Question 1

Use the following data to answer the question: What are the three interest coverage ratios based on pretax income and interest expense? $\begin{array}{|l|l|l|} 
\hline& 2015 & 2016 \
\hline \text { Current assets } & \$ 860 & \$ 896 \
\hline \text { Current liabilities } & 710 & 818 \
\hline \text { Debt in current liabilities } & 1 & 39 \
\hline \text { Lurkg-term debt } & 506 & 408 \
\hline \text { Total assets } & 2,293 & 2,307 \
\hline \text { Capilal experuditures } & 111 & 117 \
\hline \text { Change in deferred taxes } & 29 & -20 \
\hline \text { Sales } & 4,100 & 4,192 \\hline \text { Operating expenses } & 3,307 & 3,260 \
\hline \text { Rental expense } & 0 & 248 \
\hline \text { Gerieral expenses } & 562 & 528 \
\hline \text { Depreciation } & 139 & 136 \
\hline \text { Iriterest experise } & 39 & 30 \
\hline \text { Incuere taxes } & 5 & 8 \
\hline
\end{array}$

Accepted Answer

The answer of Use the following data to answer the...

Question 2

Given that ROIC,the interest rate on debt,and the debt-to-equity ratio are constant,how will increasing the tax rate affect ROE?

Accepted Answer

The answer of Given that ROIC,the interest rate on debt,and...

Question 3

With regard to the interest coverage ratio,which of the following is the most accurate?

Accepted Answer

If near-term bankruptcy is an issue, EBITDA can be used to meet interest obligations, and maintenance capital will consequently fall to zero. Unless the company plans to wind down operations, depreciation must eventually be reinvested to maintain operations. Therefore, EBITDA can be used to measure survival only over the short term. Over the long term, EBITA is a better ratio.

Question 4

For a given company,the return on invested capital (ROIC )is 13.5 percent,the tax rate is 34 percent,and the pretax cost of debt is 8.8 percent.If its debt-to-equity ratio is equal to 2.0,what is the return on equity (ROE)?

Accepted Answer

ROE = ROIC + {ROIC – (1 – T) * kd} * D/E
ROE = 13.5% + {13.5% – (1 – 34%) * 8.8%} * 2
ROE = 28.88%

Question 5

An analysis of a company's historical financial performance should go back a maximum of five years.

Accepted Answer

An analyst should look back as far as possible (at least 10 years). Long time horizons will allow you to determine whether the company and industry tend to revert to some normal level of performance, and whether short-term trends are likely to be permanent.

Quiz 10: Analyzing Performance

Given that ROIC,the interest rate on debt,and the debt-to-equity ratio are constant,how will increasing the tax rate affect ROE?

With regard to the interest coverage ratio,which of the following is the most accurate?

For a given company,the return on invested capital (ROIC ) is 13.5 percent,the tax rate is 34 percent,and the pretax cost of debt is 8.8 percent.If its debt-to-equity ratio is equal to 2.0,what is the return on equity (ROE) ?

An analysis of a company's historical financial performance should go back a maximum of five years.