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Financial Statement Analysis 11e Subramanyam (Test Bank all Chapters, Answer at the end of each Chapter)
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1-1 Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.Chapter 01 Overview of Financial Statement Analysis
Multiple Choice Questions
- Which of the following is likely to be the most informative source if you were interested in a
company's business plan or strategy?
- Auditor's letter
- Management discussion and analysis
- Proxy statement
- Footnotes
- Which of the following would not be considered a source of financing?
- Notes receivable
- Common stockholders' equity
- Retained earnings
- Debentures
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1-2 Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
3. Wilco Company reports the following:
Dividend payout ratio for 2005 was:
A. 27%.
B. 12%.
C. 22.2%.
- Not determinable
4. If a company receives an unqualified audit opinion it means the auditors:
- did not complete a full audit and therefore do not feel qualified to give an opinion on financial
statements.
- are providing assurance that the company will remain financially viable for at least the next
year.
- are providing assurance that the company's financial statements fairly present company's
financial performance and position.
- are providing assurance that the company's financial statements are free from misstatement,
fraudulent accounting and fairly indicate future performance.
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1-3 Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
5. The Management Discussion and Analysis Section of an annual report:
- is required by the SEC.
- is optional but normally included in the annual report.
- is required by the SEC only if the company has suffered from unfavorable trends or there are
significant uncertainty concerning liquidity of the company.
- is required by the SEC only if they have a qualified audit opinion.
You are analyzing a large stable company. For the year ending 12/31/05 the company reported earnings of $58,900 and book value at the end of 2005 was $371,700. You expect earnings to grow at 5% a year in perpetuity, and the dividend payout ratio of 70% to continue. The company borrows at 8%, and has a cost of equity of 12%. The company has 25,000 shares outstanding.
- What is your estimate of price per share using the dividend discount model at 12/31/05?
A. $20.62
B. $21.65
C. $23.56
D. $24.74
- What is your estimate of price using the residual income valuation model at 12/31/05?
A. $20.62
B. $21.65
C. $23.56
D. $24.72
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