D351 Functions of Human Resource Management - Set 1 - Part 2

Correct Answer: Inventory

The quick ratio excludes inventory, providing a more stringent test of a companys liquidity compared to the current ratio.

Correct Answer: Common stockholders have voting rights, while preferred stockholders do not

Common stockholders typically have voting rights, whereas preferred stockholders generally do not, but they have a higher claim on assets in case of liquidation.

Correct Answer: EBIT / Interest expense

The TIE ratio measures a companys ability to meet its interest obligations, calculated by dividing earnings before interest and taxes (EBIT) by interest expense.

Correct Answer: 0.67

Debt-to-equity ratio = Total Liabilities / Total Equity. In this case: $200,000 / $300,000 = 0.67.

Correct Answer: Using borrowed capital to increase potential returns

Leverage refers to using borrowed funds to finance investments, with the goal of increasing returns on equity.

Correct Answer: Default risk

Bondholders face the risk that the issuer may default on payments, meaning they may not receive the full interest and principal owed.

Correct Answer: Net present value (NPV)

NPV is a capital budgeting method used to assess the profitability of an investment by calculating the difference between the present value of cash inflows and outflows.

Correct Answer: 50%

Percentage increase = [(New Price - Old Price) / Old Price] 100. In this case: [(45 - 30) / 30] 100 = 50%.

Correct Answer: The stock price is greater than the book value

A P/B ratio greater than 1 indicates that the stocks market value exceeds its book value.

Correct Answer: Operating Income / Sales

Operating profit margin is calculated by dividing operating income (EBIT) by sales, showing how much profit a company makes on each dollar of revenue before interest and taxes.

Correct Answer: The bond price will fall

When the market interest rate is higher than the coupon rate, the bond price typically falls to provide a yield that matches the market rate.

Correct Answer: $650,000

Ending retained earnings = Beginning retained earnings + Net Income - Dividends. In this case: $500,000 + $200,000 - $50,000 = $650,000.

Correct Answer: To make shares more affordable to investors

A stock split increases the number of shares outstanding while reducing the price per share, making the stock more accessible to smaller investors.

Correct Answer: Rent

Fixed costs remain constant regardless of production levels, such as rent, insurance, or salaries.

Correct Answer: The bonds were sold at a premium

Bonds sold at 105 means they were sold at 105% of the face value, which represents a premium.

Correct Answer: The percentage of earnings paid to shareholders as dividends

The dividend payout ratio is the portion of net income that a company distributes to its shareholders in the form of dividends.

Correct Answer: Cash available to be reinvested in the business

Free cash flow represents the cash a company generates after accounting for cash outflows to support operations and maintain its capital assets.

Correct Answer: It decreases

P/E ratio = Stock Price / EPS. Since the EPS increased by a larger percentage than the stock price, the P/E ratio decreases.

Correct Answer: $300,000

Gross profit = Total Sales - COGS. In this case: $1,000,000 - $700,000 = $300,000.

Correct Answer: The company is undervalued

A low P/E ratio suggests that the stock is trading at a lower price relative to its earnings, possibly indicating undervaluation.