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Chapter 3 Practice Questions PDF

This document contains 15 multiple choice practice questions related to financial ratios and calculations. The questions cover topics such as calculating total assets, net income, cash, and sales given various financial inputs. They also address the definitions of common financial ratios like debt-equity ratio, price-earnings ratio, and times interest earned ratio. An answer key is provided at the end.

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428 views4 pages

Chapter 3 Practice Questions PDF

This document contains 15 multiple choice practice questions related to financial ratios and calculations. The questions cover topics such as calculating total assets, net income, cash, and sales given various financial inputs. They also address the definitions of common financial ratios like debt-equity ratio, price-earnings ratio, and times interest earned ratio. An answer key is provided at the end.

Uploaded by

leili fallah
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Chapter3 Practice Questions

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the
question.

1) Swenson Motors has total debt of $682,400 and a debt-equity ratio of .65. What is the 1)
value of the total assets?
A) $1,414,141
B) $1,732,246
C) $1,578,002
D) $1,364,800
E) $1,049,846

2) Calculate net income given the following information: tax rate = 30%; times interest 2)
earned = 10.75 times; sales = $4,500; cost of goods sold = $1,600; general and
administrative expenses = $750.
A) $1,165 B) $965 C) $1,365 D) $1,065 E) $1,265

3) Determine the value of cash given the following information: cash ratio = 2; cash 3)
equivalents = $600 ; current liabilities = $800.
A) $1,300 B) $1,100 C) $1,400 D) $1,000 E) $1,200

4) Calculate total asset value given the following information: ROA = 5%; Total equity = 4)
$600,000 and ROE = 8%.
A) $1,100,000
B) $1,400,000
C) $1,300,000
D) $960,000
E) $1,200,000

5) Calculate net income given the following information: tax rate = 30%; accounts 5)
receivable = $900; receivable turnover = 5 times; inventory = $500; inventory turnover
= 3.20 times; operating expenses = $700; interest expense = $200.
A) $1,465 B) $1,565 C) $1,765 D) $1,400 E) $1,665

6) Calculate sales given the following data. Total fixed assets $400,000; long-term 6)
liabilities $155,000; total liabilities $280,000; total shareholders' equity $320,000; net
working capital turnover 20.
A) $1,500,000
B) $2,100,000
C) $2,250,000
D) $1,700,000
E) $1,900,000

1
7) A firm has a total debt ratio of .47. This means that that firm has 47 cents in debt for 7)
every:
A) $1.00 in current assets.
B) $0.53 in equity.
C) $1.00 in equity.
D) $0.53 in total assets.
E) $1.00 in total sales.

8) Bentley and Moore has net working capital of $6,900, net fixed assets of $86,100, sales 8)
of $156,000, and current liabilities of $41,700. How many dollars' worth of sales are
generated from every $1 in total assets?
A) $1.22 B) $1.16 C) $1.27 D) $1.13 E) $1.25

9) The financial ratio measured as total assets minus total equity, divided by total assets, is 9)
the:
A) Equity multiplier.
B) Times interest earned ratio.
C) Total debt ratio.
D) Debt-equity ratio.
E) Current ratio.

10) The financial ratio measured as the price per share of stock divided by earnings per share 10)
is known as the:
A) Debt-equity ratio.
B) Return on assets.
C) Du Pont identity.
D) Return on equity.
E) Price-earnings ratio.

11) A reduction in interest expense, all else constant, will cause a(n): 11)
A) Decrease in the return on equity.
B) Decrease in the long-term debt ratio.
C) Increase in the price earnings ratio.
D) Increase in the cash coverage ratio.
E) Decrease in the times interest earned ratio.

12) When a firm wishes to increase its net working capital turnover rate, it should 12)
________, all else constant.
A) decrease its current liabilities
B) increase its current assets
C) increase its sales
D) decrease its total liabilities
E) increase its total assets

2
13) Which one of the following is found in the operating activity section of a statement of 13)
cash flows?
A) Decrease in long-term debt.
B) Decrease in common stock.
C) Fixed asset acquisition.
D) Increase in accounts payable.
E) Dividends paid.

14) Creditors are most likely interested in the: 14)


A) Times interest earned ratio.
B) Fixed asset turnover.
C) Price-earnings ratio.
D) Earnings per share ratio.
E) Return on assets ratio.

15) Which ratio does NOT focus on financial leverage? 15)


A) Debt/equity ratio.
B) Times interest earned.
C) Total debt ratio.
D) Equity multiplier.
E) Cash ratio.

3
Answer Key
Testname:

1) B
2) C
3) D
4) D
5) D
6) A
7) B
8) B
9) C
10) E
11) D
12) C
13) D
14) A
15) E

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