Question 1

An asset turnover ratio of 1.75 can be interpreted as:

Accepted Answer

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Question 2

Cindex Corporation had total capitalization of $500 million.It had sales of $600; cost of goods sold of $375 million, and operating expenses of $75 million.Tax rate is 30%.Calculate the company's Return of Capital.

Accepted Answer

Return on Capital (ROC) is calculated as Net Operating Profit After Taxes (NOPAT) divided by Total Capitalization. NOPAT is calculated as (Sales - Cost of Goods Sold - Operating Expenses) * (1 - Tax Rate). Here, NOPAT = ($600M - $375M - $75M) * (1 - 0.30) = $105M. ROC = $105M / $500M = 21%.

Question 3

Calculate the average collection period for Dotte Inc.if its accounts receivables were $500 and $600 at the end of each of the last two years, and its revenue over the last year was $3,000:

Accepted Answer

Average accounts receivable = ($500 + $600) / 2 = $550
Revenue per day = $3,000 / 365 = $8.22
Average collection period = (Accounts Receivable / Revenue per day) = ($550 / $8.22) = 66.89 days ≈ 67 days. Therefore, the correct answer is C.

Question 4

A firm with below average earnings growth in one year is likely to:

Accepted Answer

Earnings growth can be influenced by various factors and is not necessarily indicative of future performance. It can be random and may not follow a consistent trend.

Question 5

In the Dupont Equation, what effect does an increase in a firm's borrowing costs (i.e., a higher interest rate) have on its net profit margin?

Accepted Answer

An increase in borrowing costs will increase the interest expense, which will reduce the net income and thus the net profit margin.

Question 6

Calculate the dividend per share that is paid when the earnings per share are $6.00 and plowback ratio is 0.85:

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Question 7

Net Corp.has an ROE of 30% and would like to see earnings grow at a 18% annual rate.What percent of earnings can they afford to pay out as dividends?

Accepted Answer

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Question 8

How much will Gamma Inc.'s equity holders earn given the following information: total asset turnover is 0.85, profit margin is 0.15, and debt-equity ratio is 0.25?

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Question 9

A sign that a firm is efficient is a:

Accepted Answer

A high inventory turnover indicates that the firm is selling and restocking its inventory frequently, which means it is efficiently managing its inventory levels and generating sales.

Question 10

If a company uses cash to pay off some of its accounts payables, what effect will this have on its liquidity ratios, given that the ratios exceeded 1.0 before the payoff?

Accepted Answer

Using cash to pay off accounts payables will reduce current liabilities, thus increasing both the quick ratio and current ratio. As both ratios exceeded 1.0 before the payoff, increasing them will only further improve the company's liquidity position.

Question 11

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

Accepted Answer

The current ratio measures a firm's ability to pay its short-term liabilities with its short-term assets. It is a measure of liquidity, which refers to a company's ability to meet its short-term obligations. The higher the current ratio, the more liquid the company is and the better able it is to meet its short-term obligations.

Question 12

If Dotte's Doors Corporation merges with its supplier, Wally's Wood, its profit margin will:

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Question 13

Which of the following is incorrect for a firm with a payout ratio of 0.15 and ROE of 20 percent:

Accepted Answer

The payout ratio of 0.15 means the firm pays out 15% of its earnings as dividends, not necessarily 15 cents per share.

Question 14

TSI Inc.has enough liquid assets to finance its operations for 67 days and cash, marketable securities, and receivables totaling $1,000.TSI's average daily expenditures from operations are:

Accepted Answer

The average daily expenditures are calculated by dividing the total liquid assets ($1,000) by the number of days they can finance operations (67 days), which equals approximately $14.93 per day.

Question 15

A high dividend yield indicates:

Accepted Answer

A high dividend yield indicates that the company is paying out a large portion of its earnings in the form of dividends. Investors who buy stock for income purposes may prefer higher dividend yields as they provide a higher rate of return on their investment. Therefore, a high dividend yield suggests that investors require a higher rate of return. The other options do not accurately reflect what a high dividend yield indicates.

Question 16

__________ are those expected to be turned into cash in the near future, while __________ are those expected to be fulfilled in the near future, and the difference between the two is __________.

Accepted Answer

Current assets are those expected to be turned into cash in the near future, while current liabilities are those expected to be fulfilled in the near future. The difference between the two is called net working capital, which represents the amount of capital a company has available for its day-to-day operations. Choice A is incorrect because shareholders' equity represents the residual interest in the assets of a company after deducting liabilities, and is not directly related to current assets and liabilities. Choice C is incorrect because fixed assets are not expected to be turned into cash in the near future, and are therefore not relevant to the calculation of net working capital. Choice D is incorrect because "liquid assets" and "liquid liabilities" are not commonly used terms in accounting or finance, and are not directly related to the calculation of net working capital.

Question 17

Janzen Corporation had total capitalization of $890 million.It had sales of $900; cost of goods sold of $595 million, and operating expenses of $95 million.Tax rate is 40%.Calculate the company's Return of Capital.

Accepted Answer

Return on Capital is calculated as Net Operating Profit After Tax (NOPAT) divided by Total Capitalization. NOPAT is calculated as (Sales - Cost of Goods Sold - Operating Expenses) * (1 - Tax Rate). Here, NOPAT = ($900M - $595M - $95M) * (1 - 0.40) = $126M. Return on Capital = $126M / $890M = 14%.

Question 18

What is the approximate total debt ratio for a firm with a total debt to equity ratio of .65?

Accepted Answer

The total debt ratio is calculated as total liabilities divided by total assets. Given the total debt to equity ratio of 0.65, the total liabilities are 0.65 times the equity. Therefore, total assets are 1.65 times the equity (equity + liabilities). The total debt ratio is 0.65/1.65, which is approximately 39.4%.

Question 19

Zulu Corporation had total assets of $475 million.It had sales of $300; cost of goods sold of $225 million, and operating expenses of $35 million.Tax rate is 40%.Calculate the company's Return of Assets.

Accepted Answer

Return on Assets (ROA) is calculated as Net Income divided by Total Assets. First, calculate Net Income: Sales ($300 million) - Cost of Goods Sold ($225 million) - Operating Expenses ($35 million) = Operating Income ($40 million). Then, calculate Net Income after tax: Operating Income ($40 million) * (1 - Tax Rate 0.40) = $24 million. Finally, ROA = Net Income ($24 million) / Total Assets ($475 million) = 0.0505 or 5.05%.

Question 20

Measures of a firm's efficiency with respect to earnings include:

Accepted Answer

Profit margin, ROA (return on assets), ROE (return on equity), and payout ratio are all measures that can be used to evaluate a firm's earnings efficiency. Market-to-book and P/E ratio do not directly measure a firm's efficiency with respect to earnings. Therefore, options A and B are incorrect. Option D is also incorrect because it only includes two measures of efficiency, and it does not include the important measure of profit margin. Choice C is the best answer as it includes all relevant measures of earnings efficiency.

Quiz 4: Measuring Corporate Performance