Question 1

A firm has $4,200 of cash,equipment worth $46,300,inventory of $38,400,a building worth $130,500,and $21,500 of accounts receivable.What is the value of the total fixed assets?

Accepted Answer

Total fixed assets = $46,300 + $130,500 = $176,800

Question 2

A firm maintains a constant dividend payout ratio of 0.45.What must the plowback ratio be?

Accepted Answer

Plowback ratio is the ratio of earnings retained by the firm to the total earnings. Since the firm has a constant dividend payout ratio of 0.45, the remainder of earnings (1-0.45) will be plowed back and reinvested in the firm. Therefore, the plowback ratio is 1-0.45 = 0.55. Option B is the correct answer.

Question 3

Which one of the following statements related to book value per share (BVPS)is correct?

Accepted Answer

BVPS is calculated by dividing a company's total shareholders' equity by the number of outstanding shares. Issuing new shares at market value increases the company's total shareholders' equity without affecting the number of outstanding shares, thus increasing the BVPS. None of the other statements are correct.

Question 4

A firm has $3,200 of cash,equipment worth $41,000,inventory of $15,500,$13,200 worth of patents,and $11,300 of accounts receivable.What is the value of the total current assets?

Accepted Answer

Total current assets = $3,200 + $15,500 + $11,300 = $30,000

Question 5

The Cruise Ship Co.has taxable income of $4,000,000.The company paid out $550,000 in interest expense.The tax rate is 35 percent and the dividend payout ratio is 30 percent.What is the amount that was paid out in dividends?

Accepted Answer

Dividends = $3,500,000 × (1 - 0.35) × 0.30 = $682,500

Question 6

Which of the following affect the earnings per share?
I.decrease in interest expense
II.share repurchase
III.increase in tax rates
IV.preferred stock dividend

Accepted Answer

All four options affect the earnings per share (EPS). A decrease in interest expense increases net income, thus increasing EPS. Share repurchase reduces the number of outstanding shares, increasing EPS. An increase in tax rates decreases net income, thus decreasing EPS. Preferred stock dividends reduce the earnings available to common shareholders, thus affecting EPS.

Question 7

GH Enterprises has annual sales of $5.2 million,depreciation of $350,000,operating expenses of $390,000,and cost of goods sold of $3.1 million.What is the gross profit?

Accepted Answer

Gross profit = $5,200,000 - $3,100,000 = $2,100,000

Question 8

Which one of the following is most apt to be constant given the percentage of sales approach to creating pro forma statements?

Accepted Answer

The percentage of sales approach assumes that certain expenses, such as cost of goods sold and operating expenses, will remain relatively constant as a percentage of sales. Therefore, gross margin is most apt to be constant under this approach. Book value per share, earnings per share, return on equity, and cash flow per share are all more directly affected by changes in sales levels and are therefore less likely to be constant under this approach.

Question 9

Which one of the following is generally used as the basis for computing the cash flow per share?

Accepted Answer

Operating cash flow is generally used as the basis for computing cash flow per share because it represents the cash generated from a company's primary operations and is considered to be a more reliable indicator of a company's ability to generate cash compared to investment or financing cash flow.

Question 10

The management of the Downtown Athletics recently voted to limit any future borrowing or sales of company stock.By taking this action,management has effectively done which one of the following?

Accepted Answer

By limiting future borrowing or sales of company stock, the management of Downtown Athletics has effectively restricted the company's ability to raise funds for growth and expansion. This action may limit the company's future growth potential, as it will have to rely on its existing resources and earnings to finance any new investments or ventures. Thus, the best choice is E.

Question 11

Young Industries has a 3-year bank loan of $85,000,a 6-month note payable of $6,000,a $67,300 mortgage,and accounts payable of $22,500.What is the amount of the total current liabilities? (Ignore the current portion of any long-term debt.)

Accepted Answer

Total current liabilities = $6,000 + $22,500 = $28,500

Question 12

Which two of the following are generally used to fund the external financing need?
I.sale of fixed assets
II.increase in accounts payable
III.issuance of long-term debt
IV.sale of equity securities

Accepted Answer

II and IV. Increases in accounts payable and the sale of equity securities are common methods to fund external financing needs. Accounts payable increase represents a form of short-term financing, while selling equity securities provides longer-term funding without increasing debt.

Question 13

ABC Construction,Inc.has buildings and equipment of $315,600,long-term debt of $154,700,accounts payable of $52,000,cash of $9,800,accounts receivable of $18,300,inventory of $62,000,and retained earnings of $147,000.What is the total equity of the firm?

Accepted Answer

Total assets = $315,600 + $9,800 + $18,300 + $62,000 = $405,700
Total liabilities = $154,700 + $52,000 = $206,700
Total equity = $405,700 - $206,700 = $199,000

Question 14

Which one of the following will increase the return on equity?

Accepted Answer

Decreasing fixed costs will increase the return on equity as it will increase the net income, which in turn will increase the return on equity. The other options (A, C, D, and E) will decrease the return on equity.

Question 15

Which one of the following is most apt to vary directly with sales?

Accepted Answer

Current assets are most apt to vary directly with sales as an increase in sales typically leads to an increase in the demand for inventory, which is reflected in current assets. The other options are not directly related to sales in the same way as current assets.

Question 16

AccentJewelry,Inc.has annual sales of $4.8 million and a gross profit margin of 55 percent.The operating expenses are $510,550 and depreciation is $160,250.Interest expense is $80,000 and the tax rate is 35 percent.What is the net income?

Accepted Answer

Net income = [($4,800,000 × 0.55) - $510,550 - $160,250 - $80,000] × (1 - 0.35) = $1,227,980

Question 17

Behrend Corporation has annual sales of $4.5 million,depreciation of $425,000,operating expenses of $679,000,cost of goods sold of $2.3 million,and interest expense of $230,000.What is the operating income?

Accepted Answer

Operating income = $4,500,000 - $425,000 - $679,000 - $2,300,000 = $1,096,000

Question 18

A decrease in which one of the following will increase the return on assets?

Accepted Answer

The answer of A decrease in which one of the...

Question 19

Which one of the following accounts is least likely to vary directly with the level of sales?

Accepted Answer

Interest expense is typically a fixed cost that does not vary directly with the level of sales, as it is usually based on fixed interest rates and loan amounts. The other accounts listed (accounts payable, inventory, cost of goods sold, and accounts receivable) are all affected by the volume of sales and tend to vary directly with changes in sales levels.

Question 20

A decrease in which one of the following will increase the gross margin?

Accepted Answer

A decrease in variable costs will increase the gross margin because it will decrease the costs of goods sold (COGS), resulting in a higher margin between revenue and COGS.

Quiz 17: Projecting Cash Flow and Earnings