Business Finance

ABC Co. has an average collection period of 90 days for its accounts receivable. If total credit sales for the year were $6,000,000, what is the balance in accounts receivable at year-end? Assume a 360-day calendar year.

$1,500,000

Consider the following information for Ball Corp. (pic) What is the operating profit for Ball Corp.?

$130,000

XYZ's receivables turnover is 4x. The accounts receivable at year-end are $600,000. The average collection period is 90 days. What was the sales figure for the year assuming all sales are on credit?

$2,400,000

Allen Lumber Company had earnings after taxes of $750,000 in the year 2015 with 300,000 shares outstanding on December 31, 2015. On January 1, 2016, the firm issued 50,000 new shares. The company took the proceeds from these new shares as well as other operating improvements and earned $937,500 earnings after taxes in 2016. Earnings per share for the year 2016 were

$2.68.

A-Rod Fishing Supplies had sales of $2,500,000 and cost of goods sold of $1,710,000. Selling and administrative expenses represented 10 percent of sales. Depreciation was 6 percent of the total assets of $4,680,000. What was the firm's operating profit?

$259,200

Elgin Battery Manufacturers had sales of $1,000,000 in 2015 and their cost of goods sold is $700,000. Selling and administrative expenses were $100,000. Depreciation expense was $80,000 and interest expense for the year was $10,000. The firm's tax rate is 30 percent. What is the dollar amount of taxes paid in 2015?

$33,000

Density Farms Inc. had sales of $750,000, cost of goods sold of $200,000, selling and administrative expense of $70,000, and operating profit of $150,000. What was the value of depreciation expense?

$330,000

A firm with earnings per share of $3 and a price-earnings (P/E) ratio of 24 will have a stock market price of

$72.00.

Which of the following is a potential problem of utilizing ratio analysis?

*Trends and industry averages are historical in nature. *Financial data may be distorted due to price-level changes. *Firms within an industry may not use similar accounting methods.

institutional investors are important in today's business world because

*as large investors, they have more say in how businesses are managed *have a fiduciary responsibility to the workers and investors and they represent to see that the firms they own are managed in an ethical way *as a group they can vote large blocks of stocks for the election of board members

Corporate restructuring can be a result of more institutional ownership. restructuring can cause

*changes in the amount of assets versus the amount of liabilities of the firm * the sale of low-profit margin divisions *the removal of current management and/or large reductions in the workforce

Future Financial managers will need to understand

*international cash flows *computerized funds transfers *international currency hedging strategies

a financial managers goal of maximizing current or short-term earnings may not be appropriate because

*it fails to consider the timing when shareholders want increased earnings and may instead consider the manager's own goals *increased earnings may be accompanied by unacceptably higher levels of risk *earnings are subjective; they can be defined in various ways such as accounting or economic earnings

in the past, the study of finance has included

*mergers and acquisitions *raising capital *bankruptcy

a corporation

*owned by stockholders who enjoy the privilege of limited liability *easily divisible between owners *a separate legal entity with unlimited life

Arrange the following income statement items so they are in the proper order of an income statement: (In determining operating profit or loss, select the operating expense first followed by the non-cash expense.)

*sales *cost of goods sold *gross profit *selling and administrative expense *depreciation expense *operating profit *interest expense *earnings before taxes *taxes *earnings before taxes *taxes *earnings after taxes *preferred stock dividends *earnings available to *common stockholders *common shares outstanding *earnings per share

Income can be distorted by factors other than inflation. The most important causes of distortion for inter-industry comparisons are

*tax write-off policy and use of different inventory methods. *timing of revenue receipts and nonrecurring gains or losses.

companies that have higher risk than a competitor in the same industry will generally have

*to pay a higher interest rate than its competitors *a lower relative stock price than its competitors *a higher cost of funds than its competitors

The Bubba Corp. had earnings before taxes of $400,000 and sales of $2,000,000. If it is in the 40% tax bracket, its after-tax profit margin is

12%

A firm has a debt-to-equity ratio of 40%, a debt of $250,000, and a net income of $100,000. The return on equity is

16%.

A firm only has current assets and fixed assets. Its current assets are $100,000 and total assets are $300,000. The firm's sales are $900,000. The firm's fixed asset turnover is

4.5x.

Candy Company had sales of $320,000 and cost of goods sold of $112,000. What is the gross profit margin (ratio of gross profit to sales)?

65%

A firm has total assets of $3,000,000 and stockholders equity is $1,000,000. What is the debt-to-total asset ratio?

67%

If ABC's sales are $1,000,000, while accounts receivable is $100,000, inventory is $45,000, and fixed assets are $132,000, what is ABC's fixed asset turnover?

7.58

A firm's long-term assets = $100,000, total assets = $400,000, inventory = $50,000 and current liabilities = $200,000. What are the firm's current ratio and quick ratio?

Current ratio = 1.5; quick ratio = 1.25

How many of the following balance sheet items are classified as a current asset or current liability? • Retained earnings • Accounts payable • Plant and equipment • Inventory • Common stock • Bonds payable • Accrued wages payable • Accounts receivable • Preferred stock

Four of these items.

Assuming proper accounting disclosure is used, a large extraordinary loss has what effect on the normal operating profits in the future?

It has no effect.

what should be the primary goal of financial management?

Maximizing shareholder wealth

Which of the following would not be classified as a current asset?

Plant property and equipment

Which two ratios are used in the Du Pont system to create return on assets?

Profit margin and asset turnover

Which account represents the cumulative earnings of the firm since the firm started, minus dividends paid?

Retained earnings

insider trading occurs when

Someone has information not available to the public which they use to profit from trading in stocks

Which of the following is an outflow of cash?

The payment of cash dividends

How many of the following items are found on the income statement, rather than the balance sheet? • Sales • Notes payable (due in six months) • Bonds payable (mature in 10 years) • Common stock • Depreciation expense • Inventories • Capital in excess of par value • Net income (earnings after taxes) • Income tax payable

Three of these items are found on the income statement.

Which of the following is not considered to be a profitability ratio?

Times interest earned

A quick ratio that is much smaller than the current ratio reflects

a large portion of current assets is in inventory.

Frantic Fast Foods had earnings after taxes of $420,000 in 20X1 with 309,000 shares outstanding. On January 1, 20X2, the firm issued 20,000 new shares. Because of the proceeds from these new shares and other operating improvements, earnings after taxes increased by 30 percent a. Compute earnings per share for the year 20X1. (Round your answer to 2 decimal places.). b. Compute earnings per share for the year 20X2. (Round your answer to 2 decimal places.)

a. $1.36 b. $1.66

Swank Clothiers had sales of $383,000 and cost of goods sold of $260,000. a. What is the gross profit margin (ratio of gross profit to sales)? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) b. If the average firm in the clothing industry had a gross profit of 25 percent, how is the firm doing?

a. 32.11% b. outperforming

In examining the liquidity ratios, the primary emphasis is the firm's

ability to pay short-term obligations on time.

Total asset turnover indicates the firm's

ability to use its assets to generate sales.

credit default swaps are

an insurance product designed to protect financial institutions from customers who default on their loans

the partnership form of an organization

avoids the double taxation of earnings and dividends found in the corporate form of organization

Disinflation, as compared to inflation, would normally be good for investments in

bonds

the Sarbanes-Oxley Act set up the Public Company Accounting Oversight Board with the responsibility for all the following except

certifying the competence of financial executives

many companies such as Tyco, Enron, and WorldCom that suffered financial distress in the late 1990's and early 2000's

committed fraud *failed corporate governance oversight *went bankrupt

Reinvested funds into retained earnings theoretically belong to

common stockholders.

Sarbanes-Oxley Act

control corrupt corporate financial behavior

the increasing percentage ownership of public corporations by institutional investors has

created more pressure on public companies to manage their firms more efficiently

An item which may be converted to cash within one year or one operating cycle of the firm is classified as a

current asset.

The book value per share is based off of ________ data, while the market value per share is based off of_________ data.

historical; future

behavioral finance is the study of

how investors react to certain ways to diversify a portfolio

with an S corporation

income is taxed as direct income to stockholders

If the company's accounts receivable turnover is increasing, the average collection period

is going down

The net worth of a firm

is usually the same as the firm's market value. is based on current asset costs. is based on current assets less current liabilities. None of the options

The primary disadvantage of accrual accounting is that

it does not adequately show the actual cash flows of the firm.

A short-term creditor would be most interested in

liquidity ratios.

Asset accounts on the balance sheet are listed in order of

liquidity.

Earnings per share is

net income minus preferred dividends divided by number of shares outstanding.

Book value is the same as

net worth.

In 2015, Bubble Inc. had net income of $500,000, assets of $5,000,000, sales of $2,000,000, and debt of 2,000,000. In 2016, Bubble Inc. had net income of $600,000, assets of $7,000,000, sales of $1,300,000, and debt of 2,000,000. Did BubbleInc's return on assetsimprove from 2015 to 2016?

no

In 2015, Bubble Inc. had net income of $500,000, assets of $5,000,000, sales of $2,000,000, and equity of $2,000,000. In 2016, Bubble Inc. had net income of $600,000, assets of $7,000,000, sales of $1,300,000, and equity of $1,700,000. Is Bubble Inc's2016 debt to total asset better than its 2015 debt to total assets?

no

Maximization of shareholder wealth is a concept in which

optimally increasing the long-term value of the firm is emphasized

agency theory examines the relationship between the

owners of the firm and the managers of the firm

when a corporation uses the financial markets to raise new funds, the sale of securities is made in the

primary market

The most rigorous test of a firm's ability to pay its short-term obligations is its

quick ratio

Asset utilization ratios

relate balance sheet assets to income statement sales.

Gross profit is equal to

sales minus cost of goods sold.

The Major difficulty in most insider- trading cases has been

that inside trades have not been legally well-defined

one of the major disadvantages of a sole proprietorship is

that there is unlimited liability to the owner

If accounts receivable stays the same, and credit sales go up

the average collection period will go down.

Price-earnings (P/E) ratio is influenced by all of the following BUT

the business risk the firm takes on. earnings per share. quality of management. All of the options are true.

angry theory would imply that conflicts are more likely to occur between management and shareholders when

the chairman of the board of directors is also the chief executive officer (CEO)

proper risk-return management means that

the firm must determine an appropriate trade-off between risk and return

money markets include

treasury bills and commercial paper

In addition to comparison with industry ratios, it is also helpful to analyze ratios using

trend analysis and historical comparisons.