Scribd
Upload
114 views2 pages

Finman 6 Answers

Uploaded by

pompom
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
114 views2 pages

Finman 6 Answers

Uploaded by

pompom
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 2

Ratio analysis Answer: d Diff: T 33.

You have collected the following information regarding


Companies C and D:

 The two companies have the same total assets.


 The two companies have the same operating income (EBIT).
 The two companies have the same tax rate.
 Company C has a higher debt ratio and interest expense than Company D. 
Company C has a lower profit margin than Company D.

On the basis of this information, which of the following statements is most


correct?

a. Company C must have a higher level of sales.


b. Company C must have a lower ROE.
c. Company C must have a higher times interest earned (TIE) ratio.
d. Company C must have a lower ROA.
e. Company C must have a higher basic earning power (BEP) ratio.

Ratio analysis Answer: d Diff: T


34. An analyst has obtained the following information regarding two companies,
Company X and Company Y:

 Company X and Company Y have the same total assets.


 Company X has a higher interest expense than Company Y.
 Company X has a lower operating income (EBIT) than Company Y. 
Company X and Company Y have the same return on equity (ROE).  Company
X and Company Y have the same total assets turnover (TATO).  Company X
and Company Y have the same tax rate.

On the basis of this information, which of the following statements is most


correct?

a. Company X has a higher times interest earned (TIE) ratio.


b. Company X and Company Y have the same debt ratio.
c. Company X has a higher return on assets (ROA).
d. Company X has a lower profit margin.
e. Company X has a higher basic earning power (BEP) ratio.

Ratio analysis and Du Pont equation Answer: d Diff: T


35. Lancaster Co. and York Co. both have the same return on assets (ROA).
However, Lancaster has a higher total assets turnover and a higher equity
multiplier than York. Which of the following statements is most correct?

a. Lancaster has a lower profit margin than York.


b. Lancaster has a lower debt ratio than York.
c. Lancaster has a higher return on equity (ROE) than York.
d. Statements a and c are correct.
e. All of the statements above are correct.

Chapter 3 - Page 10
Leverage and financial ratios Answer: d Diff: T
36. Blair Company has $5 million in total assets. The company’s assets are
financed with $1 million of debt and $4 million of common equity. The
company’s income statement is summarized below:

Operating income (EBIT) $1,000,000


Interest 100,000
Earnings before taxes (EBT) $ 900,000
Taxes (40%) 360,000
Net income $ 540,000

The company wants to increase its assets by $1 million, and it plans to


finance this increase by issuing $1 million in new debt. This action will
double the company’s interest expense but its operating income will remain
at 20 percent of its total assets, and its average tax rate will remain at
40 percent. If the company takes this action, which of the following will
occur:

a. The company’s net income will increase.


b. The company’s return on assets will fall.
c. The company’s return on equity will remain the same.
d. Statements a and b are correct.
e. All of the statements above are correct.

Miscellaneous ratios Answer: c Diff: T

You might also like