50. The process by which management allocates available investment funds among competing capital investment proposals is termed capital rationing. a. true b. false Q51. The computations involved in the net present value method of analyzing capital investment proposals are more involved than those for the average rate of return method. a. true b. false Q52. The process by which management plans, evaluates, and controls long- term investment decisions involving fixed assets is called cost-volume-profit analysis. a. true b. false Q53. Which of the following can be used to place capital investment proposals involving different amounts of investment on a comparable basis for purposes of net present value analysis? a. Price-level index b. Present value factor c. Annuity d. Present value index Q54. An analysis of a proposal by the net present value method indicated that the present value exceeded the amount to be invested. Which of the following statements best describes the results of this analysis? a. The proposal is desirable and the rate of return expected from the proposal exceeds the minimum rate used for the analysis. b. The proposal is desirable and the rate of return expected from the proposal is less than the minimum rate used for the analysis. c. The proposal is undesirable and the rate of return expected from the proposal is less than the minimum rate used for the analysis. d. The proposal is undesirable and the rate of return expected from the proposal exceeds the minimum rate used for the analysis. Q55. In capital rationing, an initial screening of alternative proposals is usually performed by establishing minimum standards. Which of the following evaluation methods are normally used? a. Cash payback method and average rate of return method b. Average rate of return method and net present value method c. Net present value method and cash payback method d. Internal rate of return and net present value methods Q56. The process by which management plans, evaluates, and controls long-term investment decisions involving fixed assets is called a. absorption cost analysis. b. variable cost analysis. c. capital investment analysis. d. cost-volume-profit analysis. Q57. A qualitative characteristic that may impact upon capital investment analysis is manufacturing productivity. a. true b. false Q58. When several alternative investment proposals of the same amount are being considered, the one with the largest net present value is the most desirable. If the alternative proposals involve different amounts of investment, it is useful to prepare a relative ranking of the proposals by using a(n) a. average rate of return. b. consumer price index. c. present value index. d. price-level index. Q59. Which of the following are present value methods of analyzing capital investment proposals? a. Internal rate of return and average rate of return b. Average rate of return and net present value c. Net present value and internal rate of return d. Net present value and payback Q60. The process by which management plans, evaluates, and controls long-term investment decisions involving fixed assets is called capital investment analysis. a. true b. false Q61. The anticipated purchase of a fixed asset for $400,000 with a useful life of 5 years and no residual value is expected to yield total income of $150,000. The expected average rate of return, giving effect to depreciation on investment, is 15%. a. true b. false Q62. Which method of evaluating capital investment proposals uses present value concepts to compute the rate of return from the net cash flows expected from capital investment proposals? a. Internal rate of return b. Cash payback c. Net present value d. Average rate of return Q63. An anticipated purchase of equipment for $1,200,000, with a useful life of 8 years and no residual value, is expected to yield the following annual net incomes and net cash flows: Year Net Income Net Cash Flow 1 $180,000 $330,000 2 150,000 300,000 3 150,000 250,000 4 120,000 220,000 5 80,000 100,000 6 80,000 100,000 7 80,000 100,000 8 80,000 100,000 What is the cash payback period? a. 5 years b. 4 years c. 6 years d. 3 years Q64. Periods in time that experience increasing price levels are known as periods of a. inflation. b. recession. c. depression. d. deflation. Q65. The excess of the cash flowing in from revenues over the cash flowing out for expenses is termed net cash flow. a. true b. false Q66. When evaluating a proposal by use of the net present value method, if there is a deficiency of the present value of future cash inflows over the amount to be invested, the proposal should be accepted. a. true b. false Q67. The internal rate of return method of analyzing capital investment proposals uses the present value concept to compute an internal rate of return expected from the proposals. a. true b. false Q68. If a firm has an quick ratio of 1, the subsequent payment of an account payable will cause the ratio to increase. a. true b. false Q69. Based on the following data, what is the quick ratio, rounded to one decimal place? Accounts payable $ 32,000 Accounts receivable 64,000 Accrued liabilities 7,000 Cash 20,000 Intangible assets 40,000 Inventory 72,000 Long-term investments 100,000 Long-term liabilities 75,000 Marketable securities 35,000 Notes payable (short-term) 25,000 Property, plant, and equipment 625,000 Prepaid expenses 2,000 a. 3.2 b. 2.1 c. 1.9 d. 1.4 Q70. The terms acid-test ratio and quick ratio refer to the same ratio--the instant debt-paying ability of a company. a. true b. false Q71. The ability of a business to earn a reasonable amount of income is referred to as the factor of a. leverage. b. profitability. c. wealth. d. solvency. Q72. The excess of current liabilities over current assets is referred to as working capital. a. true b. false Q73. The ratio of the sum of cash, receivables, and marketable securities to current liabilities is called the a. price-earnings ratio. b. earnings ratio. c. quick ratio. d. current ratio. Q74. Based on the following data for the current year, what is the inventory turnover? Net sales on account during year $ 500,000 Cost of merchandise sold during year 300,000 Accounts receivable, beginning of year 45,000 Accounts receivable, end of year 35,000 Inventory, beginning of year 90,000 Inventory, end of year 110,000 a. 3.0 b. 2.7 c. 4.0 d. 3.3 Q75. Interpreting financial analysis should be considered in light of conditions peculiar to the industry and the general economic conditions. a. true b. false Q76. The purpose of an audit is to a. determine whether or not a company is a good investment. b. render an opinion on the fairness of the statements. c. determine whether or not a company complies with income tax regulations. d. determine whether or not a company is a good credit risk. Q77. The rate earned on total assets is one of the measures of profitability. a. true b. false Q78. An acceleration in the collection of receivables will tend to cause the accounts receivable turnover to a. decrease. b. remain the same. c. either increase or decrease. d. increase. Q79. Which of the following is a measure of the liquid position of a corporation? a. Earnings per share b. Inventory turnover c. Current ratio d. Number of times interest charges earned Q80. Statements in which all items are expressed in relative terms are called common-size statements. a. true b. false Q81. The percentage analysis of increases and decreases in corresponding items in comparative financial statements is referred to as vertical analysis. a. true b. false Q82. Based on the following data, what is the amount of working capital? Accounts payable $ 32,000 Accounts receivable 64,000 Accrued liabilities 7,000 Cash 20,000 Intangible assets 40,000 Inventory 72,000 Long-term investments 100,000 Long-term liabilities 75,000 Marketable securities 35,000 Notes payable (short-term) 20,000 Property, plant, and equipment 625,000 Prepaid expenses 2,000 a. $190,000 b. $134,000 c. $118,000 d. $62,000 Q83. The ratio of current assets to current liabilities is referred to as the acid-test ratio. a. true b. false Q84. The following information is available for Morgan Corp.: 2010 Market price per share of common stock $25.00 Earnings per share on common stock 1.25 Which of the following statements is correct? a. The price-earnings ratio is 20 and a share of common stock was selling for 20 times the amount of earnings per share at the end of 2010. b. The price-earnings ratio is 5.0% and a share of common stock was selling for 5.0% more than the amount of earnings per share at the end of 2010. c. The price-earnings ratio is 10 and a share of common stock was selling for 125 times the amount of earnings per share at the end of 2010. d. The market price per share and the earnings per share are not statistically related to each other. Q85. The ability of a business to pay its debts as they come due and to earn a reasonable amount of income is referred to as a. solvency and leverage. b. solvency and profitability. c. solvency and liquidity. d. solvency and equity. Q86. Assuming that the quantities of inventory on hand during the current year were sufficient to meet all demands for sales, a decrease in the inventory turnover for the current year when compared with the turnover for the preceding year indicates an improvement in the management of inventory. a. true b. false Q87. Based on the following data for the current year, what is the accounts receivable turnover? Net sales on account during year $ 500,000 Cost of merchandise sold during year 300,000 Accounts receivable, beginning of year 45,000 Accounts receivable, end of year 35,000 Inventory, beginning of year 90,000 Inventory, end of year 110,000 a. 12.5 b. 14.3 c. 11.1 d. 7.5 Q88. If the current credit terms are 2/10, n/30 for Jones Inc., an accounts receivable turnover of 3 for the current year would be considered normal. a. true b. false Q89. Working capital is another term for the current ratio. a. true b. false Q90. The comparison of the financial data of a single company for two or more years is called horizontal analysis. a. true b. false Q91. In computing the rate earned on total assets, interest expense is added to net income before dividing by average total assets. a. true b. false Q92. Based on the following data for the current year, what is the inventory turnover? Net sales on account during year $ 517,500 Cost of merchandise sold during year 450,000 Accounts receivable, beginning of year 50,000 Accounts receivable, end of year 40,000 Inventory, beginning of year 110,000 Inventory, end of year 140,000 a. 7.2 b. 3.6 c. 3.2 d. 4.2 Q93. Profitability refers to the ability of the business to a. earn a reasonable amount of income. b. provide owners with dividends. c. pay its current and noncurrent liabilities. d. manage its accounts receivable and inventory. Q94. Based on the following data, what is the amount of quick assets? Accounts payable $ 32,000 Accounts receivable 56,000 Accrued liabilities 7,000 Cash 20,000 Intangible assets 40,000 Inventory 72,000 Long-term investments 100,000 Long-term liabilities 75,000 Marketable securities 40,000 Notes payable (short-term) 20,000 Property, plant, and equipment 625,000 Supplies 2,000 a. $228,000 b. $188,000 c. $116,000 d. $114,000 Q95. Balance sheet and income statement data indicate the following: Bonds payable, 12% (issued 1998, due 2022) $1,000,000 Preferred 5% stock, $100 par (no change during year) 300,000 Common stock, $50 par (no change during year) 2,000,000 Income before income tax for year 300,000 Income tax for year 80,000 Common dividends paid 50,000 Preferred dividends paid 15,000 Based on the data presented above, what is the number of times interest charges were earned (rounded to one decimal place)? a. 3.5 b. 2.2 c. 4.0 d. The answer cannot be determined. Q96. If the accounts receivable turnover for the current year has decreased when compared with the ratio for the preceding year, there has been an acceleration in the collection of receivables. a. true b. false Q97. The percent of fixed assets to total assets is an example of a. vertical analysis. b. solvency analysis. c. profitability analysis. d. horizontal analysis. Q98. The relationship of each asset item as a percent of total assets is an example of horizontal analysis. a. true b. false Q99. Solvency analysis focuses on the ability of a business to make a profit. a. true b. false Q100. The ratio of the market price per share of common stock on a specific date to the annual earnings per share is referred to as the price-earnings ratio. a. true b. false