FIN 480 TEST PRACTICE QUESTIONS AND ANSWERS
A firm has sales of $1,310, net income of $241, net fixed assets of $501, and current
assets of $301. The firm has $97 in inventory. What is the common-size statement
value of inventory?
12.1 percent - Answers - 12.1 percent
Common-size inventory = $97/($501 + $301) = 12.1 percent
What is the quick ratio for 2009? - Answers - .80
Quick ratio for 2009 = ($2,450 - $1,530)/$1,150 = 0.8
What is the debt-equity ratio for 2009? - Answers - .38
Debt-equity ratio = ($1,240 + $500)/($3,356 + $1,224) = 0.38
Reliable Cars has sales of $3,830, total assets of $3,150, and a profit margin of 5
percent. The firm has a total debt ratio of 41 percent. What is the return on equity? -
Answers - 10.30 percent
Return on equity = (0.05 x $3,830)/[$3,150 x (1 - .41)] = 10.3 percent
What is the return on equity for 2009? - Answers - 15 percent
Return on equity = $547/($2,930 + $766) = 15 percent
The Purple Martin has annual sales of $4,500, total debt of $1,240, total equity of
$2,400, and a profit margin of 6 percent. What is the return on assets? - Answers - 7.42
percent
Return on assets = (0.06 x $4,500)/($1,240 + $2,400) = 7.42 percent
Jessica's Boutique has cash of $54, accounts receivable of $64, accounts payable of
$200, and inventory of $160. What is the value of the quick ratio? - Answers - .59
Quick ratio = ($54 + $64)/$200 = 0.59
A firm has net working capital of $452, net fixed assets of $2,209, sales of $6,000, and
current liabilities of $800. How many dollars worth of sales are generated from every $1
in total assets? - Answers - $1.73
Total asset turnover = $6,000/($452 + $2,209 + $800) = 1.73
The higher the inventory turnover, the: - Answers - less time inventory items remain on
the shelf.
A capital intensity ratio of 1.03 means a firm has $1.03 in: - Answers - total assets for
every $1 in sales.
Which one of the following is a liquidity ratio? - Answers - quick ratio
, Which one of the following statements is correct if a firm has a receivables turnover of
10? - Answers - The firm collects on its sales in an average of 36.5 days.
From a cash flow position, which one of the following ratios best measures a firm's
ability to pay the interest on its debts? - Answers - cash coverage ratio
The profitability index: - Answers - is useful as a decision tool when investment funds
are limited and all available funds are allocated.
How should a profitability index of zero be interpreted? - Answers - The project's cash
flows subsequent to the initial cash flow have a present value of zero.
Project A is opening a bakery at 10 Center Street. Project B is opening a specialty
coffee shop at the same address. Both projects have unconventional cash flows, that is,
both projects have positive and negative cash flows that occur following the initial
investment. When trying to decide which project to accept, given sufficient funding to
accept either, you should rely most heavily on the _____ method of analysis. - Answers
- net present value
You are considering a project with the following data: Internal rate of return 8.7%
Profitability ratio .98 Net present value −$393 Payback period 2.44 years Required
return 9.5% Which one of the following is correct given this information? - Answers -
This project should be rejected based on the internal rate of return.
Comparing the NPV profile of an investment project to that of a financing project
demonstrates why the: - Answers - IRR decision rule for investment projects is the
opposite of the rule for financing projects.
Which one of the following is the best example of two mutually exclusive projects? -
Answers - renting out a company warehouse or selling it outright
The discounted payback rule may cause: - Answers - some positive net present value
projects to be rejected.
For investment projects, the internal rate of return (IRR): - Answers - is the rate
generated solely by the cash flows of the investment.
Bernie's Beverages purchased some fixed assets classified as 5-year property for
MACRS. The assets cost $26,000. What will the accumulated depreciation be at the
end of year three?
MACRS 5-year property
Year Rate
1 20.00%
2 32.00%
3 19.20%
4 11.52%
A firm has sales of $1,310, net income of $241, net fixed assets of $501, and current
assets of $301. The firm has $97 in inventory. What is the common-size statement
value of inventory?
12.1 percent - Answers - 12.1 percent
Common-size inventory = $97/($501 + $301) = 12.1 percent
What is the quick ratio for 2009? - Answers - .80
Quick ratio for 2009 = ($2,450 - $1,530)/$1,150 = 0.8
What is the debt-equity ratio for 2009? - Answers - .38
Debt-equity ratio = ($1,240 + $500)/($3,356 + $1,224) = 0.38
Reliable Cars has sales of $3,830, total assets of $3,150, and a profit margin of 5
percent. The firm has a total debt ratio of 41 percent. What is the return on equity? -
Answers - 10.30 percent
Return on equity = (0.05 x $3,830)/[$3,150 x (1 - .41)] = 10.3 percent
What is the return on equity for 2009? - Answers - 15 percent
Return on equity = $547/($2,930 + $766) = 15 percent
The Purple Martin has annual sales of $4,500, total debt of $1,240, total equity of
$2,400, and a profit margin of 6 percent. What is the return on assets? - Answers - 7.42
percent
Return on assets = (0.06 x $4,500)/($1,240 + $2,400) = 7.42 percent
Jessica's Boutique has cash of $54, accounts receivable of $64, accounts payable of
$200, and inventory of $160. What is the value of the quick ratio? - Answers - .59
Quick ratio = ($54 + $64)/$200 = 0.59
A firm has net working capital of $452, net fixed assets of $2,209, sales of $6,000, and
current liabilities of $800. How many dollars worth of sales are generated from every $1
in total assets? - Answers - $1.73
Total asset turnover = $6,000/($452 + $2,209 + $800) = 1.73
The higher the inventory turnover, the: - Answers - less time inventory items remain on
the shelf.
A capital intensity ratio of 1.03 means a firm has $1.03 in: - Answers - total assets for
every $1 in sales.
Which one of the following is a liquidity ratio? - Answers - quick ratio
, Which one of the following statements is correct if a firm has a receivables turnover of
10? - Answers - The firm collects on its sales in an average of 36.5 days.
From a cash flow position, which one of the following ratios best measures a firm's
ability to pay the interest on its debts? - Answers - cash coverage ratio
The profitability index: - Answers - is useful as a decision tool when investment funds
are limited and all available funds are allocated.
How should a profitability index of zero be interpreted? - Answers - The project's cash
flows subsequent to the initial cash flow have a present value of zero.
Project A is opening a bakery at 10 Center Street. Project B is opening a specialty
coffee shop at the same address. Both projects have unconventional cash flows, that is,
both projects have positive and negative cash flows that occur following the initial
investment. When trying to decide which project to accept, given sufficient funding to
accept either, you should rely most heavily on the _____ method of analysis. - Answers
- net present value
You are considering a project with the following data: Internal rate of return 8.7%
Profitability ratio .98 Net present value −$393 Payback period 2.44 years Required
return 9.5% Which one of the following is correct given this information? - Answers -
This project should be rejected based on the internal rate of return.
Comparing the NPV profile of an investment project to that of a financing project
demonstrates why the: - Answers - IRR decision rule for investment projects is the
opposite of the rule for financing projects.
Which one of the following is the best example of two mutually exclusive projects? -
Answers - renting out a company warehouse or selling it outright
The discounted payback rule may cause: - Answers - some positive net present value
projects to be rejected.
For investment projects, the internal rate of return (IRR): - Answers - is the rate
generated solely by the cash flows of the investment.
Bernie's Beverages purchased some fixed assets classified as 5-year property for
MACRS. The assets cost $26,000. What will the accumulated depreciation be at the
end of year three?
MACRS 5-year property
Year Rate
1 20.00%
2 32.00%
3 19.20%
4 11.52%
