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questions to practice before midterm.docx-Some que...
questions_to_practice_before_midterm.docx-Some questions to use to practice
questions to practice before midter...
questions_to_practice_before_midterm.docx-Some questions to use to practice
Page 1
Some questions to use to practice the course material.
Try to attempt them without peaking at my answers.
Chapter 1
1.  Identify a reason why one firm might use information about another firm to make decisions
is considering entering their product category
for benchmarking to improve own performance
if firm is contemplating purchasing the firm
if firm is deciding whether to sell products to the other firm on credit (will they be in business?)
if firm is deciding whether to purchase inputs from the other firm (will they be in business?)
all of the above
all of the above
2. Identify which of the following is not an external factor for railroads
relationship with unions
demand for coal
federal reserve interest rate policy
corporate tax rates
relationship with unions is an internal factor.  A lot of coal is moved on railroads so it will affect
their revenues if the amount of coal used changes.
3.  Identify a key to success for an advertising agency (they develop ad campaigns for firms)
inventory turnover ratio
comparable store sales growth
attracting new clients
attracting new clients.  This is the key to expanding revenues and profits.
Chapter 4
1.  If the costs of holding an asset increases, what would tend to happen to the asset turnover
ratio?
stay the same
increase
decrease


Page 2
increase because the firm would likely hold less of an asset if the cost of holding it is larger. 
That would lead to a larger turnover ratio for that asset and that would lead to a larger asset
turnover ratio
2.  Which of these rankings for return on assets, return on common equity and return on
liabilities cannot occur? 
ROA, ROCE, return to liabilities
ROCE, ROA, return to liabilities
return to liabilities, ROA, ROCE
ROA, ROCE and return on liabilities.  ROA is always in the middle because it is the weighted
average of the other two ratios.
3.  How is it possible for a firm with a larger cost of goods sold to revenue ratio to also have a
larger return on asset ratio?
*The Cost of goods sold to revenue ratio is generally positively associated with ROA
*Other ratios such as the SGA to revenue ratios or the inventory turnover ratio can counteract
that effect so in spite of the larger COGS to revenue ratio the firm has a larger ROA
*Cost of goods sold to revenue ratio has no effect on the asset turnover ratio
Other ratios such as the SGA to revenue ratios or the inventory turnover ratio can counteract that
effect so in spite of the larger COGS to revenue ratio the firm has a larger ROA.  In general, the
cost of goods sold to revenue ratio is associated with a lower ROA.
4.   The cost of a firm's primary input increases and the firm responds by adopting just in time
inventories.   What would likely happen to its cost of goods sold to revenue and inventory
turnover ratios?
both would increase
cost of goods to revenue ratio would increase, inventory turnover ratio would decrease
both would decrease
cost of goods sold to revenue ratio would decrease, inventory turnover ratio would increase
Both would increase
The cost of goods sold to revenue ratio would increase because costs of the input rising would
push up the cost of goods sold and most firms are unable to pass on all of the additional costs to
their customers.   The inventory turnover ratio would increase due to the use of just in time
inventory methods which allow firms to hold less inventory by getting suppliers to deliver it only
when the firm needs it.
Chapter 5


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