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FIN305 Unit 6 Chapter 8-9 Quiz 2018 (Perfect Answer)
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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

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?





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.




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