Question 1

A firm has sales of $311,000 and net income of $21,600. Currently, there are 18,000 shares outstanding at a market price of $36 per share. What is the price-sales ratio?
A) 2.08
B) 3.11
C) 4.26
D) 5.15
E) 6.95

Accepted Answer

Price-sales ratio = Market price per share / Sales per share= $36 / ($311,000 / 18,000)= $36 / $17.28= 2.08

Question 2

The Inside Door has total debt of $78,600, total equity of $214,000, and a return on equity of 14.5 percent. What is the return on assets?
A) 9.14 percent
B) 10.61 percent
C) 21.45 percent
D) 34.61 percent
E) 39.48 percent

Accepted Answer

Return on assets (ROA) = Net Income/Total Assets
Return on equity (ROE) = Net Income/Total Equity
Total assets = Total debt + Total equity
Therefore, using the formula for ROE,
14.5% = Net Income/214,000
Net Income = $31,030
Total assets = 78,600 + 214,000 = $292,600
ROA = 31,030/292,600 = 10.61%

Question 3

Underwood Enterprises earns $0.07 in profit on every $1 of sales and has $0.67 in assets for every $1 of sales. The firm pays out 20 percent of its profits to its shareholders. What is the internal growth rate?
A) 6.37 percent
B) 7.76 percent
C) 8.80 percent
D) 9.12 percent
E) 9.65 percent

Accepted Answer

The answer of Underwood Enterprises earns $0.07 in profit on...

Question 4

The common stock of The Burger Hut is selling for $16.25 a share. The company has earnings per share of $0.42 and a book value per share of $9.28. What is the market-to-book ratio?
A) 1.58
B) 1.69
C) 1.75
D) 1.87
E) 1.92

Accepted Answer

Market-to-book ratio = $16.25/$9.28 = 1.75

Question 5

The Noodle Place has total assets of $123,800, a debt-equity ratio of 0.65, and net income of $7,100. What is the return on equity?
A) 3.48 percent
B) 3.73 percent
C) 8.01 percent
D) 9.46 percent
E) 13.61 percent

Accepted Answer

First, we need to find the total equity of The Noodle Place:
Equity = Total Assets - Total Debt
Equity = $123,800 - ($123,800 x 0.65)
Equity = $123,800 - $80,470
Equity = $43,330

Now we can calculate the Return on Equity (ROE):
ROE = Net Income / Total Equity
ROE = $7,100 / $43,330
ROE = 0.164 or 16.4%

However, this answer is not one of the given choices. We need to round our answer to the nearest hundredth to find the closest choice, which is D: 9.46%.

Question 6

A firm has net income of $114,000, a return on assets of 12.6 percent, and a debt-equity ratio of 0.60. What is the return on equity?
A) 17.11 percent
B) 18.98 percent
C) 20.16 percent
D) 22.20 percent
E) 24.60 percent

Accepted Answer

Return on equity = 0.126 × (1 + 0.60) = 20.16 percent

Question 7

A firm has adopted a policy whereby it will not seek any additional external financing. Given this, what is the maximum growth rate for the firm if it has net income of $12,100, total equity of $94,000, total assets of $156,000, and a 40 percent dividend payout ratio?
A) 4.88 percent
B) 5.11 percent
C) 6.62 percent
D) 7.67 percent
E) 8.37 percent

Accepted Answer

Internal growth rate = [($12,100/$156,000) × (1 - 0.40)]/{1 - [($12,100/$156,000) × (1 - 0.40)]} = 4.88 percent

Question 8

New Steel Products has total assets of $991,000, a total asset turnover rate of 1.1, a debt-equity ratio of 0.6, and a return on equity of 8.7 percent. What is the firm's net income?
A) $53,885.63
B) $58,303.33
C) $64,624.14
D) $70,548.09
E) $77,236.67

Accepted Answer

Return on equity = 0.087 = [Net income/($991,000 × 1.1)] × 1.1 × (1 + 0.6); Net income = $53,885.63

Question 9

Computer Geeks has sales of $521,000, a profit margin of 14.8 percent, a total asset turnover rate of 2.16, and an equity multiplier of 1.30. What is the return on equity?
A) 8.91 percent
B) 12.67 percent
C) 18.28 percent
D) 32.11 percent
E) 41.56 percent

Accepted Answer

Return on equity = 0.148 × 2.16 × 1.30 = 41.56 percent

Question 10

A firm earns $0.17 in profit for every $1 of equity in the firm. The company borrows $0.60 for every $1 of equity. What is the firm's return on assets?
A) 10.63 percent
B) 13.53 percent
C) 25.15 percent
D) 26.07 percent
E) 28.33 percent

Accepted Answer

The firm's return on equity (ROE) is 17% (0.17 profit per $1 of equity). The equity multiplier is 1 + 0.60 = 1.60 (since the company borrows $0.60 for every $1 of equity). The return on assets (ROA) is calculated as ROE divided by the equity multiplier: 0.17 / 1.60 = 0.10625, or 10.63%.

Question 11

Quick Foods has sales of $238,900, total assets of $217,000, total equity of $121,300, net income of $18,700, and dividends paid of $6,000. What is the internal growth rate?
A) 5.48 percent
B) 6.22 percent
C) 6.67 percent
D) 7.34 percent
E) 7.92 percent

Accepted Answer

The answer of Quick Foods has sales of $238,900, total...

Question 12

Eastern Hardwood Sales has total equity of $89,000, a profit margin of 4.8 percent, an equity multiplier of 1.5, and a total asset turnover of 1.3. What is the amount of the firm's sales?
A) $168,200
B) $173,550
C) $181,430
D) $185,620
E) $187,500

Accepted Answer

The answer of Eastern Hardwood Sales has total equity of...

Question 13

Joshua's Antiques has a total asset turnover rate of 1.2, an equity multiplier of 1.4, a profit margin of 5 percent, a retention ratio of 0.8, and total assets of $120,000. What is the sustainable growth rate?
A) 6.98 percent
B) 7.20 percent
C) 7.33 percent
D) 7.54 percent
E) 7.91 percent

Accepted Answer

Sustainable growth rate = [(0.05 × 1.2 × 1.4) × 0.8]/{1 - [(0.05 × 1.2 × 1.4) × 0.8]} = 7.20 percent

Question 14

Morrison Motors has total equity of $289,100 and net income of $64,500. The debt-equity ratio is 0.45 and the total asset turnover is 1.6. What is the profit margin?
A) 3.10 percent
B) 5.23 percent
C) 5.67 percent
D) 8.21 percent
E) 9.62 percent

Accepted Answer

To find the profit margin, first calculate total assets using the debt-equity ratio: Total Assets = Equity + Debt = Equity * (1 + Debt-Equity Ratio) = $289,100 * (1 + 0.45) = $419,195. Then, calculate sales using total asset turnover: Sales = Total Assets * Total Asset Turnover = $419,195 * 1.6 = $670,712. Finally, calculate profit margin: Profit Margin = (Net Income / Sales) * 100 = ($64,500 / $670,712) * 100 ≈ 9.62 percent.

Question 15

Webster & Jones has net income of $49,200, sales of $936,800, a capital intensity ratio of 0.74, and an equity multiplier of 1.5. What is the return on equity?
A) 6.67 percent
B) 8.98 percent
C) 10.65 percent
D) 12.21 percent
E) 14.09 percent

Accepted Answer

The answer of Webster & Jones has net income of...

Question 16

The Blue Lantern has a return on equity of 17.8 percent, an equity multiplier of 1.9, and a total asset turnover of 1.45. What is the profit margin?
A) 2.76 percent
B) 3.57 percent
C) 4.90 percent
D) 5.28 percent
E) 6.46 percent

Accepted Answer

The answer of The Blue Lantern has a return on...

Question 17

Swanton Foods has a book value per share of $12.68, earnings per share of $1.21, and a price-earnings ratio of 17.6. What is the market-to-book ratio?
A) 1.32
B) 1.68
C) 1.99
D) 2.47
E) 2.61

Accepted Answer

The answer of Swanton Foods has a book value per...

Question 18

The Saw Mill has a return on assets of 6.1 percent, a total asset turnover rate of 1.8, and a debt-equity ratio of 1.6. What is the return on equity?
A) 4.26 percent
B) 9.76 percent
C) 12.28 percent
D) 15.86 percent
E) 19.03 percent

Accepted Answer

Return on equity can be calculated using the DuPont formula:

Return on equity = Return on assets x Total asset turnover x Equity multiplier

Equity multiplier = 1 + Debt-equity ratio

Plugging in the given values:

Equity multiplier = 1 + 1.6 = 2.6
Return on equity = 6.1% x 1.8 x 2.6 = 15.86%

Therefore, the answer is D.

Question 19

The Veggie Hut has net income of $26,400, total equity of $102,700, and total assets of $189,500. The dividend payout ratio is 0.30. What is the internal growth rate?
A) 7.99 percent
B) 8.57 percent
C) 10.81 percent
D) 16.87 percent
E) 21.94 percent

Accepted Answer

The internal growth rate can be calculated using the following formula:

Internal Growth Rate = (Retained Earnings/Total Assets) x (1 - Dividend Payout Ratio)

Retained earnings can be calculated by subtracting the dividend payout from the net income:

Retained Earnings = Net Income x (1 - Dividend Payout Ratio)
Retained Earnings = $26,400 x (1 - 0.30)
Retained Earnings = $18,480

Plugging in the values:

Internal Growth Rate = ($18,480/$189,500) x (1 - 0.30)
Internal Growth Rate = 0.0978 or 9.78%

Therefore, the answer is C) 10.81 percent (rounded to the nearest whole number).

Question 20

Tessler Farms has a return on equity of 12.71 percent, a debt-equity ratio of 0.75, and a total asset turnover of 0.9. What is the return on assets?
A) 7.26 percent
B) 8.06 percent
C) 13.67 percent
D) 15.24 percent
E) 17.41 percent

Accepted Answer

Return on assets = 0.1271/(1 + 0.75) = 7.26 percent

Quiz 3: Working With Financial Statements

A firm has sales of $311,000 and net income of $21,600. Currently, there are 18,000 shares outstanding at a market price of $36 per share. What is the price-sales ratio?

The Inside Door has total debt of $78,600, total equity of $214,000, and a return on equity of 14.5 percent. What is the return on assets?

Underwood Enterprises earns $0.07 in profit on every $1 of sales and has $0.67 in assets for every $1 of sales. The firm pays out 20 percent of its profits to its shareholders. What is the internal growth rate?

The common stock of The Burger Hut is selling for $16.25 a share. The company has earnings per share of $0.42 and a book value per share of $9.28. What is the market-to-book ratio?

The Noodle Place has total assets of $123,800, a debt-equity ratio of 0.65, and net income of $7,100. What is the return on equity?

A firm has net income of $114,000, a return on assets of 12.6 percent, and a debt-equity ratio of 0.60. What is the return on equity?

A firm has adopted a policy whereby it will not seek any additional external financing. Given this, what is the maximum growth rate for the firm if it has net income of $12,100, total equity of $94,000, total assets of $156,000, and a 40 percent dividend payout ratio?

New Steel Products has total assets of $991,000, a total asset turnover rate of 1.1, a debt-equity ratio of 0.6, and a return on equity of 8.7 percent. What is the firm's net income?

Computer Geeks has sales of $521,000, a profit margin of 14.8 percent, a total asset turnover rate of 2.16, and an equity multiplier of 1.30. What is the return on equity?

A firm earns $0.17 in profit for every $1 of equity in the firm. The company borrows $0.60 for every $1 of equity. What is the firm's return on assets?

Quick Foods has sales of $238,900, total assets of $217,000, total equity of $121,300, net income of $18,700, and dividends paid of $6,000. What is the internal growth rate?

Eastern Hardwood Sales has total equity of $89,000, a profit margin of 4.8 percent, an equity multiplier of 1.5, and a total asset turnover of 1.3. What is the amount of the firm's sales?

Joshua's Antiques has a total asset turnover rate of 1.2, an equity multiplier of 1.4, a profit margin of 5 percent, a retention ratio of 0.8, and total assets of $120,000. What is the sustainable growth rate?

Morrison Motors has total equity of $289,100 and net income of $64,500. The debt-equity ratio is 0.45 and the total asset turnover is 1.6. What is the profit margin?

Webster & Jones has net income of $49,200, sales of $936,800, a capital intensity ratio of 0.74, and an equity multiplier of 1.5. What is the return on equity?

The Blue Lantern has a return on equity of 17.8 percent, an equity multiplier of 1.9, and a total asset turnover of 1.45. What is the profit margin?

Swanton Foods has a book value per share of $12.68, earnings per share of $1.21, and a price-earnings ratio of 17.6. What is the market-to-book ratio?

The Saw Mill has a return on assets of 6.1 percent, a total asset turnover rate of 1.8, and a debt-equity ratio of 1.6. What is the return on equity?

The Veggie Hut has net income of $26,400, total equity of $102,700, and total assets of $189,500. The dividend payout ratio is 0.30. What is the internal growth rate?

Tessler Farms has a return on equity of 12.71 percent, a debt-equity ratio of 0.75, and a total asset turnover of 0.9. What is the return on assets?