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Which of the following leases is essentially the purchase of an asset with debt financing

Which of the following leases is essentially the purchase of an asset with debt financing? 

a.   An operating lease.

b.   A capital lease.

c.   Both an operating and a capital lease.

d.   Neither an operating lease nor a capital lease.

 

 

125. Which of the following is not a reason why some companies lease rather than buy? 

a.   Leasing may allow you to borrow with little or no down payment.

b.   Leasing can improve the balance sheet by reducing long-term debt.

c.   Leasing can lower income taxes.

d.   Leasing transfers the title to the lessee at the beginning of the lease.

 

 

126. The balance sheet of Purdy’s BBQ reports total equity of $400,000 and $450,000 at the beginning and end of the year, respectively. Net income and sales for the year are $85,000 and $1,700,000, respectively. What is Purdy’s return on equity?

a.

10%.

b.

20%.

c.

200%.

d.

5%.

 

 

127. The balance sheet of Sub America reports total equity of $400,000 and $450,000 at the beginning and end of the year, respectively. The return on equity for the year is 10%. What is Sub America’s net income for the year?

a.

$42,500.

b.

$45,000.

c.

$4,250,000.

d.

$85,000.

 

 

128. Financial leverage is best measured by which of the following ratios?

a. The debt to equity ratio.

b. The return on equity ratio.

c. The times interest earned ratio.

d. The return on assets ratio.

 

 

129. Which of the following is true regarding a company assuming more debt?

a. Assuming more debt is always bad for the company.

b. Assuming more debt is always good for the company.

c. Assuming more debt can be good for the company as long as they earn a return in excess of the rate charged on the borrowed funds.

d. Assuming more debt reduces leverage.

 

 

130. Which of the following is not a true statement?

a.   The debt to equity ratio measures a company’s risk and is calculated as total liabilities divided by stockholders’ equity.

b.   Leverage enables a company to earn a higher return using debt than without debt.

c.   Return on assets is calculated as net income divided by the ending balance for total assets.

d.   The times interest earned ratio compares interest expense with income available to pay interest charges.

 

 

131. The times interest earned ratio is calculated as

a. Interest expense / Net income.

b. Net income / Interest expense.

c.(Net income + interest expense + tax expense) / Interest expense.

d.Interest expense / (Net income + interest expense + tax expense).

 

 

132. Selected financial data for Company A is provided below:

 ($ in millions)

Company A

Sales

$66,176

Interest expense

676

Tax expense

1,362

Net income

$2,620

What is the times interest earned ratio for Company A?

a.6.9 times.

b.3.9 times.

c.0.3 times.

d.97.9 times.

 

 

133. Selected financial data for Company B is provided below:

 ($ in millions)

Company B

Sales

$47,220

Interest expense

287

Tax expense

1,042

Net income

$1,783

What is the times interest earned ratio for Company B?

a.6.2 times.

b.10.8 times.

c.0.2 times.

d.164.5 times.

Jan 27 2020 View more View Less

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