CORPORATE FINANCE TEST BANK
Actual Questions and Answers
Expert-Verified Explanation
This Exam contains:
✪ 40 Questions and Answers
✪ Multiple-choice and True/False Format
✪ Expert-Verified Explanations
✪ Verified with Trusted Textbooks
1. Projected future financial statements are called:
A. plug statements
B. pro forma statements
C. reconciled statements
D. aggregated statements
Answer: B
EXPLANATION: Pro forma statements are financial projections used for decision-making and
planning future growth and financing needs.
2. The extended version of the percentage of sales method:
A. assumes that all net income will be paid out in dividends
B. assumes that all net income will be retained and offset debt
C. is based on a capital intensity ratio of 1.0
D. requires all accounts change at the same rate
E. separates accounts that vary with sales from those that do not
Answer: E
EXPLANATION: The extended version distinguishes between sales-dependent and
independent accounts for more accurate forecasting.
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
Answer: E
EXPLANATION: A common-size balance sheet shows each item as a percentage of total
assets, aiding cross-company comparisons.
, 4. Ratios that measure a firm's short-term bill-paying ability are:
A. asset management ratios
B. long-term solvency measures
C. liquidity measures
D. profitability ratios
E. market value ratios
Answer: C
EXPLANATION: Liquidity ratios assess the firm’s ability to meet short-term obligations.
5. The current ratio is calculated as:
A. current assets - current liabilities
B. current assets / current liabilities
C. (current liabilities - inventory) / current assets
D. cash / current liabilities
E. current liabilities / current assets
Answer: B
EXPLANATION: The current ratio measures short-term liquidity: higher values suggest better
liquidity.
6. The quick ratio is calculated as:
A. current assets / current liabilities
B. (cash + current liabilities) / current assets
C. current liabilities / (current assets + inventory)
D. (current assets - inventory) / current liabilities
E. current assets - inventory - current liabilities
Answer: D
EXPLANATION: Quick ratio excludes inventory, giving a more conservative view of liquidity.
7. Ratios that measure financial leverage are known as:
A. asset management ratios
B. long-term solvency ratios
C. short-term solvency ratios
D. profitability ratios
E. market value ratios
Answer: B
EXPLANATION: These ratios indicate how much of the company is financed through debt.
Actual Questions and Answers
Expert-Verified Explanation
This Exam contains:
✪ 40 Questions and Answers
✪ Multiple-choice and True/False Format
✪ Expert-Verified Explanations
✪ Verified with Trusted Textbooks
1. Projected future financial statements are called:
A. plug statements
B. pro forma statements
C. reconciled statements
D. aggregated statements
Answer: B
EXPLANATION: Pro forma statements are financial projections used for decision-making and
planning future growth and financing needs.
2. The extended version of the percentage of sales method:
A. assumes that all net income will be paid out in dividends
B. assumes that all net income will be retained and offset debt
C. is based on a capital intensity ratio of 1.0
D. requires all accounts change at the same rate
E. separates accounts that vary with sales from those that do not
Answer: E
EXPLANATION: The extended version distinguishes between sales-dependent and
independent accounts for more accurate forecasting.
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
Answer: E
EXPLANATION: A common-size balance sheet shows each item as a percentage of total
assets, aiding cross-company comparisons.
, 4. Ratios that measure a firm's short-term bill-paying ability are:
A. asset management ratios
B. long-term solvency measures
C. liquidity measures
D. profitability ratios
E. market value ratios
Answer: C
EXPLANATION: Liquidity ratios assess the firm’s ability to meet short-term obligations.
5. The current ratio is calculated as:
A. current assets - current liabilities
B. current assets / current liabilities
C. (current liabilities - inventory) / current assets
D. cash / current liabilities
E. current liabilities / current assets
Answer: B
EXPLANATION: The current ratio measures short-term liquidity: higher values suggest better
liquidity.
6. The quick ratio is calculated as:
A. current assets / current liabilities
B. (cash + current liabilities) / current assets
C. current liabilities / (current assets + inventory)
D. (current assets - inventory) / current liabilities
E. current assets - inventory - current liabilities
Answer: D
EXPLANATION: Quick ratio excludes inventory, giving a more conservative view of liquidity.
7. Ratios that measure financial leverage are known as:
A. asset management ratios
B. long-term solvency ratios
C. short-term solvency ratios
D. profitability ratios
E. market value ratios
Answer: B
EXPLANATION: These ratios indicate how much of the company is financed through debt.
