Question 1

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?
A) 17.2%
B) 8.60%
C) 5.76%
D) 43.2%

Accepted Answer

Sustainable Growth Rate = (ROE x (1 - Dividend Payout Ratio))
= (0.144 x (1 - 0.4)) 
= 0.086 or 8.6%

Question 2

Midget Co. has a profit margin on sales of 4% and a ROE of 18%. If Midget's debt-to-equity ratio is .8, what is the total asset turnover ratio?
A) 2.500
B) 5.625
C) 2.000
D) 10.125

Accepted Answer

The answer of Midget Co. has a profit margin on...

Question 3

When making financial decisions related to assets, you should:
A) always consider market values.
B) place more emphasis on book values than on market values.
C) rely primarily on the value of assets as shown on the balance sheet.
D) only consider market values if they are less than book values.

Accepted Answer

When making financial decisions related to assets, it is important to always consider market values because they reflect the current value of the assets and are a more accurate representation of their worth. Book values may not reflect changes in market conditions or the true value of the asset. The value of assets shown on the balance sheet may not be up to date or accurate, as it may be based on historical costs or outdated valuations. Therefore, market values should be the primary consideration when making financial decisions related to assets.

Question 4

Donny Dell Inc. had a days in inventory (based on 365 days) of 5. Cost of goods sold were $4,526. Net working capital was $70 and total current assets were $400. What is Donny Dell's quick ratio?
A) 11.315
B) 1.024
C) 4.829
D) 14.00

Accepted Answer

Quick ratio = (Current assets - Inventories)/Current liabilities

Since we are not given inventories directly, we need to use the information provided on days in inventory to calculate the inventory turnover ratio:

Inventory turnover ratio = Cost of goods sold / Average inventory

Average inventory = (Cost of goods sold / 365) x Days in inventory

Average inventory = ($4,526 / 365) x 5 = $62.71

Now we can calculate the quick ratio:

Quick ratio = (Current assets - $62.71) / Current liabilities

Current assets = $400
Net working capital = Current assets - Current liabilities = $70
Current liabilities = $400 - $70 = $330

Quick ratio = ($400 - $62.71) / $330 = 1.024

Question 5

Tan Co. had total operating revenues of $720 over the past year. During that time, average receivables were $90. What was the average collection period (ACP) given a 365-day year?
A) 8.00 days.
B) 4.56 days.
C) 40.97 days.
D) 45.63 days.

Accepted Answer

The answer of Tan Co. had total operating revenues of...

Question 6

Dividends per share is equal to dividends paid:
A) divided by the par value of common stock.
B) divided by the total number of shares outstanding.
C) divided by total shareholders' equity.
D) multiplied by the par value of the common stock.
E) multiplied by the total number of shares outstanding.

Accepted Answer

Dividends per share is calculated by dividing the total dividends paid by the total number of shares outstanding. This gives the amount of dividends paid per share. Therefore, the correct option is B, divided by the total number of shares outstanding.

Question 7

Donny Dell Inc. had a days in inventory of 5 (based on 365 days). The inventory turnover was:
A) 5
B) 60
C) 73
D) can not be figured without the inventory value

Accepted Answer

The inventory turnover ratio is calculated as 365 days divided by the days in inventory. Therefore, 365 / 5 = 73.

Question 8

Calculate net income based on the following information. Sales = $250.00
Cost of goods sold = $160.00
Depreciation = $35.00
Interest paid = $20.00
Tax rate = 34%
A) $23.10
B) $11.90
C) $35.00
D) $46.20
E) $36.30

Accepted Answer

Net income is calculated as follows: 1. Gross profit = Sales - Cost of goods sold = $250.00 - $160.00 = $90.002. Operating profit = Gross profit - Depreciation = $90.00 - $35.00 = $55.003. Earnings before tax = Operating profit - Interest paid = $55.00 - $20.00 = $35.004. Tax = Earnings before tax * Tax rate = $35.00 * 34% = $11.905. Net income = Earnings before tax - Tax = $35.00 - $11.90 = $23.10

Question 9

For any individual period the firm cashflows are a circular flow of funds, this means
A) the cashflows are always invested in fixed assets
B) that cashflows are always in a spiral away from the firm
C) that firm cashflows must be borrowed externally to be reinvested in the economy
D) that all cashflows generated by the firm must equal the cashflows paid to the creditors and shareholders.

Accepted Answer

The circular flow of funds means that all the cashflows generated by the firm must equal the cashflows paid to the creditors and shareholders. This is because the cashflows received from customers are used to pay for operating expenses, interest payments, and dividends to shareholders. Any excess cashflow can be reinvested in the business or used to pay down debt. Therefore, the answer is D, which states that all cashflows generated by the firm must equal the cashflows paid to the creditors and shareholders.

Question 10

From the following income statement information, calculate Johnson's after tax cash flow from operations. Net sales = $2,500
Cost of goods sold = $1050
Operating expenses = $490
Depreciation = $300
Tax rate = 34%
A) $660.00
B) $990.00
C) $1257.00
D) $735.60
E) $1059.00

Accepted Answer

First, we need to calculate earnings before interest and taxes (EBIT) by subtracting cost of goods sold, operating expenses, and depreciation from net sales:
EBIT = $2,500 - $1,050 - $490 - $300 = $660

Next, we need to calculate net income by subtracting taxes from EBIT:
Net income = $660 x (1 - 0.34) = $435.60

Finally, we add back depreciation to get our after tax cash flow from operations:
After tax cash flow from operations = net income + depreciation = $435.60 + $300 = $735.60

Therefore, the correct answer is D.

Question 11

Mirotronic Co. has an average receivables turnover of 4 times. Sales are $20,000. What is the collection period?
A) 91.25 days
B) 90 days
C) 1.37 days
D) 21.92 days

Accepted Answer

The answer of Mirotronic Co. has an average receivables turnover...

Question 12

Cash flow to shareholder is defined as:
A) total cash flow from the firm plus cash flow to the bondholders.
B) repurchases of equity less cash dividends paid plus new equity sold.
C) cash flow from operations less cash flow to creditors.
D) cash dividends plus repurchases of equity minus new equity sold.

Accepted Answer

Cash flow to shareholders refers to the amount of cash paid to shareholders through dividends and share buybacks, minus the amount of cash received from issuing new shares. Option D represents this calculation.

Question 13

Dorr Corp. had an ROA of 8%. Dorr's profit margin was 4% on sales of $250. What were total assets?
A) $125.
B) $500.
C) $30.
D) $220.80.

Accepted Answer

The answer of Dorr Corp. had an ROA of 8%....

Question 14

Donny Dell Inc.'s cost of goods sold were $4,526. They had net working capital of $70 and total current assets were $400. If inventory was 62 what is the current ratio of Donny Dell?
A) 7.3
B) 5.71
C) 1.21
D) 4.71

Accepted Answer

The current ratio is calculated as current assets divided by current liabilities. We are not given the current liabilities, but we can use the net working capital to approximate it:

Current Assets = Inventory + Net Working Capital
Current Assets = 62 + 70
Current Assets = 132

Current Ratio = Current Assets / Current Liabilities
Current Ratio = 132 / (Current Assets - Net Working Capital)
Current Ratio = 132 / (400 - 70)
Current Ratio = 1.21 (rounded to two decimal places)

Thus, the correct answer is C.

Question 15

Earnings per share is equal to:
A) net income divided by the total number of shares outstanding.
B) net income divided by the par value of the common stock.
C) gross income multiplied by the par value of the common stock.
D) operating income divided by the par value of the common stock.
E) net income divided by total shareholders' equity.

Accepted Answer

Earnings per share (EPS) is a measure of a company's profitability that is calculated by dividing its net income by the total number of outstanding shares. Therefore, choice A is the correct answer.

Question 16

The Cliplink Company has an equity multiplier of 3.36? What are the debt ratio and debt to equity ratios of Cliplink?
A) .70, 2.36
B) 2.36, .70
C) .30, .70
D) can not be calculated without values for debt or equity

Accepted Answer

The equity multiplier is calculated as Total Assets / Equity. An equity multiplier of 3.36 implies that for every dollar of equity, there are 3.36 dollars of assets. The debt ratio is calculated as (Total Assets - Equity) / Total Assets, which is 1 - (1/3.36) = 0.70. The debt to equity ratio is (Total Assets - Equity) / Equity, which is 3.36 - 1 = 2.36.

Question 17

Which of the following is not a use of Net Working Capital?
A) Retirement of long-term debt.
B) Dividends.
C) Sale of equity.
D) Acquisition of fixed assets.

Accepted Answer

Net Working Capital is typically used for current assets and current liabilities, and not directly related to activities such as sale of equity. The other options listed - retirement of long-term debt, payment of dividends, and acquisition of fixed assets- can all be potential uses of Net Working Capital.

Question 18

The primary source of the firm's cashflow is usually:
A) net income.
B) tax credits.
C) earnings before interest and depreciation minus taxes.
D) capital spending after taxes.
E) working capital requirements.

Accepted Answer

The answer of The primary source of the firm's cashflow...

Question 19

The cashflow of the firm is defined as the cashflow of the assets. This cashflow must be equal to:
A) cashflow to equity minus cashflow to debtholders.
B) cashflow to debtholders minus cashflow to equity.
C) cashflow to governments plus cashflow to equity.
D) cashflow to equity plus cashflow to debtholders.

Accepted Answer

The cashflow of the firm is the total cash generated by its assets. This includes the cashflow to both equity and debtholders. Therefore, the correct option is to add the cashflow to equity and debtholders to get the total cashflow of the firm.

Question 20

Over the year, the Rigem Co. had cash flow from operations of $938, and had net capital spending of $225. In addition, the firm's Net Working Capital increased by $73. What was Rigem's total cash flow?
A) $1,236
B) $748
C) $640
D) $786

Accepted Answer

The answer of Over the year, the Rigem Co. had...

Quiz 2: Accounting Statements and Cash Flow

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?

Midget Co. has a profit margin on sales of 4% and a ROE of 18%. If Midget's debt-to-equity ratio is .8, what is the total asset turnover ratio?

When making financial decisions related to assets, you should:

Donny Dell Inc. had a days in inventory (based on 365 days) of 5. Cost of goods sold were $4,526. Net working capital was $70 and total current assets were $400. What is Donny Dell's quick ratio?

Tan Co. had total operating revenues of $720 over the past year. During that time, average receivables were $90. What was the average collection period (ACP) given a 365-day year?

Dividends per share is equal to dividends paid:

Donny Dell Inc. had a days in inventory of 5 (based on 365 days) . The inventory turnover was:

Calculate net income based on the following information. Sales = $250.00 Cost of goods sold = $160.00 Depreciation = $35.00 Interest paid = $20.00 Tax rate = 34%

For any individual period the firm cashflows are a circular flow of funds, this means

From the following income statement information, calculate Johnson's after tax cash flow from operations. Net sales = $2,500 Cost of goods sold = $1050 Operating expenses = $490 Depreciation = $300 Tax rate = 34%

Mirotronic Co. has an average receivables turnover of 4 times. Sales are $20,000. What is the collection period?

Cash flow to shareholder is defined as:

Dorr Corp. had an ROA of 8%. Dorr's profit margin was 4% on sales of $250. What were total assets?

Donny Dell Inc.'s cost of goods sold were $4,526. They had net working capital of $70 and total current assets were $400. If inventory was 62 what is the current ratio of Donny Dell?

Earnings per share is equal to:

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

Which of the following is not a use of Net Working Capital?

The primary source of the firm's cashflow is usually:

The cashflow of the firm is defined as the cashflow of the assets. This cashflow must be equal to:

Over the year, the Rigem Co. had cash flow from operations of $938, and had net capital spending of $225. In addition, the firm's Net Working Capital increased by $73. What was Rigem's total cash flow?