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31) In an ideal world, which of the following would

Question : 31) In an ideal world, which of the following would : 1964814

31) In an ideal world, which of the following would be used to evaluate firm performance?

A) book value of assets

B) corporate retained earnings from the day of incorporation

C) accounting assets and profits

D) market value of assets

32) All of the following measure liquidity EXCEPT

A) current ratio.

B) inventory turnover.

C) acid-test ratio.

D) operating return on assets.

33) Baker Corp. is required by a debt agreement to maintain a current ratio of at least 2.5, and Baker's current ratio now is 3. Baker wants to purchase additional inventory for its upcoming Christmas season, and will pay for the inventory with short-term debt. How much inventory can Baker purchase without violating its debt agreement if their total current assets equal $15 million?

A) $0.50 million

B) $1.67 million

C) $4.50 million

D) $6.00 million

34) Williams Inc. has a current ratio equal to 3, a quick ratio equal to 1.8, and total current assets of $6 million. Williams' inventory balance is

A) $2,000,000.

B) $2,400,000.

C) $4,000,000.

D) $4,800,000.

35) Jones, Inc. has a current ratio equal to 1.40. Which of the following transactions will increase the company's current ratio?

A) The company collects $500,000 of its accounts receivable.

B) The company sells $1 million of inventory on credit.

C) The company pays back $50,000 of its long-term debt.

D) The company writes a $30,000 check to pay off some existing accounts payable.

36) For a retailer with inventory to sell, the acid-test ratio will be

A) less than the current ratio, thus providing a more stringent measure of liquidity.

B) greater than the current ratio, thus providing a more stringent measure of liquidity.

C) greater than the current ratio, thus providing a less stringent measure of liquidity.

D) unimportant because it doesn't include inventory.

37) Company A has a higher days sales outstanding ratio than Company B. Therefore

A) Company A sells more on credit than Company B.

B) Company A has a higher percentage of cash to credit sales than Company B.

C) Company A must be collecting its accounts receivable faster than Company B, on average.

D) Other things being equal, Company B has a cash flow advantage over Company A.

38) When comparing inventory turnover ratios, other things being equal

A) a lower inventory turnover is preferred in order to keep inventory costs low.

B) a higher inventory turnover is preferred to improve liquidity.

C) higher inventory turnover results from old or obsolete inventory increasing the inventory balance on the balance sheet.

D) higher inventory turnover results from an increase in the selling price of the product.

39) Company A and Company B have the same gross profit margin and the same total asset turnover, but company A has a higher return on equity. This may result from

A) Company B has more common stock.

B) Company A has a lower debt ratio.

C) Company A has lower selling and administrative expenses, resulting in a higher net profit margin.

D) Company A has lower cost of goods sold, resulting in a higher net profit margin.

40) Nelson Industries has a higher debt ratio than Butler, Inc., and Nelson also has a higher times interest earned ratio than Butler. If Nelson and Butler both have the same amount of total assets, then

A) Nelson must have higher operating income than Butler.

B) if both companies have the same operating income, Butler must be paying a higher interest rate on its long-term debt than Nelson is paying.

C) Nelson may have more non-interest bearing liabilities, such as accounts payable, than Butler has.

D) if both companies have the same operating income, a mistake was made in the calculations because the company with a higher debt ratio must have a lower times interest earned ratio.

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