Inventory turnover ratio evaluates: A) A company?s ability to move inventory B)A company?s...


Inventory turnover ratio evaluates:

A) A company?s ability to move inventory

B)A company?s inventory purchasing efficiency

C)Both A and B

D)None of the above

DirectJet sold an aircraft and used the proceeds to improve its financial position. DirectJet then leased the aircraft back in order to continue to operate. This is an example of:

A)An operating lease.

B)A short-term lease.

C)A sale and leaseback.

D)A fully amortized lease.

E)None of the above.

If a bond is priced at par value, then:

A) It has a very low level of default risk.

B) Its coupon rate equals to interest rate.

C) It must be a zero-coupon bond.

D) The bond is quite close to maturity.

The current ratio is a good proxy for a firm's:

A) Liquidity.

B) Efficiency.

C) Leverage.

D) Profitability

A firm with sales of $1,000,000, net profits after taxes of $30,000, total assets of $1,500,000, and total liabilities of $750,000 has a return on equity of

20 percent.

15 percent.

3 percent.

4 percent.

A bond?s par value can also be called its:

A) Coupon payment.

B) Present value.

C) Default value.

D) Face value

The coupon rate of a bond equals:

A) Its yield to maturity.

B) A percentage of its face value.

C) The maturity value.

D) A percentage of its price.

Which of the following is fixed (e.g., cannot change) for the life of a given bond?

A) Current price.

B) Current yield.

C) Yield to maturity.

D) Coupon rate.

Long-Term Debt

Companies are seeking financing from banks and lending companies for purposes such as building construction, equipment or vehicle purchase or consolidating with other businesses or ventures and in turn, banks grant the companies a credit facility and it is usually with a payment term of one year or longer. These are called long-term debt and in the balance sheet, it is usually recorded at face value or present value, whichever is applicable.

Answer and Explanation:

1. C)Both A and B

The inventory turnover measures the speed of moving inventory as well as speed of stocking up inventory levels due to seasonality factors.

2. C)A sale and leaseback.

The rationale behind sale and leaseback is that the company which previously owned the asset won't need to record depreciation monthly since it won't anymore carry the asset in the books and only lease expense will be recorded in the income statement.

3. B) Its coupon rate equals to interest rate.

A bond that is issued at par value does have the same nominal and effective interest rate.

4. A) Liquidity.

Current ratio is used to determine the ability of the company to pay its short-term obligations using its current assets.

5. 4 percent.

{eq}Return~on~Equity~=~\frac{Net~Income}{Total~Stockholders'~Equity} {/eq}

{eq}Return~on~Equity~=~\frac{30,000}{750,000} {/eq}

The return on equity is 4%

6. D) Face value

The bond's par value is the one stated in the bond document.

7. A) Its yield to maturity.

The yield to maturity can also be called the effective interest rate.

8. D) Coupon rate.

The coupon will remain the same during the life of the bond.

Learn more about this topic:

Long-Term Debt: Definition, Cost & Formula

from Financial Accounting: Help and Review

Chapter 8 / Lesson 7

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