AEB3122 ch 3 sb

Which of the following would represent a correct calculation of interest earned on a six month, $100 investment?

$100 principal x 10% rate x 6/12 = $5 interest

Calculate working capital, assuming that cash + accounts receivable = $50,000, merchandise inventory = $10,000, noncurrent assets = $40,000, current liabilities = $20,000, noncurrent liabilities = $50,000, and stockholders' equity = $30,000.

$40,000 -Reason: Current assets - Current liabilities $50,000 + $10,000 - $20,000 = $40,000

The annual rate of return on a six-month investment of $1,000 that earns a return of $100 is ______.

(100/1000)/(6/12) = 20%

Which statements about a firm's return on equity (ROE) are correct?

1. normally calculated using average stockholders' equity in the denominator 2. expresses profits earned by the firm as a rate of return on equity provided by stockholders 3. net income/average stockholders' equity. net income is the numerator.

Which of the following statements are true regarding the relationship between the current ratio and the acid-test ratio?

1.) For any given company, the current ratio will generally be higher than the acid-test ratio. 2.) The acid-test ratio demonstrates the extent to which a firm can meet its current obligations even if none of its inventory can be sold.

If turnover is 1.5 times per year and ROI is 9 percent, then margin is _____ percent.

6% = 9%/1.5

ROI

The rate of return on an investment; frequently referred to as ROI. Sometimes referred to as return on assets or ROA. A primary measure of a firm's profitability.

The current ratio is calculated as current assets _____ current liabilities

divided

Trend analysis of ratios ______.

is a meaningful comparison despite the use of different financial accounting alternatives to develop the data used in the ratios

A firm's liquidity refers to ______.

its ability to meet its current obligations as they become due.

The DuPont model for ROI expresses _____.

margin as net income / sales

Working capital is calculated as current assets _____ current liabilities

minus

If margin is 9 percent and turnover is 2.0 times per year, then ROI is _____ percent.

18% = 9% * 2.0

The annual rate of return on a two-year investment of $1,000 that earns a total return of $100 is ______.

5% - reason: ($100/$1,000) / 2 = 5%

f margin = 5 percent, net income = $100,000, and turnover = 4.0, then ______.

ROI = 20%, average total assets = $500,000, and sales = $2,000,000 - Reason: ROI = 5% x 4.0 = 20%, Sales = $100,000 / 5% = $2,000,000 Average total assets = $2,000,000 / 4 = $500,000

If stockholders' equity at the beginning of the year = $50,000, stockholders' equity at the end of the year = $70,000, and ROE = 25 percent, then ______.

average stockholders' equity = $60,000 and net income = $15,000 -Reason: Average stockholders' equity = ($50,000 + $70,000) / 2 = $60,000 Net income = $60,000 x 25% = $15,000

The numerator of the acid-test ratio includes most current assets but specifically excludes

merchandise inventory from the numerator.

Return on equity (ROE) is normally calculated using ______.

net income in the numerator and average stockholders' equity in the denominator

Which of the following statements are true regarding the working capital calculation?

-Accounts receivable are included in current assets. -Accounts payable are included in current liabilities.

Which statements correctly describe return on investment (ROI)?

1. Is sometimes referred to as ROA (return on assets) 2. is normally calculated with net income used as the measure of return 3. is normally calculated with average total assets used as the measure of investment

Which of the following statements is true regarding the acid-test ratio?

1.) The acid-test ratio uses the same denominator as does the current ratio. 2.) The acid-test ratio is a more conservative measure of liquidity than is the current ratio. 3.) The acid-test ratio excludes merchandise inventory from the numerator. and 1.) The acid-test ratio can be calculated as (Cash (including temporary cash investments) + accounts receivable) divided by current liabilities. 2.) Temporary cash investments are included in the numerator of the acid-test ratio. 3.) The acid-test ratio is sometimes called the quick ratio.

Which statements correctly describe liquidity?

1.) is measured by relating current assets and current liabilities as reported on the balance sheet. 2.) refers to a firm's ability to meet its current obligations as they become due

Which statements about working capital are correct?

1.) is the excess of a firm's current assets over its current liabilities. 2.) is expressed as a dollar amount, rather than as a financial ratio.

What do you need to know to calculate the amount of interest earned on an investment?

1.) the interest rate per year 2.) the length of time the funds are invested for 3.) the principal amount invested

Which of the following statements are true regarding the current ratio?

1.)Accounts payable are included in the denominator. 2.)Cash is included in the numerator.

Which statements about turnover are correct?

1.)It is calculated by dividing sales by average total assets. 2.)It relates to the efficiency with which a firm's assets are used in the revenue-generating process.

Calculate the acid-test ratio, assuming that cash = $6,000, land = $105,000, accounts receivable = $19,000, merchandise inventory = $20,000, accounts payable = $15,000, long-term debt = $80,000, and retained earnings = $55,000. (Round your answer to one decimal place, if necessary.)

1.7 -Reason: (Cash + Accounts receivable) / Current liabilities ($6,000 + $19,000) / $15,000 = 1.7

Return on investment (ROI) is calculated by dividing net _____ by the average total ____ for the year.

1: income, profits, profit, or earnings 2: assets

Calculate the acid-test ratio, assuming that cash + accounts receivable = $50,000, merchandise inventory = $10,000, noncurrent assets = $40,000, current liabilities = $20,000, noncurrent liabilities = $50,000, and stockholders' equity = $30,000. (Round your answer to one decimal place, if necessary.)

2.5 -Reason: $50,000 / $20,000 = 2.5

Calculate the current ratio assuming that cash = $6,000, land = $105,000, accounts receivable = $19,000, merchandise inventory = $20,000, accounts payable = $15,000, long-term debt = $80,000, and retained earnings = $55,000. (Round your answer to one decimal place, if necessary.)

3.0 -Reason: Current ratio = Current assets / Current liabilities ($6,000 + $19,000 + $20,000) / $15,000 = 3.0

Calculate the current ratio, assuming that cash + accounts receivable = $50,000, merchandise inventory = $10,000, noncurrent assets = $40,000, current liabilities = $20,000, noncurrent liabilities = $50,000, and stockholders' equity = $30,000. (Round your answer to one decimal place, if necessary.)

3.0 -Reason: Current assets / Current liabilities ($50,000 + $10,000) / $20,000 = 3.0

Calculate working capital, assuming that cash = $6,000, land = $105,000, accounts receivable = $19,000, merchandise inventory = $20,000, accounts payable = $15,000, long-term debt = $80,000, and retained earnings = $55,000.

30,000 -Reason: $6,000 + $19,000 + $20,000 - $15,000 = $30,000

If net income = $10,000, ROE = 20 percent, and stockholders' equity at the end of the year = $55,000, then which of the following is true?

Average stockholders' equity = $50,000 and stockholders' equity at the beginning of the year = $45,000. - reason: Average stockholders' equity = $10,000 / 20% = $50,000 Stockholders' equity at the beginning of the year = $50,000 x 2 = $100,000 - $55,000 = $45,000

If the rate of return on an investment was 10 percent ______.

If the rate of return on an investment was 10 percent and $500 was invested for one year, then the return on the investment would have been $50

Which statement about trend analysis is correct?

It generally leads to a more meaningful analysis when conducted over several years than does the observation of a single year's ratio result.

Common expressions of return on investment (ROI) calculation include which of the following?

Net income / Average total assets Operating income / Average operating assets

How is the amount of interest earned on an investment calculated?

Principal ($) x Rate (%) x Time (in years)

If sales = $500,000, turnover = 1.5, and net income = $75,000, then ______.

ROI = 15% and turnover = 1.5 - reason: Margin = $75,000 / $500,000 = 15% ROI = 15% x 1.5 = 22.5%

Return on investment (ROI) is commonly expressed in each of the following ways, EXCEPT ______.

ROI=net income/average total stockholders' equity (THIS IS AN EXCEPT QUESTION THIS IS NOT WHAT ROI IS)

interest equation

principle x rate x time

rate of return equation

rate of return = amount of return/amount invested = ____%

In the DuPont model for analyzing ROI, turnover is calculated as _____ divided by average total ______.

sales assets