CMA Part 2

A company has current assets of $500,000 and current liabilities of $250,000. What is the company's current ratio?

• A0.5
• B1.0
• C2.0
• D2.5

Which of the following ratios measures a company's ability to meet its long-term obligations?

• ACurrent ratio
• BQuick ratio
• CDebt-to-equity ratio
• DInventory turnover ratio

A company reports net income of $120,000, but its cash flow from operations is only $80,000. Which of the following could explain this difference?

• ADecrease in accounts receivable
• BIncrease in accounts payable
• CGain on sale of equipment
• DDepreciation expense

When analyzing earnings quality, which of the following would be a warning sign of potential manipulation?

• AConsistent growth in operating cash flow
• BLarge increases in accounts receivable relative to sales growth
• CStable gross profit margins over time
• DIncrease in research and development expenses

A company has net sales of $1,000,000, cost of goods sold of $600,000, and average inventory of $100,000. What is the inventory turnover ratio?

• A6.0
• B10.0
• C4.0
• D0.6

Which ratio best measures how efficiently a company uses its assets to generate sales?

• AGross profit margin
• BReturn on equity
• CTotal asset turnover
• DPrice-to-earnings ratio

A company's return on assets (ROA) is 12% and its profit margin is 6%. What is the company's total asset turnover?

• A0.5
• B1.0
• C2.0
• DCannot be determined from the information given

When comparing financial statements across companies, which of the following is the MOST important consideration?

• ABoth companies should be in the same industry
• BBoth companies should have the same fiscal year-end
• CAccounting policies and methods should be consistent
• DBoth companies should be approximately the same size

A company reports the following: Net income $200,000, Interest expense $30,000, Tax expense $70,000, Total assets $1,500,000. What is the return on assets (ROA)?

• A13.3%
• B20.0%
• C15.3%
• D18.7%

Which of the following items would be classified as a non-recurring or special item that requires careful analysis?

• ACost of goods sold
• BResearch and development expenses
• CRestructuring charges
• DSalaries and wages

A company has a beta of 1.2, the risk-free rate is 4%, and the expected market return is 10%. What is the company's cost of equity using CAPM?

• A10.0%
• B11.2%
• C12.0%
• D14.4%

Which of the following is NOT a component of the weighted average cost of capital (WACC)?

• ACost of debt
• BCost of preferred stock
• CCost of retained earnings
• DDividend growth rate

A company has $400,000 in debt at 6% interest and $600,000 in equity. The tax rate is 30%. What is the after-tax cost of debt?

• A6.0%
• B4.2%
• C8.4%
• D1.8%

According to the pecking order theory of capital structure, which financing source would a company prefer to use first?

• ANew equity issuance
• BDebt financing
• CRetained earnings
• DPreferred stock issuance

Which working capital policy maintains minimal levels of current assets?

• AConservative policy
• BRestrictive policy
• CModerate policy
• DAggressive policy

A company announces it will increase its dividend payout ratio from 30% to 50%. According to the signaling theory, what does this likely communicate to investors?

• AThe company has poor investment opportunities
• BManagement is confident about future earnings
• CThe company plans to issue new shares
• DThe tax rate is expected to decrease

In a merger transaction, the difference between the purchase price and the fair value of the net identifiable assets acquired is recorded as:

• AGoodwill
• BIn-process research and development
• CBargain purchase gain
• DMerger expense