a) roa is higher than roe because of leverage; b) roa is lower than roe because of leverage; c) roa is the same as roe; d) they are both related to the return on sales; e) none of the above. Question 8: Minden Co has sales of $500,000, operating profit of $50,000, interest expense of $10,000, tax expense of $20,000, total equity of $125,000 and total debt of $275,000. Their debt to assets ratio is: a) 50.00%; b) 65.00%; c) 68.75%; d) 220.00%; e) none of the above. Question 9: Minden Co has sales of $500,000, operating profit of $50,000, interest expense of $10,000, tax expense of $20,000, total equity of $125,000 and total debt of $275,000. On the basis of the debt to equity ratio, Minden would be considered to have: a) too much debt, making it a risky company to invest in; b) just enough debt; c) too little debt, making it a risky company to invest in; d) too little debt, making it a low profitability investment; e) none of the above. Question 10: Minden Co has sales of $500,000, operating profit of $50,000, interest expense of $10,000, tax expense of $20,000, total equity of $125,000 and total debt of $275,000. The debt carries interest @ 5% per annum. The interest cover ratio is: a) 5x; b) 3X; c) 2x; d) 1.5x; e) none of the above. Question 11: Minden Co has current assets of $180,000 (cash: $20,000, accounts receivable: $70,000, inventory: $90,000 ), and long-term assets that had cost $400,000, with accumulated depreciation to date of $180,000. Sales were $500,000, and operating profit was $50,000. Tax was $20,000 and interest paid was $10,000. Their receivables turnover ratio was: a) 10.2x; b) 9.4x; c) 7.1X; Scanned with CamScanner Question 6: Retum on assets is defined as: a) operating income divided by owners' equity; b) operating income divided by sales; c) operating income divided by total assets; d) operating income divided by long-term assets plus debt; e) none of the above. Question 7: Net income divided by shareholders' equity is the definition of: a) retum on sales; b) retum on assets; c) retum on equity; d) asset tumover; e) none of the above. Question 8: The debt to equity ratio measures; a) the likelihood of the company going bankrupt in the short term; b) the efficiency of the company; c) the relative proportions of debt and equity in the capital structure; d) liquidity; e) none of the above. Question 9: The interest cover ratio measures: a) the leverage of the company; b) the efficiency of debt; c) the weighted average cost of capital; d) the relationship between interest and profit; e) none of the above. Question 10: Total asset turnover, receivables turnover and inventory tumover ratios measure: a) liquidity; b) profitability; c) efficiency; d) debt; e) market related factors. Question 11: The receivables turnover ratio is defined as: a) sales divided by receivables; b) receivables divided by sales; c) receivables divided by one days' sales; Part 1: Theory \& Definitions: (Each Question worth 2 pointsCircle the correct answer- No Computation Required.) Question 1: Five areas that financial ratios concentrate on are: a) liquidity, profitability, debt, efficiency, market related; b) profitability, strategy, liquidity, auditing, share prices; c) liquidity, current ratio, quick ratio, interest cover, dividend cover; d) market related, share prices, dividend policy, debt policy, strategy; e) none of the above. Question 2: Ratios that measure the ability of the company to pay its short-term debts are called: a) debt ratios; b) cover ratios; c) liquidity ratios; d) profitability ratios; e) none of the above. Question 3: Current assets divided by current liabilities is the definition of the: a) interest cover ratio; b) dividend cover ratio; c) quick ratio; d) current ratio; e) none of the above. Question 4: The quick ratio is defined as: a) current assets divided by current liabilities; b) current assets divided by total debt; c) current assets less inventory, divided by total liabilities; d) current assets less inventory, divided by current liabilities; e) none of the above. Question 5: Retum on sales, retum on assets and retum on equity are examples of: a) liquidity ratios; b) profitability ratios; c) debt ratios; d) efficiency ratios; e) market-related ratios. d) receivables plus bad debt allowances. e) none of the above. Question 12: To measure the efficiency with which inventory is used the following ratio should be used: a) inventory turnover ratio; b) inventory holding period; c) lower of cost or market valuation of inventory; d) a or b, but not c; e) a,b or c. Question 13: Earnings per share is affected by: a) net income; b) number of shares; c) dividends; d) a \& b, but not c; e) a, b \& c. Question 14: The price to earnings ratio measures: a) the rationality of the stock market; b) the liquidity of the company; c) the public's perception of the company; d) the ethics of the company; e) none of the above. Question 15: The dividend cover ratio is defined as: a) dividend divided by net income; b) dividend less interest paid and taxes; c) operating income divided by dividend; d) net income divided by dividend; e) none of the above. Part-2 [70 points]: Applications: (Each Question worth 5 points. Show your computation) Question 1: Minden Co has current assets that consist of cash: $20,000, receivables: $70,000 and inventory: $90,000. Current liabilities are $75,000. The current ratio is: a) 2.4:1; b) 2.2:1; c) 2.0:1; d) 1.8:1: e) none of the above. Question 2: Minden Co has currert ass'in that cr.ssist of cash: $20,000, receivables: d) 5.6x; e) none of the above. Question 12: Minden Co has current assets of $180,000 (cash: $20,000, accounts receivable: $70,000, inventory: $90,000 ), and long-term assets that had cost $400,000, with accumulated depreciation to date of $180,000. Sales were $500,000, and operating profit was $50,000. Tax was $20,000 and interest paid was $10,000. Their inventory holding period (to the nearest day) was: a) 66 days; b) 51 days; c) 46 days; d) 32 days; e) none of the above. Question 13: Minden Co has current assets of $180,000 (cash: $20,000, accounts receivable: $70,000, inventory: $90,000 ), and long-term assets that had cost $400,000, with accumulated depreciation to date of $180,000. Sales were $500,000, and operating profit was $50,000. Tax was $20,000 and interest paid was $10,000. a dividend of $10,000 was paid to the common shareholders. There are 1,000 shares in issue. Their earnings per share are: a) \$1: b) $2; c) $10; d) $20; e) none of the above. Question 14: Minden Co has current assets of $180,000 (cash: $20,000, accounts receivable: $70,000, inventory: $90,000 ), and long-term assets that had cost $400,000, with accumulated depreciation to date of $180,000. Sales were $500,000, and operating profit was $50,000. Tax was $20,000 and interest paid was $10,000. a dividend of $10,000 was paid to the common shareholders. There are 1,000 shares in issue, and the share price is $240 per share. The price to eamings ratio is: a) 24x; b) 12x; c) 10x; d) 8x; e) none of the above. Good Luck! Page 1 of 1 cS Scanned with CamScanner $70,000 and inventory: $90,000. Current liabilities are $75,000. The quick ratio is: a) 1.7:1: b) 1.2:1: c) 1.0:1; d) 0.8:1 e) none of the above. Question 3: Minden Co has current assets that consist of cash: $20,000, receivables: $70,000 and inventory: $90,000. Current liabilities are $75,000. On the basis of the current ratio and the quick ratio, Minden Co0 is: a) highly illiquid; b) somewhat illiquid; c) adequately liquid; d) excessively liquid; e) none of the above. Question 4: Minden Co has sales of $500,000, operating profit of $50,000, interest expense of $10,000, tax expense of $20,000, total equity of $125,000 and total debt of $275,000. Their retum on sales is: a) 8.0%; b) 10.0%; c) 12.5%; d) 16.0%; e) 20.0%. Question 5: Minden Co has sales of $500,000, operating profit of $50,000, interest expense of $10,000, tax expense of $20,000, total equity of $125,000 and total debt of $275,000. Their return on assets is: a) 8.0%; b) 10.0%; c) 12.5%; d) 16.0%; e) 20.0%. Question 6: Minden Co has sales of $500,000, operating profit of $50,000, interest expense of $10,000, tax expense of $20,000, total equity of $125,000 and total debt of $275,000. Their return on equity is: a) 8.0%; b) 10.0%; c) 12.5%; d) 16.0%; e) 20.0%. Question 7: Minden Co has sales of $500,000, operating profit of $50,000, interest expense of $10,000, tax expense of $20,000, total equity of $125,000 and total debt of $275,000. Their return on equity in comparison to their return on assets is