1. If a firm's current ratio is 1.5, then ____.
a. its current assets equal its current liabilities
b. its current liabilities exceed its current assets
c. it is possible for its quick ratio to be 1.0
d. it is possible for its quick ratio to be 2.0
2. A DFL (degree of financial leverage) of 3.0 indicates a 27% increase in EPS is the result of a(n) ____ increase in EBIT.
a. 6%
b. 81%
c. 3%
d. 9%
3. Current assets include the cash a firm already has on hand and in the bank plus any assets that can be converted into cash within a "normal" operating period of ____ month(s).
a. 18
b. 6
c. 12
d. 1
4. If a firm's total asset turnover ratio is 2.0, then ____.
a. its annual sales are less than its total assets
b. it is possible that its fixed asset turnover ratio is 1.5
c. its total assets are two times its annual sales
d. its annual sales are two times its total assets
5. Although ratios can provide valuable information, they can also be misleading for which of the following reasons?
a. Compilation of industry norms often does not report information about the distribution of values.
b. Ratios are only as reliable as the accounting data on which they are based.
c. Comparative analysis depends on the availability of data for appropriately defined industries.
d. All of these choices are correct.
6. Which of the following is implied by perfect capital markets?
a. A single investor can influence security prices.
b. There are no transactions costs for buying and selling securities.
c. All investors can borrow and lend at the same rate.
d. Relevant information is unavailable for individuals.