Which of the following situations is most likely to explain a net operating asset turnover that is higher than the industry norm?

Which of the following situations is most likely to explain a net operating asset turnover that is higher than the industry norm? 

A. The company has more recently purchased fixed assets
B. The company uses FIFO while competitors use LIFO
C. The company uses accelerated depreciation method while competitors use straight line
D. The company extends more credit to customers than competitors

Answer: C

Which of the following situations is most likely to explain an accounts receivable turnover that is lower than the industry norm?

Which of the following situations is most likely to explain an accounts receivable turnover that is lower than the industry norm? 

A. The company makes less credit sales than industry
B. The company gives customers less time to pay than its competitors
C. The company has been selling inferior products to competitors
D. The company is systematically over-estimating bad debts

Answer: C

Which of the following statements about the return on shareholders' investment (ROSI) is correct?

Which of the following statements about the return on shareholders' investment (ROSI) is correct? 

A. If book value of equity is less than market value, ROSI is greater than ROCE
B. ROSI will be higher the greater the dividend payout ratio
C. ROSI is likely to be more volatile than ROCE
D. ROSI normally equals ROCE

Answer: C

Which of the following statements about the equity growth rate is correct?

Which of the following statements about the equity growth rate is correct? 

I. the higher the ROCE the higher equity growth rate, all other things equal
II. the higher the dividend payout the higher the equity growth rate
III. the equity growth rate is unaffected by the cost of debt
IV. the equity growth rate indicates the expected growth in stock price each period



A. I, II, III and IV
B. I, II and III
C. I and III
D. I only

Answer: D

Which of the following statements about the relationship between RNOA and ROCE is correct?

Which of the following statements about the relationship between RNOA and ROCE is correct? 

A. ROCE is always greater than RNOA
B. ROCE is greater than RNOA if RNOA is greater than after-tax cost of dividends
C. ROCE is greater than RNOA if RNOA is greater than cost of debt
D. ROCE is greater than RNOA if RNOA is greater than after-tax cost of debt

Answer: D

Purchases divided by accounts payable provides information about:

Purchases divided by accounts payable provides information about: 

A. capital structure
B. management of working capital
C. gross profit margin
D. profitability

Answer: B

When considering the difference between the return on net operating assets (RNOA) and return on common shareholders' equity (ROCE), which of the following statements is incorrect?

When considering the difference between the return on net operating assets (RNOA) and return on common shareholders' equity (ROCE), which of the following statements is incorrect? 

A. Preferred dividends are deducted from the numerator when calculating ROCE but not when calculating RNOA
B. RNOA is a pre-interest measure but ROCE is not
C. RNOA is a post-interest measure but ROCE is not
D. RNOA is independent of the form of financing, but ROCE is not.

Answer: C

Cost of goods sold divided by inventory provides information about (choose one answer):

Cost of goods sold divided by inventory provides information about (choose one answer): 

A. profitability
B. capital structure
C. management of working capital
D. gross profit margin

Answer: C

If Yutter's dividend payout ratio increased to 50% after year 1 then:

If Yutter's dividend payout ratio increased to 50% after year 1 then: 

A. the sustainable equity growth rate would increase
B. the return on equity would increase
C. the value of the stock would decrease
D. the return on net operating assets would decrease

Answer: C

What is the value of Yutter's stock at the end of Year 1 using the dividend discount model assuming that the dividend payout ratio remains constant and Yutter grows at its sustainable equity growth rate?

What is the value of Yutter's stock at the end of Year 1 using the dividend discount model assuming that the dividend payout ratio remains constant and Yutter grows at its sustainable equity growth rate? 

A. $83,333
B. $157,642
C. $500,000
D. $557,000

Answer: D

Return on operating assets is a measure of which of the following?

Return on operating assets is a measure of which of the following? 

A. Profitability
B. Efficiency
C. Solvency
D. Liquidity

Answer: B

Which of the following is the best measure of operating efficiency?

Which of the following is the best measure of operating efficiency? 

A. Return on net operating assets
B. Return on equity
C. Return on sales
D. Return on inventory

Answer: A

Which of the following would explain an observed decrease in return on equity, all else equal?

Which of the following would explain an observed decrease in return on equity, all else equal? 

A. Decrease in tax rate
B. Increase in interest rate on debt
C. Stock split
D. Stock dividend

Answer: B

An increase in net operating income (NOPAT) will cause which of the following?

An increase in net operating income (NOPAT) will cause which of the following? 

A. Increase in the return on net operating assets
B. Decrease in the return on net operating assets
C. No change in the return on net operating assets
D. The change in the return on net operating assets is unclear, there is not sufficient information

Answer: D

Which of the following will increase the sustainable equity growth of a company, all other things equal?

Which of the following will increase the sustainable equity growth of a company, all other things equal? 

A. Increase dividend payout
B. Pay suppliers more quickly
C. Pay suppliers more slowly
D. Decrease dividend payout

Answer: D

Which of the following statements is correct concerning changes from year 1 to year 2 at Tricrop?

Which of the following statements is correct concerning changes from year 1 to year 2 at Tricrop? 

A. Despite favorable changes in the tax rate return on net operating assets has decreased
B. Despite favorable changes in net operating asset utilization return on net operating assets has decreased
C. Largely because of favorable changes in tax rates return on net operating assets has increased
D. Largely due to favorable changes in leverage return on net operating assets has increased

Answer: A

When calculating return on net operating assets, interest expense net of tax is added back to net income for purposes of calculating the numerator. What tax rate should be used?

When calculating return on net operating assets, interest expense net of tax is added back to net income for purposes of calculating the numerator. What tax rate should be used? 

A. effective tax rate
B. marginal tax rate
C. statutory federal tax rate
D. statutory federal tax rate plus statutory state tax rate

Answer: B

Eyster Corporation reported $10M in earnings and paid dividends of $3M for fiscal 2005.Return on equity and dividend payout are expected to remain constant for the foreseeable future. Net book value at the end of fiscal 2004 was 100M. Cost of equity is 10%. Using the residual income method, the intrinsic value of Eyster's stock at the end of 2005 should be:

Eyster Corporation reported $10M in earnings and paid dividends of $3M for fiscal 2005.Return on equity and dividend payout are expected to remain constant for the foreseeable future. Net book value at the end of fiscal 2004 was 100M. Cost of equity is 10%. Using the residual income method, the intrinsic value of Eyster's stock at the end of 2005 should be: 

A. $110M
B. $107M
C. $100M
D. not determinable

Answer: B

Which of the following could cause the return on net operating assets to increase, all things other equal?

Which of the following could cause the return on net operating assets to increase, all things other equal? 

A. A decrease in interest rate on debt
B. Increase in days accounts receivable are outstanding
C. Increase in inventory turnover
D. Decrease in gross margin

Answer: C

Err Company has a major lawsuit against them for unsafe products. It recognizes a huge liability in 2004 of $300M. The effect of this liability is to decrease stockholders' equity by 50%. In 2005, the effect of recognizing this liability, all else equal, is:

Err Company has a major lawsuit against them for unsafe products. It recognizes a huge liability in 2004 of $300M. The effect of this liability is to decrease stockholders' equity by 50%. In 2005, the effect of recognizing this liability, all else equal, is: 

A. Return on net operating assets will increase dramatically
B. Return on net operating assets will decrease dramatically
C. Return on equity will increase dramatically
D. Return on equity will decrease dramatically

Answer: C