smartbook chp 3
Firm C's common stock has a par value per share of $10, earnings per share of $6, dividends per share of $5, a book value per share of $69, and a market value per share of $80. What is Firm C's dividend payout ratio (rounded to one decimal)?
$5 / $6 = 83.3%
Firm C's common stock has a par value per share of $10, earnings per share of $6, dividends per share of $5, a book value per share of $69, and a market value per share of $80. What is Firm C's dividend yield (rounded to one decimal)?
$5 / $80 = 6.3%
Cost of goods sold was $400,000 and $500,000 in Year 1 and Year 2, respectively. Sales for Year 2 were $1,000,000. Inventory was $60,000 at the end of Year 1 and $40,000 at the end of Year 2. The inventory turnover for Year 2 (rounded to one decimal) was:
$500,000 / (($60,000 + $40,000) / 2) = 10.0 times
Total liabilities were $650,000 at the beginning of the year and $600,000 at the end of the year. Stockholders' equity was $300,000 at the beginning of the year and $400,000 at the end of the year. What was the debt/equity ratio at the end of the year (rounded to one decimal)?
$600,000 / $400,000 = 150%
Total liabilities were $650,000 at the beginning of the year and $600,000 at the end of the year. Stockholders' equity was $300,000 at the beginning of the year and $400,000 at the end of the year. What was the debt ratio at the end of the year (rounded to one decimal)?
$600,000 / ($600,000 + $400,000) = 60%
Firm C's common stock has a par value per share of $10, earnings per share of $6, dividends per share of $5, a book value per share of $69, and a market value per share of $84. What is Firm C's price/earnings ratio?
$84 / $6 = $14 per share
Firm A's common stock has a par value per share of $1, market value per share of $90, earnings per share of $5, dividends per share of $2, and a book value per share of $60. What is Firm A's price/earnings ratio?
$90 / $5 = $18 per share
To calculate the plant and equipment turnover, you divide (sales/cost of goods sold) by the (beginning/ending/average) plant and equipment.
Blank 1: sales Blank 2: average
What indicators help suppliers and creditors judge the liquidity of a company? Multiple select question.
Whether the company is taking all available cash discounts for prompt payment How the company is portrayed in Dun & Bradstreet reports How promptly the company has been paying its current and recent bills
The (pre/after) -tax cost of debt is its interest rate multiplied by the complement of the firm's tax rate.
after
A company desiring to increase its total asset turnover could do so by using:
an accelerated depreciation method and the LIFO cost flow assumption.
to calculate the inventory turnover, you divide (sales/cost of goods sold) by the (beginning/ending/average) inventory.
cost of goods sold average
To calculate the inventory turnover, you would normally divide:
cost of goods sold by the average inventory.
To calculate the days' sales in inventory, you would normally divide the:
ending inventory by the average day's cost of goods sold.
The use of an accelerated depreciation method and the LIFO inventory cost flow assumption will usually ___________(increase/decrease) a company's total asset turnover relative to using the straight-line method and FIFO.
increase
A transaction in which the present top management of a publicly held firm buys the stock of the nonmanagement stockholders and the firm becomes "privately owned" is known as a(
leveraged buyout
The LIFO reserve:
may be disclosed in the notes to the financial statements.
Dividends that are stable, or gradually changing, and periodic in nature are known as Blank______ dividends.
regular
Because firms within a given industry may vary considerably over time in terms of their Blank______, it is difficult to develop reliable rules of thumb for the evaluation of ratio results.
relative scale of operations cost and capital structures life cycle stage of development
Because firms within a given industry may vary considerably over time in terms of their Blank______, it is difficult to develop reliable rules of thumb for the evaluation of ratio results.
relative scale of operations selected accounting methods market segmentation strategies
Earnings multiple is another term used to describe the price/earnings ratio. This term merely reflects that:
the market price of stock is equal to the earnings per share multiplied by the P/E ratio.
the debt ratio is usually calculated by dividing the Blank_
total liabilities by total liabilities + stockholders' equity
The debt/equity ratio is usually calculated by dividing the
total liabilities by total stockholders' equity
Firm E had 30,000 shares of $100 par value and 8 percent cumulative preferred stock authorized, issued, and outstanding during Year 1 and Year 2 but did not pay any preferred or common stock dividends in either year. Net income was $1,000,000 in Year 1 and $1,200,000 in Year 2. What is Firm E's preferred dividend coverage ratio for Year 2 (rounded to one decimal)?
$1,200,000 / (30,000 x $100 x 8%) = 5.0 times
Sales for Year 1 and Year 2 amounted to $1,200,000 and $1,500,000, respectively. Plant and equipment was $700,000 at the end of Year 1 and $500,000 at the end of Year 2. The plant and equipment turnover for Year 2 (rounded to one decimal) was
$1,500,000 / (($700,000 + $500,000) / 2) = 2.5 times
Sales for Year 1 and Year 2 amounted to $500,000 and $600,000, respectively. Accounts receivable was $100,000 at the end of Year 1 and $120,000 at the end of Year 2. The days' sales in accounts receivable for Year 2 (rounded to one decimal) was:
$120,000 / ($600,000 / 365) = 73.0 days
Sales for Year 2 were $800,000. Accounts receivable was $100,000 at the end of Year 1 and $150,000 at the end of Year 2. The days' sales in accounts receivable for Year 2 (rounded to one decimal) was:
$150,000 / ($800,000 / 365) = 68.4 days
Firm A's common stock has a par value per share of $1, market value per share of $90, earnings per share of $5, dividends per share of $2, and a book value per share of $60. What is Firm A's dividend payout ratio (rounded to one decimal)?
$2 / $5 = 40%
Sales for Year 2 were $2,400,000. Accounts receivable was $200,000 at the end of Year 1 and $300,000 at the end of Year 2. The accounts receivable turnover for Year 2 (rounded to one decimal) was:
$2,400,000 / (($200,000 + $300,000) / 2) = 9.6 times
For Year 2, sales were $300,000 and cost of goods sold was $180,000. Inventories amounted to $20,000 at the end of Year 1 and $30,000 at the end of Year 2. The days' sales in inventory for Year 2 (rounded to one decimal) was:
$30,000 / ($180,000 / 365) = 60.8 days
Firm B's common stock has a par value per share of $1, market value per share of $72, dividends per share of $4, earnings per share of $8, and a book value per share of $64. What is Firm B's dividend yield (rounded to one decimal
$4 / $72 = 5.6%
Sales were $500,000 in Year 1 and $600,000 in Year 2. Accounts receivable was $50,000 at the end of Year 1 and $30,000 at the end of Year 2. The accounts receivable turnover for Year 2 (rounded to one decimal) was: Multiple choice question.
$600,000 / (($50,000 + $30,000) / 2) = 15.0 times
Cost of goods sold for Year 2 was $600,000. Sales for Year 2 were $800,000. Plant and equipment was $300,000 at the end of Year 1 and $500,000 at the end of Year 2. The plant and equipment turnover for Year 2 (rounded to one decimal) was:
$800,000 / (($300,000 + $500,000) / 2) = 2.0 times
Firm D had 20,000 shares of $50 par value and 6 percent cumulative preferred stock authorized, issued, and outstanding during Year 1 and Year 2 but did not pay any preferred or common stock dividends in either year. Net income was $800,000 in Year 1 and $900,000 in Year 2. What is Firm D's preferred dividend coverage ratio for Year 2 (rounded to one decimal)?
$900,000 / (20,000 x $50 x 6%) = 15.0 times
Identify a true statement about a leveraged buyout.
In a leveraged buyout, the company goes heavily into debt to obtain the funds needed to buy the shares of the public stockholders.
Which statements regarding financial leverage are true?
It can lead to bankruptcy if the firm cannot generate enough cash to make payments on the principal and interest of its loans. It adds risk to the operation of the firm. It can be arranged via debt and preferred stock, because of their fixed interest cost (or dividend rate).
The LIFO reserve is the difference between the inventory valuation as reported under:
LIFO and the amount that would have been reported under FIFO.
Why is operating income frequently substituted for net income in the calculation of ROI and ROE?
Operating income excludes interest expense, which varies from firm to firm based on their capital structure decisions. Operating income is a more direct measure of the results of a firm's activities.
Why is operating income frequently substituted for net income in the calculation of ROI and ROE?
Operating income excludes the effects of discontinued operations and thus provides a more forward looking measure of the firm's profitability. Operating income excludes income tax expense, which varies from firm to firm based on country-specific tax rates.
Which of the following statements are true regarding the price/earning (P/E) ratio?
P/E ratios are shown in the stock listing tables of The Wall Street Journal. The P/E ratio is a measure of the relative expensiveness of a company's common stock. The P/E ratio is sometimes referred to as earnings multiple.
Identify the true statements about extra dividends.
They may be declared and paid after an especially profitable year. They indicate to stockholders that they should not expect to receive the larger amount every year.
Firm G's earnings before income taxes for the year was $140,000, income tax expense was $35,000, interest expense was $20,000, and net income was $105,000. What was Firm G's times interest earned for the year (rounded to one decimal)?
($140,000 + $20,000) / $20,000 = 8.0 times
Firm H's earnings before income taxes for the year was $180,000, cost of goods sold was $240,000, interest expense was $30,000, and income tax expense was $60,000. What was Firm H's times interest earned for the year (rounded to one decimal)?
($180,000 + $30,000) / $30,000 = 7.0 times
Which of the following statements are true regarding the price/earning (P/E) ratio?
Diluted earnings per share is usually the denominator of the P/E calculation. The P/E ratio is one of the most important measures used by investors to evaluate the market price of a firm's common stock. Analysts sometimes use expected future earnings per share and the current market price in the calculation to evaluate the prospects for changes in the stock's market price.
Credit-rating firms gather and report data about which of the following?
Segments of the economy Individual companies Industries
Which statements are true regarding the price/earning (P/E) ratio?
The P/E ratio should not be the sole, or even principal, consideration in an investment decision. Low P/E ratios usually indicate poor earnings expectations. An above-average P/E ratio often indicates that investors anticipate relatively favorable future developments, such as increased earnings per share or higher dividends per share.
How do debt and preferred stock provide financial leverage
The interest on debt can be deducted as an expense, lowering income taxes. They have a fixed interest cost (or dividend rate).
Identify the true statements about credit-rating firms.
They evaluate the common and preferred stock issues of publicly traded companies. They usually have a rating system and assign a credit risk value based on that system.
The ratios used to facilitate the interpretation of an entity's financial position and results of operations can be grouped into which four categories? Multiple select question.
Activity Profitability Debt (or financial leverage) Liquidity
Suppliers or potential suppliers/creditors of a firm consider which of the following to be more important than the aggregate working capital or liquidity ratios of the firm?
Current and recent payment experience of the firm Cash discounts availed by the firm for prompt payments made
