A) A reduction in inventories held would have no effect on the current ratio.
B) An increase in inventories would have no effect on the current ratio.
C) If a firm increases its sales while holding its inventories constant, then, other things held constant, its inventory turnover ratio will increase.
D) A reduction in the inventory turnover ratio will generally lead to an increase in the ROE.
F) B) and D)
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A) The use of debt financing will tend to lower the basic earning power ratio, other things held constant.
B) A firm that employs financial leverage will have a higher equity multiplier than an otherwise identical firm that has no debt in its capital structure.
C) If two firms have identical sales, interest rates paid, operating costs, and assets, but differ in the way they are financed, the firm with less debt will generally have the higher expected ROE.
D) Holding bonds is better than holding stock for investors because income from bonds is taxed on a more favourable basis than income from stock.
F) B) and C)
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A) Company E probably has fewer growth opportunities than company P.
B) Company E is probably judged by investors to be riskier than company P.
C) Company E must pay a lower dividend than company P.
D) Company E trades at a higher P/E ratio than company P.
F) B) and D)
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A) 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.
B) 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.
C) 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.
D) 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.
F) B) and C)
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B) False
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B) False
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A) 7.57%
B) 7.95%
C) 8.35%
D) 8.76%
F) None of the above
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A) 1.94
B) 2.15
C) 2.39
D) 2.66
F) A) and B)
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A) If Firms X and Y have the same P/E ratios, then their market-to-book ratios must also be the same.
B) If Firms X and Y have the same net income, number of shares outstanding, and price per share, then their P/E ratios must also be the same.
C) If Firms X and Y have the same earnings per share and market-to-book ratio, they must have the same price earnings ratio.
D) If Firm X's P/E ratio exceeds that of Firm Y, then Y is likely to be less risky and also to be expected to grow at a faster rate.
F) A) and B)
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B) False
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B) False
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B) False
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A) 14.77%
B) 15.51%
C) 16.28%
D) 17.10%
F) A) and C)
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A) 1.40%
B) 1.56%
C) 1.73%
D) 1.93%
F) A) and B)
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A) Borrow using short-term notes payable and use the proceeds to reduce accruals.
B) Borrow using short-term notes payable and use the proceeds to reduce long-term debt.
C) Use cash to reduce short-term notes payable.
D) Use cash to reduce accounts payable.
F) A) and C)
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A) $54,979
B) $57,873
C) $60,919
D) $64,125
F) B) and C)
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A) A rise or fall in the market value of assets will not afford investors a better basis for assessing the future value of their investments.
B) Uncertainty regarding whether the adjusted market prices reflect temporary or permanent changes to the asset's value may result in ambiguous signals when financial ratios are prepared.
C) Financial statements represent historical information in that they reflect collective past performance (balance sheet) and the most recent past performance (income statement) . As such, it is not necessary to adjust asset valuation to reflect current market values.
D) Since prices change over time, "mark to market" is inferior to current accounting methods because a move to "mark to market" asset valuation will create a disconnect between past and future financial information.
F) B) and C)
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A) $2.62
B) $2.91
C) $3.20
D) $3.53
F) A) and C)
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A) The lower the company's EBITDA coverage ratio, other things held constant, the lower the interest rate the bank would charge the firm.
B) Other things held constant, the higher the debt ratio, the lower the interest rate the bank would charge the firm.
C) Other things held constant, the lower the debt ratio, the lower the interest rate the bank would charge the firm.
D) The lower the company's TIE ratio, other things held constant, the lower the interest rate the bank would charge the firm.
F) A) and C)
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A) 0.49
B) 0.61
C) 0.73
D) 0.87
F) A) and D)
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