Finance 3010 Ch. 1-3

The Daily News has projected annual net income of $272,600, of which 28 percent will be distributed as dividends. Assume the company will have net sales of $75,000 worth of common stock. What will be the cash flow to stockholders if the tax rate is 21 percent?

.28($272,600) − $75,000=1,328

High Mountain Foods has an equity multiplier of 1.72, a total asset turnover of 1.16, and a profit margin of 4.5 percent. What is the return on assets?

1.16 x .045 = 5.22%

Frank's Welding has net fixed assets of $36,200, total assets of $51,300, long-term debt of $22,000, and total debt of $29,700. What is the net working capital to total assets ratio?

14.42%

What is the average tax rate for a firm with taxable income of $118,740 in 2017?

24.89%

Bernice's has $823,000 in sales. The profit margin is 4.2 percent and the firm has 7,500 shares of stock outstanding. The market price per share is $16.50. What is the price-earnings ratio?

4.2% = Net income / $823000 Net income = $34,566 Earnings per share = $34,566 / 7500 shares = $4.6088 Price earnings ratio = $16.50 / $4.6088 = 3.58

For 2017, Nevada Mining had projected taxable income of $94,800. Its actual taxable income exceeded this projection by $21,000. How much additional tax did the firm owe due to the $21,000 increase in taxable income

7930

The Up-Towner has sales of $913,400, costs of goods sold of $579,300, inventory of $123,900, and accounts receivable of $78,900. How many days, on average, does it take the firm to sell its inventory assuming that all sales are on credit?

= 123,900 / (579,300/365) = 78.07 days

You recently purchased a grocery store. At the time of the purchase, the store's market value and its book value were equal. The purchase included the building, fixtures, and inventory. Which one of the following is most apt to cause the market value of this store to be less than its book value?

Construction of a new restricted access highway located between the store and the surrounding residential areas

Which of the following parties are considered stakeholders of a firm?

Employees & the government

Lancaster Toys has a profit margin of 5.1 percent, a total asset turnover of 1.84, and a return on equity of 16.2 percent. What is the debt-equity ratio?

Equity multiplier = .162 / (.051 × 1.84) = 1.73 Debt-equity ratio = 1.73- 1 = .73 Solution: .73

Which one of the following accurately describes the three parts of the DuPo

Equity multiplier, profit margin, and total asset turnover

Cash flow from assets is also known as the firm's:

Free cash flow

A business formed by two or more individuals who each have unlimited liability for all of the firm's business debts is called a:

General partnership

The DuPont identity can be used to help managers answer which of the following questions related to a company's operations? I. How many sales dollars are being generated per each dollar of assets? II. How many dollars of assets have been acquired per each dollar in shareholders' equity? III. How much net profit is being generating per dollar of sales? IV. Does the company have the ability to meet its debt obligations in a timely manner?

I, II, and III only

Which one of the following is least apt to help convince managers to work in the best interest of the stockholders? Assume there are no golden parachutes.

Increasing managers' base salaries

The treasurer of a corporation generally reports directly to the:

Vice President of finance

Financial managers should strive to maximize the current value per share of the existing stock to:

best represent the interests of the current shareholders

Working capital management decisions include determining:

the minimum level of cash to be kept in a checking account

Which one of the following accounts is the most liquid?

Accounts receivable

Which one of the following terms is defined as the management of a firm's long-term investments?

Capital budgeting

The cash flow that is available for distribution to a corporation's creditors and stockholders is called the:

Cash flow from assets

For the year, B&K United increased current liabilities by $1,400, decreased cash by $1,200, increased net fixed assets by $340, increased accounts receivable by $200, and decreased inventory by $150. What is the annual change in net working capital?

Change in NWC = −$1,400 − 1,200 + 200 − 150 Change in NWC = −$2,550

Which one of the following represents a cash outflow from a corporation?

Payment of dividends

Which one of the following is a cash flow from a corporation into the financial markets?

Payment of loan interest

Ratios that measure how efficiently a firm manages its assets and operations to generate net income are referred to as _____ ratios.

Profitability

Which one of the following ratios is a measure of a firm's liquidity?

Quick ratio

Lawn Care, Inc., has sales of $367,400, costs of $183,600, depreciation of $48,600, interest of $39,200, and a tax rate of 25 percent. The firm has total assets of $422,100, long-term debt of $102,000, net fixed assets of $264,500, and net working capital of $22,300. What is the return on equity?

Return on equity = ( Net income / shareholders equity) * 100 Net income = ( Sales - costs - depreciation - interest)(1 - tax) Net income = (367,400 - 183,600 - 48,600 - 39,200)(1 - 0.25) Net income = $72,000 Current assets = Total assets - net fixed assets Current assets = 422,100 - 264,500 Current assets = $157,600 Net working capital = Current assets - current liabilities 22,300 = 157,600 - Current liabilities Current liabilities = $135,300 Total liabilities = Total long term debt + current liabilities Total liabilities = $102,000 + $135,300 Total liabilities = $237,300 Shareholders equity = Total assets - total liabilities Shareholders equity = $422,100 - $237,300 Shareholders equity = $184,800 Return on equity = ( $72,000 / $184,800) * 100 Return on equity = 38.96%

CBC Industries has sales of $21,415, interest paid of $1,282, costs of $9,740, and depreciation of $1,480. What is the operating cash flow if the tax rate is 22 percent?

Tax = ($21,415 − 9,740 − 1,480 − 1,282)(.22) Tax = $1,960.86 OCF = $21,415 − 9,740 − 1,960.86 OCF = $9,714.14

Which one of the following statements is correct concerning the NYSE?

The listing requirements for the NYSE are more stringent than those of NASDAQ

Depreciation for a tax-paying firm:

increases expenses and lowers taxes