealers, connected electronically, that provides for trading in securities not listed on the physical stock exchanges. a. True b. False

Q: The Securities Exchange Commission is a major U.S. stock exchange that facilitates trading in listed securities. a. True b. False

Q: In the United States, sales of new stocks and bonds are regulated by the Securities and Exchange Commission (SEC). a. True b. False

Q: Dual listing of stocks and the mandatory use of the trade-through rule when trading in securities have made the stock markets extremely competitive. a. True b. False

Q: The trade-through rule states that a stock trade should be executed at the best price that is available in all of the stock markets. a. True b. False

Q: A money market is the market for trading in securities with maturities greater than one year and includes such financial assets as stocks and long-term corporate bonds. a. True b. False

Q: Electronic communications networks (ECNs) provide an alternative trading medium, which has increased competition among the stock exchanges. a. True b. False

Q: The provision of dual listing of stocks has defeated the efforts made to increase competition in the stock markets. a. True b. False

Q: A primary market is that segment of the financial markets where the instruments that are traded have original maturities equal to one year or less. a. True b. False

Q: The mandatory trade-through rule followed for trading in securities does not work to the benefit of shareholders. a. True b. False

Q: Dual listing of a stock is advantageous to a company. It is not beneficial for stock exchanges, but they allow dual listing because of regulatory requirements. a. True b. False

Q: Dual listing of a stock leads to a decrease in the marketability of the stock. a. True b. False

Q: The Securities and Exchange Commission (SEC) cannot exercise control over stock trades by corporate insiders. a. True b. False

Q: The Securities and Exchange Commission (SEC) regulations are intended to ensure that investors receive fair disclosure of financial and nonfinancial information from privately held companies. a. True b. False

Q: The New York Stock Exchange (NYSE) is an example of an over-the-counter exchange. a. True b. False

Q: Unlike physical asset markets, which deal with products such as wheat, autos, real estate, and machinery, financial asset markets deal with stocks, bonds, mortgages, and other claims on real assets with respect to the distribution of future cash flows generated by such assets. a. True b. False

Q: Which of the following acts proposed the creation of new organizations to monitor rules associated with the capital, liquidity, and risk of financial institutions to help prevent future failures of mega financial organizations? a. Securities and Exchange Commission Act b. Wall Street Transparency and Accountability Act c. Emergency Economic Stabilization Act of 2008 d. Basel III Accord (2010) e. Dodd-Frank Wall Street Reform and Consumer Protection Act (2010)

Q: Which of the following acts limits the salaries of executives whose companies received Troubled Asset Relief Program (TARP) funds? a. Basel III Accord (2010) b. Emergency Economic Stabilization Act of 2008 c. Dodd-Frank Wall Street Reform and Consumer Protection Act (2010) d. Wall Street Transparency and Accountability Act e. Securities and Exchange Commission Act

Q: When generating financial statements, the Securities and Exchange Commission (SEC) allows publicly traded foreign companies to use the International Financial Reporting Standards (IFRS) rather than the Generally Accepted Accounting Principles (GAAP) if IFRS is the accounting system used in their home country. a. True b. False

Q: In 2010, the Securities and Exchange Commission (SEC) announced its support for Generally Accepted Accounting Principles (GAAP). a. True b. False

Q: The Securities and Exchange Commission (SEC) was created to develop and approve a set of common international accounting rules. a. True b. False

Q: The balance sheet includes historical values that can impact the validity of a firm's financial ratios. a. True b. False

Q: Different accounting practices will not have an impact on the comparative ratio analyses of different firms. a. True b. False

Q: A simple approach to trend analysis is to construct graphs. a. True b. False

Q: Determining whether a firm's financial position is improving or deteriorating requires analysis of more than one set of financial statements. Trend analysis is one method of measuring a firm's performance over time. a. True b. False

Q: The degree to which the managers of a firm attempt to magnify the returns to owners' capital through the use of financial leverage is captured in debt management ratios. a. True b. False

Q: A decline in the inventory turnover ratio suggests that the firm's liquidity position is improving. a. True b. False

Q: Ratio analysis involves a comparison of the relationships between financial statement accounts to analyze the financial position and strength of a firm. a. True b. False

Q: A firm's net income is the most appropriate measure to determine whether the management is maximizing the firm's stock price. a. True b. False

Q: A firm's net income reported on its income statement must equal the operating cash flows on the statement of cash flows. a. True b. False

Q: Retained earnings is the amount of cash that has been generated by the firm through its operations but has not been paid out to stockholders as dividends. Retained earnings are kept in cash or near cash accounts, and thus these cash accounts, when added together, will always be equal to the total retained earnings of the firm. a. True b. False

Q: The values or accounting numbers that are reported on the balance sheet are the same as the market values of the assets. a. True b. False

Q: The balance sheet is a financial statement that measures the flow of funds into and out of various accounts over time, whereas the income statement measures the financial position of the firm at a specific point in time. a. True b. False

Q: The book values of shares of stock are always equal to their market values. a. True b. False

Q: Noncash assets are expected to produce cash over time but the amount of cash they eventually produce could be higher or lower than the values at which the assets are carried on the books. a. True b. False

Q: The information contained in the annual report is used by investors to form expectations about future earnings and dividends. a. True b. False

Q: All firms that are publicly traded in the United States will be required to adopt the _____ in the near future. a. Generally Accepted Accounting Principles (GAAP) b. Financial Accounting Standards Rules (FASR) c. Governmental Accounting Standards Principles (GASP) d. International Financial Reporting Standards (IFRS) e. National Advisory Accounting Standards (NAAS)

Q: Which of the following accounting principles does the Securities and Exchange Commission (SEC) require U.S. firms to use when filing their financial statements? a. International Accounting Standards Board (IASB) b. International Financial Reporting Standards (IFRS) c. Generally Accepted Accounting Principles (GAAP) d. National Advisory Accounting Standards (NAAS) e. Financial Accounting Standards Principles (FASP)

Q: Which of the following was originally created to develop and approve a set of common International Financial Reporting Standards (IFRS)? a. International Accounting Standards Board (IASB) b. Securities and Exchange Commission (SEC) c. Generally Accepted Accounting Principles (GAAP) d. International Federation of Accountants e. International Accounting Standards Committee

Q: A limitation of ratio analysis is that: a. it is useful only for large, multidivisional firms. b. inflation, which distorts a firm's balance sheet, is considered when calculating ratios. c. seasonal factors, which distort a firm's balance sheet, are taken into account when calculating ratios. d. firms can employ window-dressing techniques to make their financial statements look better. e. only statistical procedures are considered while analyzing the net effects of a set of ratios.

Q: Techniques employed by firms to make their financial statements look better than they actually are, are called: a. DuPont techniques. b. window-dressing techniques. c. trend analysis techniques. d. benchmarking. e. equity multipliers.

Q: If a firm's existing quick ratio is 1.2, and all other variables remain unchanged, the quick ratio can be increased by: a. repayment of a loan. b. purchase of fixed assets using a loan. c. receiving interest income. d. collecting accounts receivable. e. purchase of fixed assets for cash.

Q: Pearl Automotive Ltd. has a current ratio of 2. The company wants to window dress its financial statements. Which of the following transactions will increase the current ratio of Pearl Automotive, assuming all other variables remain constant? a. Selling of inventory on credit b. Purchase of inventory on credit c. Collecting accounts receivable d. Purchase of fixed assets for cash e. Repayment of short-term loan

Q: Emerald Corporation's current ratio is 0.5, while Ruby (Emerald's competitor) Company's current ratio is 1.5. Both firms want to "window dress" their coming end-of-year financial statements. As part of their window dressing strategy, each firm will double its current liabilities by adding short-term debt and placing the funds obtained in the cash account. Which of the statements below best describes the actual results of these transactions? a. The transactions will have no effect on the current ratios. b. The current ratios of both firms will be increased. c. The current ratios of both firms will be decreased. d. Only Emerald Corporation's current ratio will be increased. e. Only Ruby Company's current ratio will be increased.

Q: A comparison of a firm's ratios with those of other firms in the same industry at the same point in time is called: a. trend analysis. b. comparative (benchmarking). c. DuPont analysis. d. sensitivity analysis. e. cash flow analysis.

Q: An analysis of a firm's financial ratios over time used to determine the improvement or deterioration in its financial situation is called _____. a. sensitivity analysis b. the DuPont chart c. ratio analysis d. comparative (benchmarking) analysis e. trend analysis

Q: Daisy Inc.'s book value per share is $10, and its market-to-book ratio is 1.5. If its earnings per share is $2.5, calculate its price/earnings (P/E) ratio. a. 6.0 b. 6.7 c. 4.0 d. 10.0 e. 3.3

Q: Assuming that other things are constant, the price earnings (P/E) ratio: a. is higher for firms with high growth prospects and lower for riskier firms. b. is lower for firms with high growth prospects and higher for riskier firms. c. is not affected by the growth prospects of a firm. d. is equal to the market price of the share of a firm. e. is equal to the earnings per share of a firm.

Q: Which of the following ratios indicate how much investors are willing to pay for a firm's stock for each dollar of reported profits? a. Earnings per share b. Market-to-book ratio c. Price/earnings ratio d. Return on equity e. Net profit margin

Q: Using the information below for WAM Inc., the market value per share is: Earnings after interest and taxes = $200,000 Earnings per share = $2.00 Stockholders' equity = $2,000,000 Market/Book ratio = 0.20 a. $20.00. b. $8.00. c. $4.00. d. $2.00. e. $1.00.

Q: The Charleston Company is a relatively small, privately owned firm. Last year, the company had an after-tax income of $15,000 and 10,000 shares were outstanding. The owners were trying to determine the market value for the stock prior to taking the company public. A similar firm, which is publicly traded, had a price/earnings ratio of 5.0. Using only the information given, the market value of one share of Charleston's stock is estimated as: a. $10.00. b. $7.50. c. $5.00. d. $2.50. e. $1.50.

Q: Market value ratios indicate: a. the effect of liquidity, asset management, and debt management on operating results. b. how much debt the firm has and whether it can take on more debt. c. the firm's ability to meet its current obligations. d. how effectively a firm is managing its assets. e. what investors think of the company's future prospects based on its past performance.

Q: If a firm earns a net profit of $100,000 on sales of $2,000,000, its net profit margin is: a. 5%. b. 10%. c. 15%. d. 3.5%. e. 1.5%.

Q: Assume that Meyer Corporation is 100 percent equity financed, and has the following information: (1) Earnings before taxes = $1,500; (2) Sales = $5,000; (3) Dividend payout ratio = 60%; (4) Total assets turnover = 2.0; (5) Applicable tax rate = 30% The firm's return on equity is: a. 25%. b. 30%. c. 35%. d. 42%. e. 50%.

Q: Suppose a firm has a growth rate equal to 8 percent, return on assets (ROA) of 10 percent, a debt ratio of 20 percent, and a current stock price of $36. The firm's return on equity (ROE) is: a. 14.0%. b. 12.5%. c. 15.0%. d. 2.5%. e. 13.5%.

Q: Selzer Inc. sells all of its merchandise on credit. It has a profit margin of 4 percent, days sales outstanding equal to 60 days, receivables of $150,000, total assets of $3 million, and a debt ratio of 0.64. The firm's return on equity (ROE) is: a. 7.1%. b. 33.3%. c. 3.3%. d. 71.0%. e. 8.1%.

Q: A firm has a profit margin of 15 percent on sales of $20,000,000. If the firm has a debt of $7,500,000, total assets of $22,500,000, and an interest cost on a total debt of 5 percent, what is the firm's return on total assets (ROA)? (Round answer to two decimal places.) a. 8.47% b. 10.94% c. 12.02% d. 13.33% e. 15.18%

Q: Greenwood Builders Ltd. has a debt ratio of 35 percent and it has total assets of $750,000. What is the value of their total liabilities? a. $750,000 b. $1,000,000 c. $450,000 d. $262,500 e. $153,200

Q: The proportion of a firm's funds that is provided by shareholders is equal to: a. the debt ratio minus the times interest earned. b. 1 minus the debt ratio. c. the times interest earned plus 1. d. the debt ratio minus the dividends paid. e. the fixed charge coverage ratio minus 1.

Q: Which of the following mathematical expressions calculates the debt ratio? a. Debt ratio = Net operating income Total debt b. Debt ratio = Long-term liabilities Current liabilities c. Debt ratio = Sales Total liabilities d. Debt ratio = Total liabilities Total assets e. Debt ratio = Interest charges Total liabilities

Q: Which of the following ratios recognizes that many firms lease rather than buy a long-term asset? a. Fixed charge coverage ratio b. Times interest earned ratio c. Debt ratio d. Net profit margin e. Equity multiplier ratio

Q: Alumbat Corporation has $800,000 in debt outstanding, and pays an interest rate of 10 percent annually on its bank loan. Alumbat's annual sales are $3,200,000, its average tax rate is 40 percent, and its net profit margin on sales is 6 percent. If the company does not maintain a TIE ratio of at least 4 times, its bank will refuse to renew its loan, and bankruptcy will result. Alumbat's current times interest earned ratio is: a. 2.4 times. b. 3.4 times. c. 3.6 times. d. 4.0 times. e. 5.0 times.

Q: A firm has total interest charges of $10,000 per year, sales of $1 million, a tax rate of 40 percent, and a net profit margin of 6 percent. The firm's times interest earned ratio is: a. 16 times. b. 10 times. c. 7 times. d. 11 times. e. 20 times.

Q: The extent to which the operating income can decline before a firm is unable to meet its annual interest costs can be found in: a. the price-earnings ratio. b. the debt ratio. c. the times interest earned ratio. d. the return on equity. e. the profit margin.

Q: Which of the following statements is true regarding debt ratios? a. Firms with relatively low debt ratios have higher expected returns when business is good. b. Firms with relatively low debt ratios are exposed to more risk compared to firms with relatively high debt ratios. c. Firms with relatively high debt ratios have higher expected returns when business is bad. d. Firms with relatively high debt ratios have higher expected returns when business is good. e. Firms with relatively low debt ratios have higher expected returns when business is poor.

Q: A firm's total equity is $10 million and total liabilities is $5 million. During the year, its sales equaled to $75 million. Based on the given information, the total assets turnover ratio of the firm is: a. 10.5 times. b. 13 times. c. 15 times. d. 7.5 times. e. 5 times.

Q: The net fixed assets of Auburn Media Ltd. is $850 million. The sales of the firm is $1,420 million. The firm's fixed assets turnover ratio is: a. 1.35 times. b. 2.42 times. c. 1.67 times. d. 2.8 times. e. 3.45 times.

Q: Which of the following is the formula to calculate a firm's inventory turnover ratio? a. Inventory Turnover = Sales Inventory b. Inventory Turnover = Cost of goods sold Inventory c. Inventory Turnover = Inventory Current assets d. Inventory Turnover = Inventory Accounts receivables e. Inventory Turnover = (Sales Cost of goods sold) Inventory

Q: An inventory turnover ratio of 8.5 times indicates that: a. the inventory of the firm turns over every 8.5 days. b. the value of the inventory of the firm is 8.5 percent of the total assets of the firm. c. the value of sales of the firm is 8.5 times the cost of goods sold. d. the firm will restock its inventory every 42.35 days. e. the firm pays for its inventory once in 42.35 days.

Q: A firm has total assets of $500 million, including its accounts receivable, which is worth $120 million. The annual sales of the firm is $650 million. The days sales outstanding (DSO) ratio of the firm is: a. 48.2 days. b. 52.7 days. c. 39.6 days. d. 82.1 days. e. 66.5 days.

Q: A low inventory turnover ratio might indicate that: a. the firm is using the last-in first-out (LIFO) method of inventory valuation during inflationary periods. b. the cost of inventory of the firm is lower than that of the similar firms. c. the firm is holding excess stocks of inventory. d. the inventory of the firm is sold and restocked very often. e. the firm purchases all its inventory on credit.