Topics: Generally Accepted Accounting Principles, Balance sheet, Inventory Pages: 4 (1164 words) Published: February 12, 2012
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Financial Management and Policy (FIN 551)
Due date: 6pm, Thursday, Jan 26th via Ctools

Problem Set 1

    The total number of points is 20; each question is worth 1 point. Please clearly indicate one letter answer for each question. To ensure full credit, please document the reasoning behind your answer. All submissions are to be made via Ctools.

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1) The income statement represents a snapshot of account balances at one point in time. a. True b. False 2) A balance sheet is a statement of the financial position of the firm on a given date, including its asset holdings, liabilities, and equity. a. True b. False 3) An advantage of balance sheet numbers is that assets reflect current market values. a. True b. False 4) Total equity on the balance sheet increases as dividends paid increases. a. True b. False 5) Financial ratios can highlight a firm’s financial performance with regard to liquidity, solvency, and profitability. a. True b. False 6) Ratios are used to standardize financial information. a. True b. False

7) Which of the following is not a reason why financial analysts use ratio analysis? a. Ratios help to pinpoint a firm's strengths. b. Ratios restate accounting data in relative terms. c. Ratios are ideal for smoothing out the differences that may exist when comparing firms that use different accounting practices. d. Some of a firm’s weaknesses can be identified through the usage of ratios.

8) a. b. c. d.

The debt ratio is a measure of a firm’s: leverage. profitability. liquidity. efficiency.

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9) Industrial goods manufacturer Carterpilla Company earned $10,501,000 in net income. It paid out a cash dividend of $2,100,000 only to its preferred stockholders. If the firm has 750,000 shares of common stock outstanding, what is the firm’s earnings per share on the common stock? a. $14.00/share b. $16.80/share c. $11.20/share d. $2.80/share e. None of the above

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