Finance Chapter 3

What amount should be included in the financing section of the 2010 statement of cash flows for dividends paid?

Retention ratio = ($920 million - $670 million) / $1,516 million = 0.165Dividends paid = (1 - 0.165) × $1,516 million = $1,266 million

Turner's Store had a profit margin of 6.8 percent, sales of $898,200, and total assets of $798,000. If management set a goal of increasing the total asset turnover to 1.40 times, what would the new sales figure need to be, assuming no increase in total assets?

$1,117,200 Total asset turnover = 1.40 × $798,000 = $1,117,200

What amount should be included in the financing section of the 2010 statement of cash flows for dividends paid?

$1,176 Retention ratio = ($890 million - $640 million) / $1,426 million = 0.175 Dividends paid = (1 - 0.175) × $1,426 million = $1,176 million

Phil's Hardware sells its inventory in 75 days, on average. Costs of goods sold for the year are $631,800. What is the average value of the firm's inventory?

$129,821 Inventory turnover = 365/75 = 4.8667; Inventory = $631,800/4.8667 = $129,821

Windswept, Inc. has 370 million shares of stock outstanding. Its price-earnings ratio for 2010 is 15. What is the market price per share of stock?

$38.92 Earnings per share = $960 million / $370 million = $2.594595Price = $2.594595 × 15 = $38.92

Gently Used Goods has cash of $2,950, inventory of $28,470, fixed assets of $9,860, accounts payable of $11,900, and accounts receivable of $4,660. What is the cash ratio?

.25 Cash ratio = $2,950/$11,900 = 0.25

Jiminy Cricket Removal has a profit margin of 9 percent, total asset turnover of 1.15, and ROE of 14.31 percent. What is this firm's debt-equity ratio?

.38 ROE = (Profit margin)(Total asset turnover)(Equity multiplier).1431 = (0.09)(1.15)(Equity multiplier) Equity multiplier = 1.38 Equity multiplier = 1 + Debt-equity ratio 1.38 = 1 + Debt-equity ratio, Debt-equity ratio = .38

A firm has sales of $1,030, net income of $207, net fixed assets of $506, and current assets of $262. The firm has $82 in inventory. What is the common-size statement value of inventory?

10.68 Total assets = $506 + $262 = $768 Common-size value of inventory = $82 / $768 = 10.68 percent

Earth Fare Foods has total assets of $229,800, net fixed assets of $71,500, long-term debt of $52,000, and total debt of $78,700. If inventory is $45,000, what is the current ratio?

5.93 Current ratio = ($229,800 - $71,500)/($78,700 - $52,000) = 5.93

Larry's Gun Shop has sales of $189,000, a profit margin of 5.6 percent, and a capital intensity ratio of 0.79. What is the return on assets?

7.09 Return on assets = (0.056 × $189,000)/(0.79 × $189,000) = 7.09 percent

The After Life has sales of $428,300, total assets of $389,100, and a profit margin of 7.2 percent. What is the return on assets?

7.93% Return on assets = (0.072 × $428,300)/$389,100

Mario's Home Systems has sales of $2,790, costs of goods sold of $2,130, inventory of $498, and accounts receivable of $427. How many days, on average, does it take Mario's to sell its inventory?

85.34 days Day's sale in Inventory = Ending inventory/cost of goods sold X 365 = 498/2130*365= 85 days on and average

Which one of the following statements is true concerning the price-earnings (PE) ratio? A high PE ratio may indicate that a firm is expected to grow significantly. Correct PE ratios are unaffected by the accounting methods employed by a firm. The PE ratio is a constant value for each firm. The PE ratio is classified as a profitability ratio. A PE ratio of 16 indicates that investors are willing to pay $1 for every $16 of current earnings.

A high PE ratio may indicate that a firm is expected to grow significantly.

Allen, Inc., has a total debt ratio of .64. A) What is its debt-equity ratio? B) What is its equity multiplier?

A) 1.78 Total debt / Total equity= .64 / .36 B) 2.78 1 + DE ratio

Fred is the owner of a local feed store. Which one of the following ratios should he compute if he wants to know how long the store can pay its bills given the amount of cash the store currently has? Debt ratio Quick ratio Cash coverage ratio Current ratio Cash ratio

Cash Ratio

A common-size balance sheet helps financial managers determine: A) the rate at which the firm's dividends are changing. B) if a firm is generating more or less sales per dollar of assets than in prior years. C) which customers are paying on a timely basis. D) if costs are increasing faster or slower than sales. E) if changes are occurring in a firm's mix of assets.

if changes are occurring in a firm's mix of assets.

Blooming Gardens has an inventory turnover of 16. This means the firm:

sells its inventory an average of 16 times each year.