Answer: a. True
Question: The times-interest-earned ratio measures the extent to which operating income can decline before the firm is unable to meet its annual interest costs. a. True b. False
Answer: a. True
Question: A revolving credit agreement is a formal line of credit. The firm must generally pay a fee on the unused balance of the committed funds to compensate the bank for the commitment to extend those funds.
Answer Options:
a. True
b. False
Answer: a. True
Question: Profitability ratios show the combined effects of liquidity, asset management, and debt management on a firm’s operating results. Answer Options a. True b. False
Answer: a. True
Question: The prime rate charged by big money center banks at any one time is likely to vary greatly (for example, as much as 2 to 4 percentage points) across banks due to banks’ ability to differentiate themselves and because different banks operate in different parts of the country.
Answer Options:
a. True
b. False
Answer: b. False
Question: The basic earning power ratio (BEP) reflects the earning power of a firm’s assets after giving consideration to financial leverage and tax effects. Answer Options a. True b. False
Answer: b. False
Question: If we were describing the income statement and the balance sheet, it would be correct to say that the income statement is more like a video while the balance sheet is more like a snapshot.
Answer Options:
a. True
b. False
Answer: a. True
Question: Because the U.S. tax system is a progressive tax system, a taxpayer’s marginal and average tax rates are the same.
Answer Options:
a. True
b. False
Answer: b. False
Question: The return on invested capital measures the total return that a company has provided for its investors. Answer Options a. True b. False
Answer: a. True
Question: It is appropriate to use the fixed assets turnover ratio to appraise firms’ effectiveness in managing their fixed assets if and only if the firms being compared have the same proportion of fixed assets to total assets. Answer Options a. True b. False
Answer: b. False
Question: In a buy-lease analysis, the net present value of the cash outflow associated with the lease option is compared with the cost of buying property.
Answer Options:
False
True
Answer: True
Question: In general, if investors regard a company as being relatively risky and/or having relatively poor growth prospects, then it will have relatively high P/E and M/B ratios.
Answer Options:
a. True
b. False
Answer: b. False
Question: Other things held constant, the more debt a firm uses, the lower its profit margin will be.
Answer Options:
a. True
b. False
Answer: a. True
Question: If a firm sold some inventory for cash and left the funds in its bank account, its current ratio would probably not change much, but its quick ratio would decline.
Answer Options:
a. True
b. False
Answer: b. False
Question: Other things held constant, the more debt a firm uses, the lower its operating margin will be.
Answer Options:
a. True
b. False
Answer: b. False
Question: Debt management ratios show the extent to which a firm’s managers are attempting to magnify returns on owners’ capital through the use of financial leverage. a. True b. False
Answer: a. True
Question: The primary reason the annual report is important in finance is that it is used by investors when they form expectations about the firm’s future earnings and dividends, and the riskiness of those cash flows.
Answer Options:
a. True
b. False
Answer: a. True
Question: If a firm sold some inventory on credit, its current ratio would probably not change much, but its quick ratio would increase.
Answer Options:
a. True
b. False
Answer: a. True