Question 1

The Paymore Co. reported the following long-term liabilities and stockholder's equity for 2017:
  In 2017, Paymore earned $125 in net income and paid a $40 dividend. What is the 2017 total common shareholder equity figure?

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Question 2

Discuss the difference between book values and market values on the Statement of Financial Position and explain which is more important to the financial manager and why.

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Question 3

The Cliplink Company has an equity multiplier of 3.36? What are the debt ratio and debt to equity ratios of Cliplink?

Accepted Answer

The equity multiplier is calculated as total assets divided by total equity, which is also equal to 1 + (total debt/total equity). Given an equity multiplier of 3.36, it means that for every $1 of equity, the company has $3.36 of assets. This implies a debt to equity ratio of 2.36 (since 3.36 - 1 = 2.36). The debt ratio, which is total debt divided by total assets, can be inferred from these values. If the equity multiplier is 3.36, it means that equity is 1/3.36 of assets, so debt is 2.36/3.36 of assets, which simplifies to 0.70 or 70%.

Question 4

Assuming that the current ratio is currently 2, which of the following actions will increase it?

Accepted Answer

Paying off a short-term bank loan with long-term debt increases the current ratio because it reduces current liabilities without affecting current assets.

Question 5

Grady's Candies paid a total of $32 million in dividends in 2017. In addition, the company issued $22.5 million in new stock in that year. What was Grady's cash flow to stockholder's in 2017?

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Question 6

Based on the following information, calculate stockholders equity:
cash = $5.00
accounts payable = $12.00
other current liabilities = $65.00
accounts receivable = $20.00
inventory = $50.00
net fixed assets = $175.00
long-term debt = $40.00

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Question 7

Peggy Grey's Cookies has net income of $360. The firm pays out 40% of the net income to its shareholders as dividends. During the year, the company sold $80 worth of common stock. What is the cash flow to stockholders?

Accepted Answer

Cash flow to stockholders is calculated by subtracting the cash raised by selling stock from the dividends paid out. Here, it's 40% of $360 (which is $144) minus the $80 from stock sales, resulting in $64.

Question 8

The Hi-Lite Corp. had a profitable year and their ROE was 14.4%. The company paid out $1.20 of their earnings of $3.00 for the year. What is Hi-Lite's sustainable growth?

Accepted Answer

The sustainable growth rate can be calculated using the formula: Sustainable Growth Rate = ROE * (1 - Dividend Payout Ratio). Here, ROE = 14.4% and Dividend Payout Ratio = $1.20 / $3.00 = 0.4 or 40%. Thus, Sustainable Growth Rate = 14.4% * (1 - 0.4) = 14.4% * 0.6 = 8.64%.

Question 9

Pion Inc. reported current assets of $80 and fixed assets of $150 as of December 31. The company, as of December 31, also reports current liabilities of $72 and long-term liabilities of $149. Calculate Pion's shareholder's equity.

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Question 10

Logit Co. paid dividends of $400. And retained 33.33% of their earnings. The sales for the year were $12,000 and total assets of 10,000. What was the rate of return on assets?

Accepted Answer

The rate of return on assets (ROA) is calculated as net income divided by total assets. Given that Logit Co. retained 33.33% of its earnings, it implies that 66.67% of its earnings were paid out as dividends. With $400 paid in dividends, this represents 66.67% of earnings, meaning total earnings were $600 ($400 / 0.6667). The ROA is then $600 (net income) / $10,000 (total assets) = 0.06 or 6%.

Question 11

Cos Co.'s after-tax net income was $120. Their interest paid was $50. Assuming the corporate tax is 40%, what is Cos CO.'s interest coverage ratio?

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Question 12

Pete's Boats has beginning long-term debt of $180 and ending long-term debt of $210. The beginning and ending total debt balances are $340 and $360, respectively. The interest paid is $20. What is the amount of the cash flow to creditors?

Accepted Answer

Cash flow to creditors is calculated as interest paid minus the net increase in long-term debt. Here, it is $20 - ($210 - $180) = $20 - $30 = -$10.

Question 13

The Lo-Gro Co. in 2014 had equity of $15 million, net income of $1,800,000 of which 60% was paid out as dividends. The ROE and retained earnings for the Lo-Gro Co. are:

Accepted Answer

ROE is calculated as Net Income / Equity. For Lo-Gro Co., this is $1,800,000 / $15,000,000 = 0.12 or 12%. Retained earnings are the portion of net income not paid out as dividends, which is 40% of $1,800,000 (100% - 60% = 40%), equaling $720,000.

Question 14

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Question 15

Sin Co. stock sells for $28.00 per share. The total market value of the equity is $40 million. The market-to-book ratio is 7. What is the book value per share?

Accepted Answer

The book value per share can be calculated by dividing the total book value by the number of shares. Given the total market value of the equity is $40 million and the market-to-book ratio is 7, the total book value is $40 million / 7 = $5.71 million. To find the book value per share, we divide the total book value by the number of shares. The number of shares is the total market value divided by the price per share, which is $40 million / $28.00 = 1.42857 million shares. Therefore, the book value per share is $5.71 million / 1.42857 million = $4.00.

Question 16

The Lo-Gro Co. in 2014 had equity of $15 million, net income of $1,800,000 of which 60% was paid out as dividends. The sustainable growth rate for the Lo-Gro Co. is:

Accepted Answer

The sustainable growth rate can be calculated using the formula: Sustainable Growth Rate = ROE * (1 - dividend payout ratio). Here, ROE (Return on Equity) = Net Income / Equity = $1,800,000 / $15,000,000 = 0.12 or 12%, and the dividend payout ratio is 60%, so the retention ratio (b) is 1 - 0.60 = 0.40. Thus, Sustainable Growth Rate = 0.12 * 0.40 = 0.048 or 4.80%.

Question 17

The Simmons Company reported retained earnings in 2016 of $4750. In 2017, Simmons earned $1120 before taxes and paid a dividend of $730. Simmon's tax rate is 34%. What is Simmons' retained earnings?

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Question 18

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