30.Currentcashflowfromexistingassetsis highlyrelevantto theinvestor.However,thevalueofthefirmdepends primarilyuponitsgrowthopportunities.Asa result,profitprojectionsfromthoseopportunitiesaretheonlyrelevant futureflowswithwhichinvestorsareconcerned. a.True False ANSWER: Medium DIFFICULTY: Futurecashflows TOPICS: 31.IfthecurrentratioofFirmAisgreaterthanthecurrentratioofFirmB,wecannotbesurethatthequickratioof FirmAisgreaterthanthatofFirmB.However,ifthequickratioofFirmAexceedsthatofFirmB,wecanbe assuredthatFirmA'scurrentratioalsoexceedsB'scurrentratio. a.True b.False ANSWER: Medium DIFFICULTY: Liquidityratios TOPICS: 32.Theinventoryturnoverandcurrentratiosarerelated.Thecombinationof ahighcurrentratioandalowinventory turnoverratiorelativeto theindustrynormmightindicatethat thefirmis maintainingtoohighaninventorylevelor thatpartoftheinventoryis obsoleteordamaged. a.True b.False True ANSWER: Medium DIFFICULTY: Inventoryturnoverratio TOPICS: 33.Wecanusethefixedassetturnoverratiotolegitimatelycomparefirmsindifferentindustriesas longas all thefirms beingcomparedareusingthesameproportionoffixedassetstototalassets. a.True b.False False ANSWER: Medium DIFFICULTY: Fixedassetturnover TOPICS: 34.Supposetwofirmswiththesameamountofassetspaythesameinterestrateontheirdebtandearnthesamerate ofreturnontheirassets,andthatROAispositive.However,onefirmhasa higherdebtratio.Underthese conditions,thefirmwiththehigherdebtratiowillalsohaveahigherrateof returnon commonequity. a.True b.False True ANSWER: Medium DIFFICULTY: ROAandROE TOPICS:
30.Currentcashflowfromexistingassetsis highlyrelevantto theinvestor.However,thevalueofthefirmdepends primarilyuponitsgrowthopportunities.Asa result,profitprojectionsfromthoseopportunitiesaretheonlyrelevant futureflowswithwhichinvestorsareconcerned. a.True ANSWER: False DIFFICULTY: Medium TOPICS: Futurecashflows 31.IfthecurrentratioofFirmAisgreaterthanthecurrentratioofFirmB,wecannotbesurethatthequickratioof FirmAisgreaterthanthatofFirmB.However,ifthequickratioofFirmAexceedsthatofFirmB,wecanbe assuredthatFirmA'scurrentratioalsoexceedsB'scurrentratio. a.True b.False ANSWER: DIFFICULTY: Medium TOPICS: Liquidityratios 32.Theinventoryturnoverandcurrentratiosarerelated.Thecombinationof ahighcurrentratioandalowinventory turnoverratiorelativeto theindustrynormmightindicatethat thefirmis maintainingtoohighaninventorylevelor thatpartoftheinventoryis obsoleteordamaged. a.True b.False ANSWER: True DIFFICULTY: Medium TOPICS: Inventoryturnoverratio 33.Wecanusethefixedassetturnoverratiotolegitimatelycomparefirmsindifferentindustriesas longas all thefirms beingcomparedareusingthesameproportionoffixedassetstototalassets. a.True b.False ANSWER: False DIFFICULTY: Medium TOPICS: Fixedassetturnover 34.Supposetwofirmswiththesameamountofassetspaythesameinterestrateontheirdebtandearnthesamerate ofreturnontheirassets,andthatROAispositive.However,onefirmhasa higherdebtratio.Underthese conditions,thefirmwiththehigherdebtratiowillalsohaveahigherrateof returnon commonequity. a.True b.False ANSWER: True DIFFICULTY: Medium TOPICS: ROAandROE