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Multiple Choice Quiz
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1
Financial leverage is negative when:
A)the return on total assets is less than the rate of return on common stockholders' equity.
B)the return on total assets is less than the rate of return demanded by creditors.
C)total liabilities are less than stockholders' equity.
D)total liabilities are less than total assets.
2
The records of Scott Enterprises include the following account balances as of the end of the most recent year:

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The book value per share of the company's common stock is:
A)$28.
B)$25.
C)$22.
D)$20.
3
Selected financial data for Dexter Company appear below:

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During the year, the company paid dividends of $20,000 on its preferred stock. The company's net income for the year was $240,000. The company's return on common stockholders' equity for the year is closest to:
A)25%.
B)23%.
C)19%.
D)17%.
4
The following data have been taken from Tellscher Chocolate Company's financial records for the current year:

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The price-earnings ratio is:
A)15.0 to 1.
B)9.0 to 1.
C)7.0 to 1.
D)1.67 to 1.
5
River North Company reported net income of $150,000 and interest expense of $20,000. Total assets were $1,300,000 at the beginning of the year and $1,220,000 at the end of the year. The company's income tax rate was 30%. The company's return on total assets for the year was closest to:
A)13.5%.
B)13.0%.
C)12.4%.
D)11.9%.
6
The market price of the common stock of Gigantic Company dropped from $550 to $325 per share. The dividend paid per share remained unchanged. The company's dividend payout ratio would:
A)be unchanged.
B)increase.
C)decrease.
D)be impossible to determine without more information.
7
Selected year-end data for the Long Grove Confectionary Company are presented below:

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The company has no prepaid expenses and inventories remained unchanged during the year. Based on these data, the company's inventory turnover ratio for the year was closest to:
A)1.20 times.
B)1.67 times.
C)2.33 times.
D)2.40 times.
8
If Accutek Company converts a short-term note payable into a long-term note payable, this transaction would:
A)decrease the current ratio and decrease the acid-test ratio.
B)decrease working capital and increase the current ratio.
C)decrease working capital and decrease the current ratio.
D)increase working capital and increase the current ratio.
9
Hefferman Construction Company had $360,000 in sales on account last year. The beginning accounts receivable balance was $20,000 and the ending accounts receivable balance was $36,000. The company's average collection period (age of receivables) was closest to:
A)20.28 days.
B)28.39 days.
C)36.50 days.
D)56.78 days.
10
Assume that a company reports accounts receivable, inventory, and prepaid expenses on its balance sheet. Which of those accounts should be included in the calculation of the company's acid-test ratio?
A)Accounts receivable and prepaid expenses, but not inventory
B)Accounts receivable, but not inventory or prepaid expenses
C)Inventory and prepaid expenses, but not accounts receivable
D)Inventory, but not accounts receivable or prepaid expenses







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