11 Which of the following statements about inventory turnover is false?

A. Inventory turnover is a gauge of the liquidity of a firm's inventory.

B. Inventory turnover is calculated with cost of goods sold in the numerator.

C. Inventory turnover measures the efficiency of the firm in managing and selling inventory.

D.A low inventory turnover is generally a sign of efficient inventory management.

12 What will typically occur with an increase in annual sales?

A. Increases in cost of goods sold and selling, general & administrative expenses.

B. Increases in the effective and statutory tax rate.

C. Decreases in accrued expenses and prepaid assets.

D. Increases in cost of goods sold and interest expense.

13 Which of the following observations is CORRECT for DCF valuations?

A. Decreased cash flows and a decreased discount rate will create greater value.

B. Increased cash flows and decreased discount rate will create greater value.

C. Decreased cash flows and an increased discount rate will create greater value.

D. Increased cash flows and an increased discount rate will create greater value.

14 If a company wishes to minimize taxes it pays, it will:

A. Delay the recognition of revenue

B. None of the above

C. Both of the above

D. Speed up the recognition of expenses

15 While determining the most profitable company from the given number of companies, which of the following would be the best indicator of relative profitability?

A. Highest current ratio

B. Highest retained earnings

C. Highest operating profit margin

D. Highest net income

16 You are planning to create DCF analysis using Unlevered Free Cash Flow and the Multiples Method for Terminal Value. You also have a 5-year 3-statement projection model for the company you're analyzing. Aside from the appropriate discount rate, you have all of the financial information necessary to complete DCF analysis.

True

False

17 Which of the following is not a component of shareholders' equity?

A Common Stock

B. All answers listed in this question are components of shareholders' equity

C. Non-controlling Interest

D. Retained Earnings

E. Preferred Stock

F. Accumulated Other Comprehensive Income

18 You're linking Inventory to Cost of Goods Sold (COGS) in order to project it over a 5-year period. Over the past 3 historical years, Inventory as a percentage of COGS was 10% on average. What does that mean?

A.10% is far too low, so you should project Inventory in a different way and not link it to COGS.

B. It means that, on average, the company goes through its Inventory balance and sells off all its Inventory 10 times per year.

C. It means that your calculations are off, because Inventory on the Balance Sheet should always exceed COGS.

D. You can't say anything definitive without more detailed information.

19 Which of the following is not true?

A. Net income reported on the income statement is linked to the statement of retained earnings, which in turn is linked to the balance sheet.

B. Understanding how the financial statements articulate, helps us to analyze transactions and events and to understand how events affect each financial statement separately and all four together.

C. The Statement of Cash Flows needs to be completed first, in order for the other financials to be linked.

D. Articulation refers to the fact that the four financial statements are linked to each other and that changes in one statement affect the other three.

20 What does an increasing collection period for accounts receivable suggest about a firm's credit policy?

A. The credit policy may be too lenient.

B. The credit policy is too restrictive.

C. Nothing, because the collection period has no relationship to a firm's credit policy.

D. The firm is probably losing qualified customers.

21 When calculating a company's cost of capital, you find that the company has Preferred Stock. Should Preferred Stock be treated like equity (no tax effect) or debt (multiplied by (1 - Tax Rate)) in the WACC calculation?

A. It should be treated like debt, just like it is in the Enterprise Value calculation, because Preferred Stock has required dividends just like Debt has required interest payments.

B. It should be treated like debt because Preferred Stock is above common stock in the capital structure "hierarchy."

C. It depends on whether you are calculating Levered FCF or Unlevered FCF.

D. It should be treated like equity because Preferred Stock Dividends are not tax-deductible.

22 What part of an income statement is the firm's profit from core businesses?

A. Income after interest but before taxes

B. Gross profit

C. Operating profit

D. Net income