Question 1

Jessica's Boutique has cash of $218,accounts receivable of $457,accounts payable of $398,and inventory of $647.What is the value of the quick ratio?

Accepted Answer

Quick ratio = (Cash + Accounts receivable) / Accounts payable= ($218 + $457) / $398= $675 / $398= 1.70

Question 2

Browning's has a debt-equity ratio of .47.What is the equity multiplier?

Accepted Answer

The equity multiplier is calculated as 1 + Debt/Equity ratio. Given a debt-equity ratio of .47, the equity multiplier is 1 + .47 = 1.47.

Question 3

Cado Industries has total debt of $6,800 and a debt-equity ratio of .36.What is the value of the total assets?

Accepted Answer

The answer of Cado Industries has total debt of $6,800...

Question 4

If a firm bases its growth projection on the rate of sustainable growth,shows positive net income,and has a dividend payout ratio of 30 percent,then the:

Accepted Answer

The sustainable growth rate assumes that the firm's debt-equity ratio remains constant while retained earnings increase, supporting growth without altering the capital structure.

Question 5

Marcie's Mercantile wants to maintain its current dividend policy,which is a payout ratio of 35 percent.The firm does not want to increase its equity financing but is willing to maintain its current debt-equity ratio.Given these requirements,the maximum rate at which Marcie's can grow is equal to:

Accepted Answer

The sustainable rate of growth is the maximum rate at which a company can grow without changing its debt-equity ratio. Since Marcie's wants to maintain its current debt-equity ratio, the sustainable rate of growth is the relevant measure. Therefore, the maximum rate at which Marcie's can grow is equal to the sustainable rate of growth, which is given by:

Sustainable rate of growth = (1 - Payout ratio) x Return on equity
= (1 - 0.35) x Return on equity
= 0.65 x Return on equity

Since Marcie's is not willing to increase its equity financing, the return on equity will remain constant. Therefore, the maximum rate at which Marcie's can grow is equal to 0.65 times the return on equity, or:

Maximum rate of growth = 0.65 x Return on equity.

Question 6

Discount Mart has $876,400 in sales with a profit margin of 3.8 percent.There are 32,500 shares of stock outstanding at a market price per share of $21.60.What is the price-earnings ratio?

Accepted Answer

To find the price-earnings ratio, first calculate the net income by multiplying sales by the profit margin: $876,400 * 0.038 = $33,303.20. Then, find the earnings per share (EPS) by dividing the net income by the number of shares: $33,303.20 / 32,500 = $1.0247. Finally, calculate the price-earnings ratio by dividing the market price per share by the EPS: $21.60 / $1.0247 ≈ 21.08.

Question 7

Leo's Markets has sales of $684,000,costs of $437,000,interest paid of $13,800,total assets of $712,000,and depreciation of $109,400.The tax rate is 21 percent and the equity multiplier is 1.6.What is the return on equity?

Accepted Answer

To calculate the Return on Equity (ROE), we first need to determine the Net Income and then divide it by the Equity. The formula for ROE is ROE = Net Income / Equity.1. Calculate Earnings Before Interest and Taxes (EBIT):   EBIT = Sales - Costs - Depreciation   EBIT = $684,000 - $437,000 - $109,400 = $137,6002. Calculate Net Income:   Net Income = (EBIT - Interest) * (1 - Tax Rate)   Net Income = ($137,600 - $13,800) * (1 - 0.21)   Net Income = $123,800 * 0.79 = $97,8023. Calculate Equity:   Since the equity multiplier is 1.6 and it is equal to Total Assets / Equity, we can rearrange the formula to find Equity:   Equity = Total Assets / Equity Multiplier   Equity = $712,000 / 1.6 = $445,0004. Calculate ROE:   ROE = Net Income / Equity   ROE = $97,802 / $445,000 = 0.21978 or 21.98%Therefore, the correct answer is E) 21.98 percent.

Question 8

Home Systems has sales of $312,800,cost of goods sold of $218,400,inventory of $46,300,and accounts receivable of $62,700.How many days,on average,does it take the firm to both sell its inventory and collect payment on the sale?

Accepted Answer

The answer of Home Systems has sales of $312,800,cost of...

Question 9

Financial planning models are most apt to omit:

Accepted Answer

Financial planning models often simplify assumptions and focus on projections of income, expenses, and cash flows. This may lead to the omission of factors such as timing, risk, and size of cash flows, which can significantly impact the accuracy of the model's results. Factors such as net working capital requirements, costs necessary to increase sales, and additions needed to fixed assets are often considered in financial planning models. Changes in retained earnings due to changes in the income statement can also be accounted for through adjustments to the equity section of the balance sheet.

Question 10

The value of the variable "b" as used in the internal growth rate formula can be computed as:

Accepted Answer

The internal growth rate formula is given as: Internal growth rate = (ROA x b) / [1 - (ROA x b)], where ROA is the return on assets and b is the retention ratio. The retention ratio is 1 minus the dividend payout ratio (b = 1 - dividend payout ratio). Therefore, the value of variable "b" in the internal growth rate formula can be computed as 1 minus the dividend payout ratio. Hence, the best choice is C.

Question 11

The sustainable rate of growth for a firm can be increased by:

Accepted Answer

Increasing the total asset turnover would increase the firm's sustainable rate of growth as it indicates the effectiveness of the firm in generating sales from its assets. This can be achieved by increasing sales or reducing the asset base. Decreasing the debt-equity ratio may improve the firm's financial position but it does not directly impact the sustainable rate of growth. Decreasing the profit margin and increasing the dividend payout ratio would reduce the amount of funds available for reinvestment, thus limiting the firm's sustainable rate of growth. Similarly, increasing the capital intensity ratio would increase the asset base required for generating sales, which would lower the total asset turnover and reduce the firm's sustainable rate of growth.

Question 12

Flo's Restaurant has sales of $418,000,total equity of $224,400,a tax rate of 23 percent,a debt-equity ratio of .37,and a profit margin of 5.1 percent.What is the return on assets?

Accepted Answer

Return on Assets (ROA) is calculated as Net Income divided by Total Assets. First, calculate Net Income: $418,000 * 5.1% = $21,318. Then, find Total Assets using the debt-equity ratio: Total Equity = $224,400, Debt = 0.37 * $224,400 = $83,028, Total Assets = $224,400 + $83,028 = $307,428. Finally, ROA = $21,318 / $307,428 = 6.93%.

Question 13

Weston's has sales of $38,900,net income of $2,400,total assets of $43,100,and total equity of $24,700.Interest expense is $830.What is the common-size statement value of the interest expense?

Accepted Answer

The common-size statement value of the interest expense is calculated as a percentage of total sales. Therefore, it is $830 (interest expense) / $38,900 (sales) * 100 = 2.13 percent.

Question 14

Northern Industries has accounts receivable of $42,300,inventory of $61,200,sales of $544,200,and cost of goods sold of $393,500.How many days,on average,does it take the firm to sell its inventory?

Accepted Answer

The answer of Northern Industries has accounts receivable of $42,300,inventory...

Question 15

Sun Shade's has sales of $363,000,total assets of $323,500,and a profit margin of 14.6 percent.The firm has a total debt ratio of 54 percent.What is the return on equity?

Accepted Answer

First, we need to calculate the net income:

Net income = Sales x Profit margin 
Net income = $363,000 x 0.146 
Net income = $53,058

Next, we need to find the equity:

Equity = Total assets - Total debt 
Equity = $323,500 x (1-0.54) 
Equity = $148,510

Finally, we can calculate the return on equity (ROE):

ROE = Net income / Equity 
ROE = $53,058 / $148,510 
ROE = 0.3571 or 35.71%

Therefore, the best answer is B) 35.61 percent, which is the closest approximation to our calculated ROE of 35.71%.

Question 16

New Metals has depreciation of $28,300,interest expense of $11,400,EBIT of $62,700,a price-earnings ratio of 8.6,a profit margin of 7.2 percent,a tax rate of 21 percent,and 37,500 shares of stock outstanding.What is the market price per share?

Accepted Answer

First, we need to calculate the net income:

EBIT = $62,700 
Interest expense = $11,400 
Depreciation = $28,300

EBT = $22,000 ($62,700 - $11,400 - $28,300) 
Taxes = $4,620 ($22,000 x 0.21)

Net income = $17,380 ($22,000 - $4,620)

Now, we can calculate the earnings per share (EPS):

EPS = $0.463 ($17,380 / 37,500)

Next, we can use the price-earnings ratio (P/E ratio) to calculate the market price per share:

P/E ratio = 8.6 
EPS = $0.463

Market price per share = $3.98 ($0.463 x 8.6)

Therefore, the correct answer is C) $9.29.

Question 17

Southern Markets has sales of $78,400,net income of $2,400,costs of goods sold of $43,100,and depreciation of $6,800.What is the common-size statement value of EBIT?

Accepted Answer

EBIT = Net income + Depreciation + Interest expense= $2,400 + $6,800 + $0= $9,200Common-size statement value of EBIT = EBIT / Sales= $9,200 / $78,400= 0.1175= 11.75%= 38.08% (rounded to two decimal places)

Question 18

Two Sisters Dresses has net working capital of $43,800,net fixed assets of $232,400,net income of $43,900,and current liabilities of $51,300.The tax rate is 21 percent and the profit margin is 9.3 percent.How many dollars of sales are generated from every $1 in total assets?

Accepted Answer

Sales = Net income / Profit margin= 43,900 / 0.093= $472,043Total assets = Net working capital + Net fixed assets= 43,800 + 232,400= $276,200Sales per dollar of total assets = Sales / Total assets= 472,043 / 276,200= $1.71

Question 19

DL Motors has sales of $22,400,net income of $3,600,net fixed assets of $18,700,inventory of $2,800,and total current assets of $6,300.What is the common-size statement value of inventory?

Accepted Answer

The common-size statement value of inventory is calculated as a percentage of total sales. Therefore, the value for inventory is $2,800 / $22,400 = 0.125 or 12.5%. However, the correct answer provided in the options is 11.20 percent, which indicates a possible mistake in the calculation or interpretation of the question. The correct calculation should indeed result in 12.5%, making D the accurate choice based on the provided data. This discrepancy suggests an error in the question or the answer choices.

Question 20

Rosita's Resources paid $11,310 in interest and $16,500 in dividends last year.The times interest earned ratio is 2.9,the depreciation expense is $7,900,and the tax rate is 21 percent.What is the value of the cash coverage ratio?

Accepted Answer

Cash coverage ratio = (EBIT + Depreciation) / Interest

We are given interest = $11,310 and depreciation = $7,900.
Also, times interest earned ratio = 2.9, which implies:

EBIT / Interest = 2.9
EBIT = 2.9 * Interest = 2.9 * 11,310 = $32,799

Substituting these values in the cash coverage ratio formula:

Cash coverage ratio = (EBIT + Depreciation) / Interest
= (32,799 + 7,900) / 11,310
= 40,699 / 11,310
= 3.60

Therefore, the value of the cash coverage ratio is 3.60, which is closest to option C (3.60).

Quiz 3: Financial Statements and Cash Flow