Corporate Finance (11th Edition) – Test Bank | Ross, Westerfield & Jordan | Full Chapter Exam Preparation Resource

, Chapter 03
1. Projected future financial statements are called:


A. plug statements.
B. pro forma statements.
C. reconciled statements.
D. aggregated statements.
E. comparative statements.

2. The extended version of the percentage of sales method:


A. assumes that all net income will be paid out in dividends to stockholders.
B. assumes that all net income will be retained by the firm and offset by a reduction in debt.
C. is based on a capital intensity ratio of 1.0.
D. requires that all financial statement accounts change at the same rate.
E. separates accounts that vary with sales from those that do not vary with sales.

3. Which statement expresses all accounts as a percentage of total assets?


A. pro forma balance sheet
B. common-size income statement
C. statement of cash flows
D. pro forma income statement
E. common-size balance sheet

4. Ratios that measure a firm’s ability to pay its bills over the short run without undue stress are
known as:


A. asset management ratios.
B. long-term solvency measures.
C. liquidity measures.
D. profitability ratios.
E. market value ratios.

,5. The current ratio is measured as:


A. current assets minus current liabilities.
B. current assets divided by current liabilities.
C. current liabilities minus inventory, divided by current assets.
D. cash on hand divided by current liabilities.
E. current liabilities divided by current assets.

6. The quick ratio is measured as:


A. current assets divided by current liabilities.
B. cash on hand plus current liabilities, divided by current assets.
C. current liabilities divided by current assets, plus inventory.
D. current assets minus inventory, divided by current liabilities.
E. current assets minus inventory minus current liabilities.

7. Ratios that measure a firm’s financial leverage are known as ratios.


A. asset management
B. long-term solvency
C. short-term solvency
D. profitability
E. market value

8. The debt-equity ratio is measured as:


A. total equity divided by long-term debt.
B. total equity divided by total debt.
C. total debt divided by total equity.
D. long-term debt divided by total equity.
E. total assets minus total debt, divided by total equity.

9. The equity multiplier is measured as total:


A. equity divided by total assets.
B. equity plus total debt.
C. assets minus total equity, divided by total assets.
D. assets plus total equity, divided by total debt.
E. assets divided by total equity.

, 10. Ratios that measure how efficiently a firm uses its assets to generate sales are known as
ratios.


A. asset management
B. long-term solvency
C. short-term solvency
D. profitability
E. market value

11. The inventory turnover ratio is measured as:


A. total sales minus inventory.
B. inventory times total sales.
C. cost of goods sold divided by inventory.
D. inventory divided by cost of goods sold.
E. inventory divided by sales.

12. The financial ratio days’ sales in inventory is measured as:


A. inventory turnover plus 365 days.
B. inventory times 365 days.
C. inventory plus cost of goods sold, divided by 365 days.
D. 365 days divided by the inventory.
E. 365 days divided by the inventory turnover.

13. The receivables turnover ratio is measured as:


A. sales plus accounts receivable.
B. sales divided by accounts receivable.
C. sales minus accounts receivable, divided by sales.
D. accounts receivable times sales.
E. accounts receivable divided by sales.

14. The total asset turnover ratio measures the amount of:


A. total assets needed for every $1 of sales.
B. sales generated by every $1 in total assets.
C. fixed assets required for every $1 of sales.
D. net income generated by every $1 in total assets.
E. net income than can be generated by every $1 of fixed assets.