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5/19/2018
Chapter 3 - Fundamentals of Corporate Finance 9th Edition - Test Bank - slidepdf...
42. The Du Pont identity can be used to help managers answer which of the following questions related to a
firm's operations?
I. How many sales dollars has the firm generated per each dollar of assets?
II. How many dollars of assets has a firm acquired per each dollar in shareholders' equity?
III. How much net profit is a firm generating per dollar of sales?
IV. Does the firm have the ability to meet its debt obligations in a timely manner?A. I and III only
B. II and IV only
C. I, II, and III onlyD. II, III and IV only
E. I, II, III, and IV
43. A firm currently has $600 in debt for every $1,000 in equity. Assume the firm uses some of its cash to
decrease its debt while maintaining its current equity and net income. Which one of the following will
decrease as a result of this action?
A. equity multiplier
B. total asset turnover
C. profit margin
D. return on assets
E. return on equity
44. Which one of the following statements is correct?
A. Book values should always be given precedence over market values.
B. Financial statements are frequently used as the basis for performance evaluations.
C. Historical information provides no value to someone who is predicting future performance.
D. Potential lenders place little value on financial statement information.
E. Reviewing financial information over time has very limited value.
45. It is easier to evaluate a firm using financial statements when the firm: A. is a conglomerate.
B. has recently merged with its largest competitor.
C. uses the same accounting procedures as other firms in the industry.
D. has a different fiscal year than other firms in the industry.
E. tends to have many one-time events such as asset sales and property acquisitions.
46. The most acceptable method of evaluating the financial statements of a firm is to compare the firm's current:
A. financial ratios to the firm's historical ratios.
B. financial statements to the financial statements of similar firms operating in other
C. countries.
D. financial ratios to the average ratios of all firms located within the same geographic area.
E. financial statements to those of larger firms in unrelated industries.
F. financial statements to the projections that were created based on Tobin's Q.
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47. Which of the following represent problems encountered when comparing the financial statements of two
separate entities?
I. Either one, or both, of the firms may be conglomerates and thus have unrelated lines of business.
II. The operations of the two firms may vary geographically.
III. The firms may use differing accounting methods.
IV. The two firms may be seasonal in nature and have different fiscal year ends.A. I and II only
B. II and III only
C. I, III, and IV only
D. I, II, and III only
E. I, II, III, and IV
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