Kaplan MT482 unit 9 quiz

Kaplan MT482 unit 9 quiz

Question

Question 1.1.Which of the following is least likely to affect analysis of earnings persistence?(Points : 2)

Managerial compensation

Changes in accounting principle

Cyclicality of business

Seasonality of business

Question 2.2.Horace Corporation has $200,000 of convertible 5% bonds. Each $500 bond is convertible into 50 shares of common stock. The bonds were sold at par and are currently trading at par, and the required return on nonconvertible bonds of similar risk is 11%. Common stock is trading at $ 23 per share.

The total leverage ratio of a company will:(Points : 2)

increase if operating leases are capitalized

increase if a company sells its receivables

increase if a company sells more equity

increase if a company pays suppliers more quickly

Question 3.3.If a firm capitalizes a lease instead of treating the lease as an operating lease, the effect on the current ratio and the debt-to-equity ratio will be to:

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Option A

Option B

Option C

Option D

Question 4.4.A primary motivation for a company financing its business activities through debt isnot(Points : 2)

Trading on the equity

Reducing earnings variability

Tax-deductibility of interest

Avoiding earnings dilution

Question 5.5.ABC company is planning a major expansion for which it needs $5 million in external funding. It has various options as how to finance this expansion. Which of the following iscorrect?(Points : 2)

Future ROA will be higher if it uses all equity financing than if it uses some debt financing

Future net income will be higher if it uses common stock rather than preferred stock to finance expansion

Future ROA is independent of the form of financing

Future net income is independent of the form of financing

Question 6.6.Below is information for year ended 12/31/05 for Company A and Company B.

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Return on assets for Company A and B for 2005 are:

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Option A

Option B

Option C

Option D

Question 7.7.Which of the following statements arecorrectwith respect to the times interest earned ratio?

I. It is independent of operating income
II. It is independent of the interest rate paid on debt
III. It is independent of the tax rate
IV. It is independent of the amount of dividends paid(Points : 2)

I, II and III

I and III

I and IV

III and IV

Question 8.8.Hupta Corporation

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Net income is expected to increase by 10% for the next year, and dividend payout ratio is expected to remain constant. After 2006, residual earnings are expected to decrease to zero. Using the earnings-based valuation method what is the value per share of Hupta stock as of 12/31/05?(Points : 2)

$33.60

$33.27

$32.73

$30.00

Question 9.9.Which of the following is not included the definition of earnings persistence?(Points : 2)

Stability of the earnings

Magnitude of the earnings

Predictability of the earnings

The earnings’ trend

Question 10.10.A company has significant uncapitalized operating leases. This company has positive net income. If these were capitalized the effect on the following ratios would be:

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Option A

Option B

Option C

Option D