FIN TEST 1 REVIEW

A firm has $520 in inventory, $1,860 in fixed assets, $190 in accounts receivables, $210 in accounts payable, and $70 in cash. What is the amount of the current assets? a. $710 b. $780 c. $990 d. $2,430 e. $2,640

b. $780 current assets = 520 + 190 + 70 = $780

Jensen Enterprises paid $1,300 in dividends and $920 in interest this past year. Common stock increased by $1,200 and retained earnings decreased by $310. What is the net income for the year? a. ($210) b. $990 c. $1,610 d. $1,910 e. $2,190

b. $990 Net Income = dividends + addition to retained earnings = 1,300 + (-310) = $990

Gladsden Refinishers currently has $21,900 in sales and is operating at 45 percent of the firm's capacity. What is the full capacity level of sales? a. $31,755 b. $36,250 c. $48,667 d. $51,333 e. $54,500

c. $48,667 full capacity sales = sales / capacity = 21,900 / .45 = 48,667

The Dog House has net income of $3,450 and total equity of $8,600. The debt-equity ratio is 0.60 and the payout ratio is 30 percent. What is the internal growth rate? a. 14.47 percent b. 17.78 percent c. 21.29 percent d. 29.40 percent e. 33.33 percent

c. 21.29 percent total assets = 8,600 x (1+0.60) = 13,760 ROA = 3.450/13,760 = 0.250727 IGR = (0.250727 x (1-0.30) / (1- (0.250727 x (1-0.30) = 21.29

A firm has sales of $68,400, costs of $42,900, interest paid of $2,100, and depreciation of $6,500. The tax rate is 34 percent. What is the value of the cash coverage ratio? a. 12.14. b. 15.24. c. 17.27. d. 23.41. e. 24.56.

a. 12.14. cash coverage ratio = (sales -costs) / interest = (68,400 - 42,900) / 2,100 = 12.14

The Purple Martin has annual sales of $687,400, total debt of $210,000, total equity of $365,000, and a profit margin of 4.80 percent. What is the return on assets? a. 5.74 percent b. 6.48 percent c. 7.02 percent d. 7.78 percent e. 9.79 percent

a. 5.74 percent Total Assets = liabilities + owners equity ROA = net income / total assets ROA = (0.048 x 687,000) / (210,000 + 365,000) = 0.05738 = 5.74

Al's Sport Store has sales of $897,400, costs of goods sold of $628,300, inventory of $208,400, and accounts receivable of $74,100. How many days, on average, does it take the firm to sell its inventory assuming that all sales are on credit? a. 74.19 days b. 84.76 days c. 121.07 days d. 138.46 days e. 151.21 days

c. 121.07 days inventory turnover = COGS / inventory = 628,300 / 208,400 = 3.0148 days in inventory = 365 / IT = 365 / 3.0148 = 121.07

which one of the following business types is best suited to raising large amounts of capital? a. sole proprietorship b. limited liability c. corporation d. general partnership e. limited partnership

c. corporation

which one of the following is an agency cost? a. accepting an investment opportunity that will add value to the firm b. increasing the quarterly dividend c. investing in a new project that creates firm value d. hiring outside accountant to audit the company's financial statements e. closing a division of the firm that is operating at a loss

d. hiring outside accountant to audit the company's financial statements

Ratios that measure how efficiently a firm manages its assets and operations to generate net income are referred to as _____ ratios. a. asset management b. long-term solvency c. short-term solvency d. profitability e. turnover

d. profitability

Crandall Oil has total sales of $1,349,800 and costs of $903,500. Depreciation is $42,700 and the tax rate is 34 percent. The firm does not have any interest expense. What is the operating cash flow? a. $129,152 b. $171,852 c. $179,924 d. $281,417 e. $309,076

e. $309,076 OCF = EBIT + depreciation - taxes EBIT = 1,349,800 - 903,500 - 42,700 = 403,600 Tax = 403,600 x 34% = 137,224 OCF = 403,600 + 42,700 - 137,224 = $309,076

Stop and Go has a 4.5 percent profit margin and an 18 percent dividend payout ratio. The total asset turnover is 1.6 and the debt-equity ratio is 0.45. What is the sustainable rate of growth? a. 8.13 percent b. 8.54 percent c. 8.89 percent d. 9.26 percent e. 9.36 percent

e. 9.36 percent ROE = (net income / total equity B = addition to r.e. / net income SRG = (0.1044 x (1-0.18) / (1-(0.1044 x 0.18) = 9.36%

which of the following is defined as a firm's short-term assets and its short-terms liabilities? a. working capital b. debt c. investment capital d. net capital e. capital structure

a. working capital

Relationships determined from a firm's financial information and used for comparison purposes are known as: a. financial ratios. b. identities. c. dimensional analysis. d. scenario analysis. e. solvency analysis.

a. financial ratios.

a general partner: a. is personally responsible for all the partnership debts b. has no say over a firm's daily operations c. faces double taxation d. has maximum loss equal to his or her equity investment e. receives a salary in lieu of a portion of the profits

a. is personally responsible for all the partnership debts

A firm has a retention ratio of 45 percent and a sustainable growth rate of 6.2 percent. The capital intensity ratio is 1.2 and the debt-equity ratio is 0.64. What is the profit margin? a. 6.28 percent b. 7.67 percent c. 9.49 percent d. 12.38 percent e. 14.63 percent

c. 9.49 percent SRG = (ROE x B) / (1-(ROE x B) 0.062 = (ROE x 0.45) / (1-(ROE x 0.45)) ROE = .129734 0.129734 = PM x (1/1.2) x (1+.64) PM = 9.49

Which one of the following terms is defined as dividends paid expressed as a percentage of net income? a. dividend retention ratio b. dividend yield c. dividend payout ratio d. dividend portion e. dividend section

c. dividend payout ratio

a business formed by two or more individuals who each have unlimited liability for all of the firm's business debts is called a: a. corporation b. sole proprietorship c. general partnership d. limited partnership e. limited liability company

c. general partnership

The Daily News had net income of $121,600 of which 40 percent was distributed to the shareholders as dividends. During the year, the company sold $75,000 worth of common stock. What is the cash flow to stockholders? a. ($75,000) b. ($26,360) c. ($2,040) d. $123,640 e. $147,960

b. ($26,360) cash flow to stockholders = dividends paid - net new equity raised = (121,600 x 40%) - 75,000 = 48,640 - 75,000 = -26,360

When constructing a pro forma statement, net working capital generally: a. remains fixed. b. varies only if the firm is currently producing at full capacity. c. varies only if the firm maintains a fixed debt-equity ratio. d. varies only if the firm is producing at less than full capacity. e. varies proportionally with sales.

e. varies proportionally with sales.

Russell's Deli has cash of $136, accounts receivable of $95, accounts payable of $210, and inventory of $409. What is the value of the quick ratio? a. 0.31. b. 0.53. c. 0.71. d. 1.1. e. 1.07.

d. 1.1 quick ratio = (current assets - inventory) / current liabilities current assets = 136 + 95 + 409 = 640 QR = (640 - 409)/210 = 1.1

which one of the following functions should be the responsibility of the controller rather than the treasurer? a. daily cash deposit b. income tax returns c. equipment purchase analysis d. customer credit approval e. payment to vendor

b. income tax returns

At the beginning of the year, the long-term debt of a firm was $72,918 and total debt was $138,407. At the end of the year, long-term debt was $68,219 and total debt was $145,838. The interest paid was $6,430. What is the amount of the cash flow to creditors? a. ($18,348) b. ($1,001) c. $11,129 d. $13,861 e. $19,172

c. $11,129 cash flow to creditors = interest paid - net new borrowing net new borrowing = 68,219 - 72,918 = -4699 CFTC = 6,430 - (-4699) = $11,129

which one of the following best states the primary goals of financial management? a. maximize current dividends per share b. maximize the current value per share c. increase cash flow and avoid financial distress d. minimize operational costs while maximizing firm efficiency e. maintain steady growth increasing current profits

c. increase cash flow and avoid financial distress

According to the Statement of Cash Flows, a decrease in accounts receivable will _____ the cash flow from _____ activities. a. decrease; operating b. decrease; financing c. increase; operating d. increase; financing e. increase; investment

c. increase; operating

The Cookie Shoppe expects sales of $437,500 next year. The profit margin is 5.3 percent and the firm has a 30 percent dividend payout ratio. What is the projected increase in retained earnings? a. $16,231 b. $17,500 c. $18,300 d. $20,600 e. $21,000

change in retained earnings = (sales x PM x dividend payout ratio) = 437,500 x 5.3% x (1-0.30) = 16,231.25

The Home Supply Co. has a current accounts receivable balance of $280,000. Credit sales for the year just ended were $1,830,000. How many days on average did it take for credit customers to pay off their accounts during this past year? a. 54.29 days b. 55.01 days c. 55.50 days d. 55.85 days e. 61.00 days

d. 55.85 days receivable turnover = sales / acts receivable = 1,830,000 / 280,000 = 6.55357 Days sales in receivables = 365 / RT = 365 / 6.55357 = 55.847 = 55.85

Monika's Dinor is operating at 94 percent of its fixed asset capacity and has current sales of $611,000. How much can the firm grow before any new fixed assets are needed? a. 4.99 percent b. 5.78 percent c. 6.02 percent d. 6.38 percent e. 6.79 percent

d. 6.38 percent full capacity sales = 611,000 / 0.94 = 650,000 max growth w/o additional assets = (650,000/611,000) - 1 = 0.638 = 6.38

The Two Sisters has a 9 percent return on assets and a 75 percent retention ratio. What is the internal growth rate? a. 6.50 percent b. 6.75 percent c. 6.97 percent d. 7.24 percent e. 7.38 percent

d. 7.24 percent IGR = (ROA x B) / (1-(ROA x B) = (.09 x .75) / (1-(.09 x .75) = 0.07238 = 7.24

The formula which breaks down the return on equity into three component parts is referred to as which one of the following? a. equity equation b. profitability determinant c. SIC formula d. Du Pont identity e. equity performance formula

d. Du Pont identity

which one of the following terms is defined as the management of a firm's long-term investments? a. working capital management b. financial allocation c. agency cost analysis d. capital budgeting e. capital structure

d. capital budgeting

the cash flow of a firm which is available for distribution to the firm's creditors and stockholders is called the: a. operating cash flow b. net capital spending c. net working capital d. cash flow from assets e. cash flow to stockholders

d. cash flow from assets

the cash flow related to interest payments less any net new borrowing is called the: a. operating cash flow b. capital spending cash flow c. net working capital d. cash flow from assets e. cash flow to creditors

e. cash flow to creditors

net working capital is defined as: a. total liabilities minus shareholders' equity b. current liabilities minus shareholders' equity c. fixed assets minus long-term liabilities d. total assets minus total liabilities e. current assets minus current liabilities

e. current assets minus current liabilities

the percentage of the next dollar you earn that must be paid in taxes is referred to as the ____ tax rate. a. mean b. residual c. total d. average e. marginal

e. marginal