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Date Posted: 13:51:15 02/04/00 Fri
Author: Charles Hodges
Subject: A sample quiz with questions from Chapter 3

Note, some of these questions require knowledge from chapters 2 also.


Quiz XX BA 8622 Fall 1999 NAME ________________________


4. (Fill in the blanks) Finance would suggest that ____________(Historical/Future) ______________ (Earnings/Cash Flows) are most important when valuing any investment.

5. From the book, what are five limitations of ratio analysis?


6. Common-size statements express each balance sheet item as a percentage of Total Assets.
A. True B. False


7. Items which have been sold and are recorded on the income statement as revenue, but for which cash has not yet been collected, are listed on the balance sheet as;
a. Inventory. b. Accounts Receivable.
c. Uncollected Sales. d. Accounts Payable. e. None of the above.

8. Indicate how the following ratios compare to industry averages. Interpret the ratio in relation to the category in which they would be classified (i.e., better than average, worse than average).
AA Company Industry Interpretation
Quick ratio 3.1 42
Price/Earnings 19 17
Days Sales Outstanding 37.5 33.9
Fixed Asset Turnover 5.7 12.8

PART II. PROBLEMS
9. The balance sheet for the Tim-Tow Company for 1998 is shown below. Sales in 1998 were $90,000 and the firm's net profit margin was (and is projected to continue to be in the future) 7 percent.
The Tim-Tow Company Balance Sheet - Dec. 31, 1998
Cash $ 10,000 Current liabilities $ 60,000
Accounts receivable 30,000 Long-term debt 50,000
Inventory 50,000 Common stock ($.50 par value) 60,000
Net Plant & Equipment 120,000 Retained earnings 40,000
Total Assets $210,000 Total liab. & Equity $210,000

a. What were earnings per share for Tim-Tow in 1998?


b. Retained earnings reported on Tim-Tow's December 31, 1997 balance sheet were $18,300. Given this information, what was Tim-Tow's 1996 dividends per share?


c. If the firm switched to a “just-in-time” inventory system to reduce inventories, and other operations were unaffected, what would most likely happen to the Current Ratio?


d. What is the current ratio?



e. What is the Inventory turnover ratio?



f. What is the debt ratio.



g. If accounts receivable was $10,000 last year, was this a source or use of funds, and where would this be recorded in the statement of cash flows?

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