Question 1

Jams and Jellies has net fixed assets of $879,000,long-term debt of $368,000,current liabilities of $136,000,and net working capital of $13,400.The retention ratio is 50 percent and the profit margin is 5.8 percent.Assume all assets and current liabilities change spontaneously with sales and the firm is currently operating at full capacity.What is the external financing need if the current sales of $748,000 are projected to increase by 3 percent?
A)$8,212.12
B)$11,506.60
C)$6,390.18
D)$1,387.58
E)$4,429.24

Accepted Answer

Current total assets = $13,400 + $136,000 + $879,000 = $1,028,400 Projected total assets = 1.03 × $1,028,400 = $1,059,252 Projected current liabilities = 1.03 × $136,000 = $140,080 Projected long-term debt = $368,000 (no change) Current stockholders' equity = $1,028,400 - $136,000 - $368,000 = $524,400 Projected stockholders' equity = $524,400 + (1.03 × $748,000 × 0.058 × 0.50)= $546,742.76 EFN = $1,059,252 - $140,080 - $368,000 - $546,742.76 = $4,429.24

Question 2

The Top Shop has net income of $648 and total equity of $6,600.The debt-equity ratio is 0.6 and the plowback ratio is 55 percent.What is the internal growth rate?
A)3.49%
B)3.87%
C)4.92%
D)5.88%
E)4.33%

Accepted Answer

Total assets = $6,600 × (1 + 0.6)= $10,560 Internal growth = [($648 / $10,560)× 0.55] / {[($648 / $10,560)× 0.55]} = 0.0349,or 3.49%

Question 3

Tree Top Furniture has current sales of $287,600 and fixed assets of $314,000.The firm is currently operating at 96 percent of capacity.What is the maximum percentage increase the firm can have in sales without investing in additional fixed assets?
A)4.17%
B)4.00%
C)6.72%
D)3.92%
E)6.33%

Accepted Answer

Maximum output = $287,600 / 0.96 = $299,583.33 Maximum percentage increase = ($299,583.33 - $287,600)/ $287,600 = 0.0417,or 4.17%

Question 4

Martin's Lumber has a profit margin of 7 percent and a dividend payout ratio of 30 percent.The total asset turnover is 0.90,and the debt-equity ratio is 0.45.What is the sustainable rate of growth?
A)6.33%
B)6.83%
C)6.67%
D)6.90%
E)6.99%

Accepted Answer

Return on equity = 0.07 × 0.90 × (1 + 0.45)= 0.09135 Sustainable growth = [0.09135 × (1 - 0.30)] / {1 - [0.09135 × (1 - 0.30)]} = 0.0683,or 6.83%

Question 5

Juno's has sales of $528,000,a tax rate of 34 percent,a dividend payout ratio of 35 percent,and a profit margin of 5.7 percent.What is the addition to retained earnings?
A)$10,503.00
B)$19,562.40
C)$11,207.00
D)$18,472.42
E)$19,863.36

Accepted Answer

Addition to retained earnings = $528,000 × 0.057 × (1 - 0.35)= $19,562.40

Question 6

Rossiter's currently has total assets of $203,000,long-term debt of $78,400,and current liabilities of $36,700.The dividend payout ratio is 25 percent and the profit margin is 5.8 percent.Assume all assets and current liabilities change spontaneously with sales and the firm is currently operating at full capacity.What is the external financing need if the current sales of $185,000 are projected to increase by 5 percent?
A)$182.40
B)-$54.82
C)$162.09
D)$387.40
E)-$134.88

Accepted Answer

Projected total assets = 1.05 × $203,000 = $213,150 Projected current liabilities = 1.05 × $36,700 = $38,535 Projected long-term debt = $78,400 (no change) Current stockholders' equity = $203,000 - $36,700 - $78,400 = $87,900 Projected shareholders equity = $87,900 + (1.05 × $185,000 × 0.058 × (1 - 0.25))= $96,349.88 EFN = $213,150 - $38,535 - $78,400 - $96,349.88 = -$134.88

Question 7

Used Auto Sales has sales for this year of $418,000,current liabilities of $190,400,and net working capital of $21,700.The projected sales for next year are $450,000.All current accounts change directly with sales.What is the projected value of current assets for next year?
A)$200,306.56
B)$204,013.11
C)$192,626.23
D)$228,337.32
E)$205,706.56

Accepted Answer

Projected current assets = ($21,700 + $190,400)/ $418,000 × $450,000 = $228,337.32

Question 8

Nails and More has net income of $13,100,total equity of $86,000,a dividend payout ratio of 25 percent,and an equity multiplier of 1.4.What is the internal rate of growth?
A)4.03%
B)4.63%
C)8.01%
D)3.54%
E)8.89%

Accepted Answer

ROA = $13,100 / (1.4 × $86,000)= 0.1088 Internal growth rate = [0.1088 × (1 - 0.25)] / {1 - [0.1465 × (1 - 0.25)]} = 0.0889,or 8.89%

Quiz 3: Financial Statements Analysis and Financial Models

The Top Shop has net income of $648 and total equity of $6,600.The debt-equity ratio is 0.6 and the plowback ratio is 55 percent.What is the internal growth rate?

Tree Top Furniture has current sales of $287,600 and fixed assets of $314,000.The firm is currently operating at 96 percent of capacity.What is the maximum percentage increase the firm can have in sales without investing in additional fixed assets?

Martin's Lumber has a profit margin of 7 percent and a dividend payout ratio of 30 percent.The total asset turnover is 0.90,and the debt-equity ratio is 0.45.What is the sustainable rate of growth?

Juno's has sales of $528,000,a tax rate of 34 percent,a dividend payout ratio of 35 percent,and a profit margin of 5.7 percent.What is the addition to retained earnings?

Used Auto Sales has sales for this year of $418,000,current liabilities of $190,400,and net working capital of $21,700.The projected sales for next year are $450,000.All current accounts change directly with sales.What is the projected value of current assets for next year?

Nails and More has net income of $13,100,total equity of $86,000,a dividend payout ratio of 25 percent,and an equity multiplier of 1.4.What is the internal rate of growth?