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A firm has a lower asset turnover ratio than the industry average, which implies


A) the firm has a lower P/E ratio than other firms in the industry.
B) the firm is less likely to avoid insolvency in the short run than other firms in the industry.
C) the firm is less profitable than other firms in the industry.
D) the firm is utilizing assets less efficiently than other firms in the industry.
E) the firm has lower spending on new fixed assets than other firms in the industry.

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Which of the following ratios gives information on the amount of profits reinvested in the firm over the years?


A) Sales/total assets
B) Debt/total assets
C) Debt/equity
D) Retained earnings/total assets

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A firm has a net profit/pretax profit ratio of 0.625, a leverage ratio of 1.2, a pretax profit/EBIT of 0.9, an ROE of 17.82%, a current ratio of 8, and a return on sales ratio of 8%. The firm's asset turnover is


A) 0.3.
B) 1.3.
C) 2.3.
D) 3.3.

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One problem with comparing financial ratios prepared by different reporting agencies is


A) some agencies receive financial information later than others.
B) agencies vary in their policies as to what is included in specific calculations.
C) some agencies are careless in their reporting.
D) some firms are more conservative in their accounting practices.
E) None of the options are correct.

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The financial statements of Midwest Tours are given below.  Midwest Tours  Income Statement (2009)   Sales $2,500,000 Cost of goods sold 1,260,000‾ Gross profit 1,240,000 Selling & administrative expenses 700,000‾ Operating profit 540,000 Interest expense 160,000‾ Income before tax 380,000 Tax expense 152,000‾ Net income $228,000‾\begin{array}{c} \text { Midwest Tours } \\\text { Income Statement (2009) }\\\begin{array}{lrr} \hline \text { Sales } & \$ 2,500,000 \\\text { Cost of goods sold } & \underline {1,260,000} \\\text { Gross profit } & 1,240,000 \\\text { Selling \& administrative expenses } & \underline { 700,000} \\\text { Operating profit } & 540,000 \\\text { Interest expense } & \underline {160,000 }\\\text { Income before tax } & 380,000 \\\text { Tax expense } & \underline {152,000} \\ \text { Net income } & \underline {\$ 228,000} \\\end{array} \end{array}  Balance Sheet 2009 Cash $60,000 Accounts receivable 500,000 Inventory 300,000‾Total current assets $860,000Fixed assets 2,180,000‾ Total assets $3,040,000‾ Accounts Payable $200,000 Bank loan 460,000‾ Total current liabilities $660,000Bond payable 860,000‾ Total liabilities $1,520,000‾ Common stock ( 130,000 shares)  $120,000Retained earnings 1,400,000‾ Total liabilities & equity $3,040,000‾2008$50,000450,000270,000‾$770,0002,000,000‾$2,770,000‾$170,000440,000‾$610,000860,000‾$1,470,000‾$120,0001,300,000‾$2,890,000‾\begin{array}{c}\begin{array}{lll} \text { Balance Sheet } &2009\\\\ \text { Cash } &\$ 60,000 \\ \text { Accounts receivable } & 500,000 \\ \text { Inventory } & \underline {300,000} \\ \text {Total current assets } &\$ 860,000 \\ \text {Fixed assets } & \underline {2,180,000} \\ \text { Total assets } & \underline {\$ 3,040,000} \\\\ \text { Accounts Payable } &\$ 200,000 \\ \text { Bank loan } & \underline {460,000} \\ \text { Total current liabilities } & \$ 660,000 \\ \text {Bond payable } & \underline { 860,000} \\ \text { Total liabilities } & \underline {\$ 1,520,000 }\\ \text { Common stock ( 130,000 shares) } & \$ 120,000 \\ \text {Retained earnings } & \underline {1,400,000}\\ \text { Total liabilities \& equity } & \underline {\$ 3,040,000} \\\end{array}\begin{array}{lll}2008\\\\\$ 50,000 \\450,000 \\ \underline { 270,000 }\\ \$ 770,000 \\ \underline { 2,000,000} \\ \underline { \$ 2,770,000 }\\\\\$ 170,000 \\ \underline { 440,000} \\ \$ 610,000 \\ \underline {860,000} \\ \underline {\$ 1,470,000 }\\\$ 120,000\\ \underline {1,300,000} \\ \underline { \$ 2,890,000 } \\\end{array}\end{array} Note: The common shares are trading in the stock market for $36 each. Refer to the financial statements of Midwest Tours. The firm's average collection period for 2009 is


A) 69.35.
B) 69.73.
C) 68.53.
D) 67.77.
E) 68.52.

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The financial statements of Midwest Tours are given below.  Midwest Tours  Income Statement (2009)   Sales $2,500,000 Cost of goods sold 1,260,000‾ Gross profit 1,240,000 Selling & administrative expenses 700,000‾ Operating profit 540,000 Interest expense 160,000‾ Income before tax 380,000 Tax expense 152,000‾ Net income $228,000‾\begin{array}{c} \text { Midwest Tours } \\\text { Income Statement (2009) }\\\begin{array}{lrr} \hline \text { Sales } & \$ 2,500,000 \\\text { Cost of goods sold } & \underline {1,260,000} \\\text { Gross profit } & 1,240,000 \\\text { Selling \& administrative expenses } & \underline { 700,000} \\\text { Operating profit } & 540,000 \\\text { Interest expense } & \underline {160,000 }\\\text { Income before tax } & 380,000 \\\text { Tax expense } & \underline {152,000} \\ \text { Net income } & \underline {\$ 228,000} \\\end{array} \end{array}  Balance Sheet 2009 Cash $60,000 Accounts receivable 500,000 Inventory 300,000‾Total current assets $860,000Fixed assets 2,180,000‾ Total assets $3,040,000‾ Accounts Payable $200,000 Bank loan 460,000‾ Total current liabilities $660,000Bond payable 860,000‾ Total liabilities $1,520,000‾ Common stock ( 130,000 shares)  $120,000Retained earnings 1,400,000‾ Total liabilities & equity $3,040,000‾2008$50,000450,000270,000‾$770,0002,000,000‾$2,770,000‾$170,000440,000‾$610,000860,000‾$1,470,000‾$120,0001,300,000‾$2,890,000‾\begin{array}{c}\begin{array}{lll} \text { Balance Sheet } &2009\\\\ \text { Cash } &\$ 60,000 \\ \text { Accounts receivable } & 500,000 \\ \text { Inventory } & \underline {300,000} \\ \text {Total current assets } &\$ 860,000 \\ \text {Fixed assets } & \underline {2,180,000} \\ \text { Total assets } & \underline {\$ 3,040,000} \\\\ \text { Accounts Payable } &\$ 200,000 \\ \text { Bank loan } & \underline {460,000} \\ \text { Total current liabilities } & \$ 660,000 \\ \text {Bond payable } & \underline { 860,000} \\ \text { Total liabilities } & \underline {\$ 1,520,000 }\\ \text { Common stock ( 130,000 shares) } & \$ 120,000 \\ \text {Retained earnings } & \underline {1,400,000}\\ \text { Total liabilities \& equity } & \underline {\$ 3,040,000} \\\end{array}\begin{array}{lll}2008\\\\\$ 50,000 \\450,000 \\ \underline { 270,000 }\\ \$ 770,000 \\ \underline { 2,000,000} \\ \underline { \$ 2,770,000 }\\\\\$ 170,000 \\ \underline { 440,000} \\ \$ 610,000 \\ \underline {860,000} \\ \underline {\$ 1,470,000 }\\\$ 120,000\\ \underline {1,300,000} \\ \underline { \$ 2,890,000 } \\\end{array}\end{array} Note: The common shares are trading in the stock market for $36 each. Refer to the financial statements of Midwest Tours. The firm's fixed asset turnover ratio for 2009 is


A) 1.45.
B) 1.63.
C) 1.20.
D) 1.58.

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To create a common size balance sheet, ____________ all items on the balance sheet by ____________.


A) multiply; owners'equity
B) multiply; total assets
C) divide; owners'equity
D) divide; total assets
E) multiply; debt

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The financial statements of Snapit Company are given below.  Snapit Company  Income Statement (2009)   Sales $4,000,000 Cost of goods sold 3,040,000‾ Gross profit 960,000 Selling & administrative expenses 430,000‾ Operating profit 530,000 Interest expense 160,000‾ Income before tax 370,000 Tax expense 148,000‾ Net income $222,000‾\begin{array}{c} \text { Snapit Company } \\\text { Income Statement (2009) }\\\begin{array}{lrr} \hline \text { Sales } & \$ 4,000,000 \\\text { Cost of goods sold } & \underline {3,040,000} \\\text { Gross profit } & 960,000 \\\text { Selling \& administrative expenses } & \underline { 430,000} \\\text { Operating profit } & 530,000 \\\text { Interest expense } & \underline {160,000 }\\\text { Income before tax } & 370,000 \\\text { Tax expense } & \underline {148,000} \\ \text { Net income } & \underline {\$ 222,000} \\\end{array} \end{array}  Balance Sheet 2009 Cash $60,000 Accounts receivable 550,000 Inventory 690,000‾Total current assets $1,300,000Fixed assets 1,300,000‾ Total assets $2,600,000‾ Accounts Payable $270,000 Bank loan 580,000‾ Total current liabilities $850,000Bond payable 900,000‾ Total liabilities $1,750,000‾ Common stock ( 130,000 shares)  $2500,000Retained earnings 600,000‾ Total liabilities & equity $2,600,000‾2008$50,000500,000620,000‾$1,170,0001,230,000‾$2,400,000‾$250,000500,000‾$750,0001,000,000‾$1,750,000‾$250,000400,000‾$2,400,000‾\begin{array}{c}\begin{array}{lll} \text { Balance Sheet } &2009\\\\ \text { Cash } &\$ 60,000 \\ \text { Accounts receivable } & 550,000 \\ \text { Inventory } & \underline {690,000} \\ \text {Total current assets } &\$ 1,300,000 \\ \text {Fixed assets } & \underline {1,300,000} \\ \text { Total assets } & \underline {\$ 2,600,000} \\\\ \text { Accounts Payable } &\$ 270,000 \\ \text { Bank loan } & \underline {580,000 } \\ \text { Total current liabilities } & \$ 850,000 \\ \text {Bond payable } & \underline { 900,000} \\ \text { Total liabilities } & \underline {\$ 1,750,000 }\\ \text { Common stock ( 130,000 shares) } & \$ 2500,000 \\ \text {Retained earnings } & \underline {600,000}\\ \text { Total liabilities \& equity } & \underline {\$ 2,600,000} \\\end{array}\begin{array}{lll}2008\\\\\$ 50,000 \\500,000 \\ \underline { 620,000 }\\ \$ 1,170,000 \\ \underline { 1,230,000} \\ \underline { \$ 2,400,000 }\\\\\$ 250,000 \\ \underline { 500,000 } \\ \$ 750,000 \\ \underline {1,000,000} \\ \underline {\$ 1,750,000 }\\\$ 250,000\\ \underline {400,000} \\ \underline { \$ 2,400,000 } \\\end{array}\end{array} Note: The common shares are trading in the stock market for $100 each. Refer to the financial statements of Snapit Company. The firm's asset turnover ratio for 2009 is


A) 1.60.
B) 3.16.
C) 3.31.
D) 4.64.

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______ is a measure of what the firm would have earned if it didn't have any obligations to creditors or tax authorities.


A) Net Sales
B) Operating Income
C) Net Income
D) Non-operating Income
E) Earnings before interest and taxes

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A firm has a higher quick (or acid test) ratio than the industry average, which implies


A) the firm has a higher P/E ratio than other firms in the industry.
B) the firm is more likely to avoid insolvency in the short run than other firms in the industry.
C) the firm may be less profitable than other firms in the industry.
D) the firm has a higher P/E ratio than other firms in the industry, and the firm is more likely to avoid insolvency in the short run than other firms in the industry.
E) the firm is more likely to avoid insolvency in the short run than other firms in the industry, and the firm may be less profitable than other firms in the industry.

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__________ is a summary of the profitability of the firm over a period of time, such as a year.


A) The balance sheet
B) The income statement
C) The statement of cash flows
D) The audit report
E) None of the options are correct.

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The financial statements of Black Barn Company are given below.  Black Barn Company  Income Statement (2009)   Sales $8,000,000 Cost of goods sold 5,260,000‾ Gross profit 2,740,000 Selling & administrative expenses 1,500,000‾ Operating profit 1,240,000 Interest expense 140,000‾ Income before tax 1,100,000 Tax expense $440,000‾ Net income $660,000‾\begin{array}{c} \text { Black Barn Company } \\\text { Income Statement (2009) }\\\begin{array}{lrr} \hline \text { Sales } & \$ 8,000,000 \\\text { Cost of goods sold } & \underline {5,260,000} \\\text { Gross profit } & 2,740,000 \\\text { Selling \& administrative expenses } & \underline {1,500,000} \\\text { Operating profit } & 1,240,000 \\\text { Interest expense } & \underline {140,000 }\\\text { Income before tax } & 1,100,000 \\\text { Tax expense } & \underline {\$ 440,000} \\ \text { Net income } & \underline {\$ 660,000} \\\end{array} \end{array}  Balance Sheet 2009 Cash $200,000 Accounts receivable 1,200,000 Inventory 1,840,000‾Total current assets $3,240,000Fixed assets 3,200,000‾ Total assets $6,440,000‾ Accounts Payable $800,000 Bank loan 600,000‾ Total current liabilities $1,400,000Bond payable 900,000‾ Total liabilities $2,300,000‾ Common stock ( 130,000 shares)  $300,000Retained earnings 3,840,000‾ Total liabilities & equity $6,440,000‾2008$50,000950,0001,500,000‾$2,500,0003,000,000‾$5,500,000‾$720,000100,000‾$820,0001,000,000‾$1,820,000‾$300,0003,380,000‾$5,500,000‾\begin{array}{c}\begin{array}{lll} \text { Balance Sheet } &2009\\\\ \text { Cash } &\$ 200,000 \\ \text { Accounts receivable } & 1,200,000 \\ \text { Inventory } & \underline {1,840,000} \\ \text {Total current assets } &\$ 3,240,000 \\ \text {Fixed assets } & \underline {3,200,000} \\ \text { Total assets } & \underline {\$ 6,440,000} \\\\ \text { Accounts Payable } &\$ 800,000 \\ \text { Bank loan } & \underline {600,000} \\ \text { Total current liabilities } & \$ 1,400,000 \\ \text {Bond payable } & \underline { 900,000} \\ \text { Total liabilities } & \underline {\$ 2,300,000 }\\ \text { Common stock ( 130,000 shares) } & \$ 300,000 \\ \text {Retained earnings } & \underline {3,840,000}\\ \text { Total liabilities \& equity } & \underline {\$ 6,440,000} \\\end{array}\begin{array}{lll}2008\\\\\$ 50,000 \\ 950,000 \\ \underline { 1,500,000 }\\ \$ 2,500,000 \\ \underline { 3,000,000} \\ \underline { \$ 5,500,000 }\\\\\$ 720,000 \\ \underline { 100,000} \\ \$ 820,000 \\ \underline {1,000,000} \\ \underline {\$ 1,820,000 }\\\$ 300,000\\ \underline { 3,380,000} \\ \underline { \$ 5,500,000} \\\end{array}\end{array} Note: The common shares are trading in the stock market for $40 each. Refer to the financial statements of Black Barn Company. The firm's times interest earned ratio for 2009 is


A) 8.86.
B) 7.17.
C) 9.66.
D) 6.86.
E) None of the options are correct. $1,240,000/$140,000 = 8.86.

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An example of a liquidity ratio is


A) fixed asset turnover.
B) current ratio.
C) acid test or quick ratio.
D) fixed asset turnover and acid test or quick ratio.
E) current ratio and acid test or quick ratio.

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The financial statements of Black Barn Company are given below.  Black Barn Company  Income Statement (2009)   Sales $8,000,000 Cost of goods sold 5,260,000‾ Gross profit 2,740,000 Selling & administrative expenses 1,500,000‾ Operating profit 1,240,000 Interest expense 140,000‾ Income before tax 1,100,000 Tax expense 440,000‾ Net income $660,000‾\begin{array}{c} \text { Black Barn Company } \\\text { Income Statement (2009) }\\\begin{array}{lrr} \hline \text { Sales } & \$ 8,000,000 \\\text { Cost of goods sold } & \underline {5,260,000} \\\text { Gross profit } & 2,740,000 \\\text { Selling \& administrative expenses } & \underline {1,500,000} \\\text { Operating profit } & 1,240,000 \\\text { Interest expense } & \underline {140,000 }\\\text { Income before tax } & 1,100,000 \\\text { Tax expense } & \underline {440,000} \\ \text { Net income } & \underline {\$ 660,000} \\\end{array} \end{array}  Balance Sheet 2009 Cash $200,000 Accounts receivable 1,200,000 Inventory 1,840,000‾Total current assets $3,240,000Fixed assets 3,200,000‾ Total assets $6,440,000‾ Accounts Payable $800,000 Bank loan 600,000‾ Total current liabilities $1,400,000Bond payable 900,000‾ Total liabilities $2,300,000‾ Common stock ( 130,000 shares)  $300,000Retained earnings 3,840,000‾ Total liabilities & equity $6,440,000‾2008$50,000950,0001,500,000‾$2,500,0003,000,000‾$5,500,000‾$720,000100,000‾$820,0001,000,000‾$1,820,000‾$300,0003,380,000‾$5,500,000‾\begin{array}{c}\begin{array}{lll} \text { Balance Sheet } &2009\\\\ \text { Cash } &\$ 200,000 \\ \text { Accounts receivable } & 1,200,000 \\ \text { Inventory } & \underline {1,840,000} \\ \text {Total current assets } &\$ 3,240,000 \\ \text {Fixed assets } & \underline {3,200,000} \\ \text { Total assets } & \underline {\$ 6,440,000} \\\\ \text { Accounts Payable } &\$ 800,000 \\ \text { Bank loan } & \underline {600,000} \\ \text { Total current liabilities } & \$ 1,400,000 \\ \text {Bond payable } & \underline { 900,000} \\ \text { Total liabilities } & \underline {\$ 2,300,000 }\\ \text { Common stock ( 130,000 shares) } & \$ 300,000 \\ \text {Retained earnings } & \underline {3,840,000}\\ \text { Total liabilities \& equity } & \underline {\$ 6,440,000} \\\end{array}\begin{array}{lll}2008\\\\\$ 50,000 \\ 950,000 \\ \underline { 1,500,000 }\\ \$ 2,500,000 \\ \underline { 3,000,000} \\ \underline { \$ 5,500,000 }\\\\\$ 720,000 \\ \underline { 100,000} \\ \$ 820,000 \\ \underline {1,000,000} \\ \underline {\$ 1,820,000 }\\\$ 300,000\\ \underline { 3,380,000} \\ \underline { \$ 5,500,000} \\\end{array}\end{array} Note: The common shares are trading in the stock market for $40 each. Refer to the financial statements of Black Barn Company. The firm's market-to-book value for 2009 is


A) 1.13.
B) 1.62.
C) 1.00.
D) 1.26.

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Common size income statements make it easier to compare firms


A) that use different inventory valuation methods (FIFO vs. LIFO) .
B) in different industries.
C) with different degrees of leverage.
D) of different sizes.

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The financial statements of Snapit Company are given below.  Snapit Company  Income Statement (2009)   Sales $4,000,000 Cost of goods sold 3,040,000‾ Gross profit 960,000 Selling & administrative expenses 430,000‾ Operating profit 530,000 Interest expense 160,000‾ Income before tax 370,000 Tax expense 148,000‾ Net income $222,000‾\begin{array}{c} \text { Snapit Company } \\\text { Income Statement (2009) }\\\begin{array}{lrr} \hline \text { Sales } & \$ 4,000,000 \\\text { Cost of goods sold } & \underline {3,040,000} \\\text { Gross profit } & 960,000 \\\text { Selling \& administrative expenses } & \underline { 430,000} \\\text { Operating profit } & 530,000 \\\text { Interest expense } & \underline {160,000 }\\\text { Income before tax } & 370,000 \\\text { Tax expense } & \underline {148,000} \\ \text { Net income } & \underline {\$ 222,000} \\\end{array} \end{array}  Balance Sheet 2009 Cash $60,000 Accounts receivable 550,000 Inventory 690,000‾Total current assets $1,300,000Fixed assets 1,300,000‾ Total assets $2,600,000‾ Accounts Payable $270,000 Bank loan 580,000‾ Total current liabilities $850,000Bond payable 900,000‾ Total liabilities $1,750,000‾ Common stock ( 130,000 shares)  $2500,000Retained earnings 600,000‾ Total liabilities & equity $2,600,000‾2008$50,000500,000620,000‾$1,170,0001,230,000‾$2,400,000‾$250,000500,000‾$750,0001,000,000‾$1,750,000‾$250,000400,000‾$2,400,000‾\begin{array}{c}\begin{array}{lll} \text { Balance Sheet } &2009\\\\ \text { Cash } &\$ 60,000 \\ \text { Accounts receivable } & 550,000 \\ \text { Inventory } & \underline {690,000} \\ \text {Total current assets } &\$ 1,300,000 \\ \text {Fixed assets } & \underline {1,300,000} \\ \text { Total assets } & \underline {\$ 2,600,000} \\\\ \text { Accounts Payable } &\$ 270,000 \\ \text { Bank loan } & \underline {580,000 } \\ \text { Total current liabilities } & \$ 850,000 \\ \text {Bond payable } & \underline { 900,000} \\ \text { Total liabilities } & \underline {\$ 1,750,000 }\\ \text { Common stock ( 130,000 shares) } & \$ 2500,000 \\ \text {Retained earnings } & \underline {600,000}\\ \text { Total liabilities \& equity } & \underline {\$ 2,600,000} \\\end{array}\begin{array}{lll}2008\\\\\$ 50,000 \\500,000 \\ \underline { 620,000 }\\ \$ 1,170,000 \\ \underline { 1,230,000} \\ \underline { \$ 2,400,000 }\\\\\$ 250,000 \\ \underline { 500,000 } \\ \$ 750,000 \\ \underline {1,000,000} \\ \underline {\$ 1,750,000 }\\\$ 250,000\\ \underline {400,000} \\ \underline { \$ 2,400,000 } \\\end{array}\end{array} Note: The common shares are trading in the stock market for $100 each. Refer to the financial statements of Snapit Company. The firm's inventory turnover ratio for 2009 is


A) 4.64.
B) 4.16.
C) 4.41.
D) 4.87.
E) None of the options are correct.

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The financial statements of Snapit Company are given below.  Snapit Company  Income Statement (2009)   Sales $4,000,000 Cost of goods sold 3,040,000‾ Gross profit 960,000 Selling & administrative expenses 430,000‾ Operating profit 530,000 Interest expense 160,000‾ Income before tax 370,000 Tax expense 148,000‾ Net income $222,000‾\begin{array}{c} \text { Snapit Company } \\\text { Income Statement (2009) }\\\begin{array}{lrr} \hline \text { Sales } & \$ 4,000,000 \\\text { Cost of goods sold } & \underline {3,040,000} \\\text { Gross profit } & 960,000 \\\text { Selling \& administrative expenses } & \underline { 430,000} \\\text { Operating profit } & 530,000 \\\text { Interest expense } & \underline {160,000 }\\\text { Income before tax } & 370,000 \\\text { Tax expense } & \underline {148,000} \\ \text { Net income } & \underline {\$ 222,000} \\\end{array} \end{array}  Balance Sheet 2009 Cash $60,000 Accounts receivable 550,000 Inventory 690,000‾Total current assets $1,300,000Fixed assets 1,300,000‾ Total assets $2,600,000‾ Accounts Payable $270,000 Bank loan 580,000‾ Total current liabilities $850,000Bond payable 900,000‾ Total liabilities $1,750,000‾ Common stock ( 130,000 shares)  $2500,000Retained earnings 600,000‾ Total liabilities & equity $2,600,000‾2008$50,000500,000620,000‾$1,170,0001,230,000‾$2,400,000‾$250,000500,000‾$750,0001,000,000‾$1,750,000‾$250,000400,000‾$2,400,000‾\begin{array}{c}\begin{array}{lll} \text { Balance Sheet } &2009\\\\ \text { Cash } &\$ 60,000 \\ \text { Accounts receivable } & 550,000 \\ \text { Inventory } & \underline {690,000} \\ \text {Total current assets } &\$ 1,300,000 \\ \text {Fixed assets } & \underline {1,300,000} \\ \text { Total assets } & \underline {\$ 2,600,000} \\\\ \text { Accounts Payable } &\$ 270,000 \\ \text { Bank loan } & \underline {580,000 } \\ \text { Total current liabilities } & \$ 850,000 \\ \text {Bond payable } & \underline { 900,000} \\ \text { Total liabilities } & \underline {\$ 1,750,000 }\\ \text { Common stock ( 130,000 shares) } & \$ 2500,000 \\ \text {Retained earnings } & \underline {600,000}\\ \text { Total liabilities \& equity } & \underline {\$ 2,600,000} \\\end{array}\begin{array}{lll}2008\\\\\$ 50,000 \\500,000 \\ \underline { 620,000 }\\ \$ 1,170,000 \\ \underline { 1,230,000} \\ \underline { \$ 2,400,000 }\\\\\$ 250,000 \\ \underline { 500,000 } \\ \$ 750,000 \\ \underline {1,000,000} \\ \underline {\$ 1,750,000 }\\\$ 250,000\\ \underline {400,000} \\ \underline { \$ 2,400,000 } \\\end{array}\end{array} Note: The common shares are trading in the stock market for $100 each. Refer to the financial statements of Snapit Company. The firm's leverage ratio for 2009 is


A) 2.25.
B) 3.53.
C) 2.61.
D) 3.06.
E) None of the options are correct.

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A firm's current ratio is above the industry average. However, the firm's quick ratio is below the industry average. These ratios suggest that the firm


A) has relatively more total current assets and even more inventory than other firms in the industry.
B) is very efficient at managing inventories.
C) has liquidity that is superior to the average firm in the industry.
D) is near technical insolvency.

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The financial statements of Midwest Tours are given below.  Midwest Tours Income Statement (2009)   Sales $2,500,000 Cost of goods sold 1,260,000‾ Gross profit 1,240,000 Selling & administrative expenses 700,000‾ Operating profit 540,000 Interest expense 160,000‾ Income before tax 380,000 Tax expense 152,000‾ Net income $228,000‾\begin{array}{c}\text { Midwest Tours} \\\text { Income Statement (2009) }\\\begin{array}{lrr} \hline \text { Sales } & \$ 2,500,000 \\\text { Cost of goods sold } & \underline {1,260,000} \\\text { Gross profit } & 1,240,000 \\\text { Selling \& administrative expenses } & \underline { 700,000} \\\text { Operating profit } & 540,000 \\\text { Interest expense } & \underline {160,000 }\\\text { Income before tax } & 380,000 \\\text { Tax expense } & \underline {152,000} \\ \text { Net income } & \underline {\$ 228,000} \\\end{array} \end{array}  Balance Sheet 2009 Cash $60,000 Accounts receivable 500,000 Inventory 300,000‾Total current assets $860,000Fixed assets 2,180,000‾ Total assets $3,040,000‾ Accounts Payable $200,000 Bank loan 460,000‾ Total current liabilities $660,000Bond payable 860,000‾ Total liabilities $1,520,000‾ Common stock ( 130,000 shares)  $120,000Retained earnings 1,400,000‾ Total liabilities & equity $3,040,000‾2008$50,000450,000270,000‾$770,0002,000,000‾$2,770,000‾$170,000440,000‾$610,000860,000‾$1,470,000$120,0001,300,000‾$2,890,000‾\begin{array}{c}\begin{array}{lll} \text { Balance Sheet } &2009\\\\ \text { Cash } &\$ 60,000 \\ \text { Accounts receivable } & 500,000 \\ \text { Inventory } & \underline {300,000} \\ \text {Total current assets } &\$ 860,000 \\ \text {Fixed assets } & \underline {2,180,000} \\ \text { Total assets } & \underline {\$ 3,040,000} \\\\ \text { Accounts Payable } &\$ 200,000 \\ \text { Bank loan } & \underline {460,000} \\ \text { Total current liabilities } & \$ 660,000 \\ \text {Bond payable } & \underline { 860,000} \\ \text { Total liabilities } & \underline {\$ 1,520,000 }\\ \text { Common stock ( 130,000 shares) } & \$ 120,000 \\ \text {Retained earnings } & \underline {1,400,000}\\ \text { Total liabilities \& equity } & \underline {\$ 3,040,000} \\\end{array}\begin{array}{lll}2008\\\\\$50,000 \\450,000 \\\underline { 270,000} \\\$ 770,000 \\\underline { 2,000,000} \\\underline { \$ 2,770,000} \\\\\$170,000 \\\underline { 440,000} \\\$ 610,000 \\\underline { 860,000} \\\$ 1,470,000 \\\$ 120,000 \\\underline { 1,300,000 }\\\underline { \$ 2,890,000} \\\end{array}\end{array} Note: The common shares are trading in the stock market for $36 each. Refer to the financial statements of Midwest Tours. The firm's market-to-book value for 2009 is


A) 0.24.
B) 0.95.
C) 0.71.
D) 1.12.

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A firm has an ROE of 2%, a debt/equity ratio of 1.0, a tax rate of 0%, and an interest rate on debt of 10%. The firm's ROA is


A) 2%.
B) 4%.
C) 6%.
D) 8%.
E) None of the options are correct.

Correct Answer

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