Question 1
Which of the following ratios gives a perspective on risk in
the capital structure ?
Book value per share
Degree of financial
leverage
Dividend payout
Price / earnings ratio
Question 2
Which of the following items will be reported on the income
statement as part of net income?
Prior period adjustment
Unrealized decline in market value of investments
Foreign currency translation
Gain from selling
land
Question 3
In
Book value per share may not approximate market value per
share because
Investments may have a market value substantially above the
original cost.
Land may have substantially increased in value.
Market value reflects future potential earning power.
All of the above
Question 4
If a firm’s gross profit has declined substantially, this
could be attributed to all but which of the following reasons?
The cost of buying inventory has increased more rapidly than
selling prices.
Selling prices have declined due to competition.
Selling prices have
increased due to competition.
Theft is occurring.
Question 5
Which of the following is considered to be a recurring item
?
Discontinued operations
Extraordinary items
Cumulative effect of change in accounting principle
Interest expense
Question 6
A firm has a degree of financial leverage of 1.3. If
earnings before interest and tax increase by 10%, then net income
Will increase by
13.0%
Will increase by 13.
Will decrease by 13.0%
Will decrease by 13.
Question 7
Earnings based on percent of holdings by outside owners of
consolidated subsidiaries are termed
Equity earnings
Earnings of subsidaries
Investment income
Minority earnings
Question 8
Which of the following is not a type of operating asset ?
Intangibles
Receivables
Land
Inventory
Question 9
The earnings per share ratio is computed for
Convertible bonds
Common stock
Redeemable preferred
Nonredeemable preferred
Question 10
Increasing financial leverage can be a risky strategy from
the viewpoint of stockholders of companies having
Steady and high profits
Low and falling profits
Relatively high and increasing profits.
A low debt/equity ratio and relatively high profits.
