Chapter 3

60. A firm has net working capital of $2,715, net fixed assets of $22,407, sales of $31,350, and current liabilities of $3,908. How many dollars worth of sales are generated from every $1 in total assets?

A. $1.08

54. A firm has a debt-equity ratio of .57. What is the total debt ratio?

A. .36

48. A firm has sales of $3,340, net income of $274, net fixed assets of $2,600, and current assets of $920. The firm has $430 in inventory. What is the common-size statement value of inventory?

A. 12.22 percent

63. Bernice's has $823,000 in sales. The profit margin is 3.9 percent and the firm has 7,500 shares of stock outstanding. The market price per share is $15. What is the price-earnings ratio?

A. 3.51

18. Which of the following ratios are measures of a firm's liquidity? I. Cash coverage ratio. II. Interval measure. III. Debt-equity ratio. IV. Quick ratio.

B. II and IV only.

71. What is the price-sales ratio if the market price is $43.20 per share? (Use end-of-year values)

D. 4.28

20. An increase in which one of the following will increase a firm's quick ratio without affecting its cash ratio?

D. Accounts receivable.

86. A firm has total assets with a current book value of $71,600, a current market value of $82,300, and a current replacement cost of $90,400. What is the value of Tobin's Q?

E. .91

78. How many days on average does it take to sell the inventory? (Use year-end values)

E. 177.13 days

105. Which of these are factors to consider when comparing utility firms that generate electric power and have the same SIC code? I. Type of ownership. II. Regulatory considerations. III. Fiscal year end. IV. Methods of power generation.

E. I, II, III, and IV.

104. Which one of these correctly expresses the calculation of the common-size, base year value of inventory for 2015? Assume 2014 is the base year.

c. (2015 inventory / 2015 total assets) / (2014 inventory / 2014 total assets) )

39. Which of the following can be used to compute the return on equity? I. Profit margin Return on assets II. Return on assets Equity multiplier III. Profit margin Total asset turnover Debt-equity ratio IV. Net income / Total assets

A. II only.

1. Activities of a firm that require the spending of cash are known as:

B. Uses of cash

68. A firm has a debt-equity ratio of 62 percent, a total asset turnover of 1.24, and a profit margin of 5.1 percent. The total equity is $489,600. What is the amount of the net income?

C. $50,159

47. A firm generated net income of $911. The depreciation expense was $47 and dividends were paid in the amount of $25. Accounts payables increased by $15, accounts receivables increased by $28, inventory decreased by $14, and net fixed assets decreased by $8. There was no interest expense. What was the net cash flow from operating activity?

C. $959

87. Dixie Supply has total assets with a current book value of $368,900 and a current replacement cost of $486,200. The market value of these assets is $464,800. What is the value of Tobin's Q?

C. .96

81. What is the times interest earned ratio for the year?

C. 10.79

58. The Up-Towner has sales of $913,400, costs of goods sold of $579,300, inventory of $187,400, 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?

C. 118.08 days

74. What is the return on equity using year-end values?

C. 20.05 percent

77. What is the net working capital to total assets ratio at year-end?

C. 27.22 percent

85. Townsend Enterprises has a PEG ratio of 5.3, net income of $49,200, a price-earnings ratio of 17.6, and a profit margin of 7.1 percent. What is the earnings growth rate?

C. 3.32 percent

99. Billings, Inc. has net income of $161,000, a profit margin of 7.6 percent, and an accounts receivable balance of $127,100. Assume that 66 percent of sales are on credit. What is the days' sales in receivables?

C. 33.18 days

19. An increase in current liabilities will have which one of the following effects, all else held constant? Assume all ratios have positive values.

C. Decrease in the quick ratio.

14. According to the statement of cash flows, an increase in inventory will _____ the cash flow from _____ activities.

C. Decrease; operating.

42. Which one of the following statements is correct?

C. Historical information is useful when projecting a firm's future performance.

13. On the statement of cash flows, which of the following are considered operating activities? I. Costs of goods sold. II. Decrease in accounts payable. III. Purchase of equipment. IV. Dividends paid.

C. I and II only.

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

C. I, II, and III only.

38. An increase in which of the following will increase the return on equity, all else constant? I. Total asset turnover. II. Net income. III. Total assets. IV. Debt-equity ratio.

C. I, II, and IV only. .

26. The cash coverage ratio directly measures the ability of a firm to meet which one of its following obligations?

C. Payment of interest to a lender.

23. Ratios that measure a firm's liquidity are known as _____ ratios.

C. Short-term solvency.

7. The U.S. government coding system that classifies a firm by the nature of its business operations is known as the:

C. Standard Industrial Classification codes.

27. All-State Moving had sales of $899,000 in 2014 and $967,000 in 2015. The firm's current accounts remained constant. Given this information, which one of the following statements must be true?

C. The net working capital turnover rate increased.

97. Best-Ever Chicken has a debt-equity ratio of .94. Return on assets is 8.5 percent, and total equity is $520,000. What is the net income?

C. $85,748

93. BL Industries has ending inventory of $302,800 and cost of goods sold for the year just ended was $1.41 million. On average, how long did a unit of inventory sit on the shelf before it was sold?

C. 78.38 days

4. Which one of the following standardizes items on the income statement and balance sheet relative to their values as of a chosen point in time?

C. Common-base year statement.

37. Which one of the following accurately describes the three parts of the DuPont identity?

C. Equity multiplier, profit margin, and total asset turnover.

94. Coulter Supply has a total debt ratio of .46. What is the equity multiplier?

D. 1.85

102. The Docksider has net income for the most recent year of $24,650. The tax rate was 15 percent. The firm paid $1,800 in total interest expense and deducted $2,900 in depreciation expense. What was the cash coverage ratio for the year?

D. 18.72 times

90. Lassiter Industries has annual sales of $328,000 with 8,000 shares of stock outstanding. The firm has a profit margin of 4.5 percent and a price-sales ratio of 1.20. What is the firm's price-earnings ratio?

D. 26.7

92. Corner Supply has a current accounts receivable balance of $246,000. Credit sales for the year just ended were $2,430,000. How many days on average did it take for credit customers to pay off their accounts during this past year?

D. 36.95 days

82. What is the net cash flow to stockholders for the year?

B. $300

100. Stone Walls has a long-term debt ratio of.6 and a current ratio of 1.2. Current liabilities are $800, sales are $7,800, profit margin is 6.5 percent, and return on equity is 15.5 percent. What is the amount of the firm's net fixed assets?

B. $8,017.43

89. A firm has annual sales of $416,000, a price-earnings ratio of 18, and a profit margin of 3.7 percent. There are 12,000 shares of stock outstanding. What is the price-sales ratio?

B. .67

69. What is the quick ratio at the end of the year?

B. 1.24

49. A firm has sales of $4,300, net income of $320, total assets of $4,800, and total equity of $2,950. Interest expense is $65. What is the common-size statement value of the interest expense?

B. 1.51 percent

73. What is the cash coverage ratio for the year?

B. 22.24

56. A firm has sales of $96,400, costs of $53,800, interest paid of $2,800, and depreciation of $7,100. The tax rate is 34 percent. What is the value of the cash coverage ratio?

A. 15.21

65. A firm has 160,000 shares of stock outstanding, sales of $1.94 million, net income of $126,400, a price-earnings ratio of 21.3, and a book value per share of $7.92. What is the market-to-book ratio?

A. 2.12

88. Dandelion Fields has a Tobin's Q of .96. The replacement cost of the firm's assets is $225,000 and the market value of the firm's debt is $101,000. The firm has 20,000 shares of stock outstanding and a book value per share of $2.09. What is the market to book ratio?

A. 2.75 times

61. TJ's has annual sales of $813,200, total debt of $176,000, total equity of $395,000, and a profit margin of 5.63 percent. What is the return on assets?

A. 8.02 percent

15. According to the statement of cash flows, an increase in interest expense will _____ the cash flow from _____ activities.

A. Decrease; operating.

41. A firm currently has $600 in debt for every $1,000 in equity. Assume the firm uses some of its cash to decrease its debt while maintaining its current equity and net income. Which one of the following will decrease as a result of this action?

A. Equity multiplier.

43. The most acceptable method of evaluating the financial statements of a firm is to compare the firm's current:

A. Financial ratios to the firm's historical ratios.

5. Relationships determined from a firm's financial information and used for comparison purposes are known as:

A. Financial ratios.

12. On the statement of cash flows, which of the following are considered financing activities? I. Increase in long-term debt. II. Decrease in accounts payable. III. Interest paid. IV. Dividends paid.

A. I and IV only.

67. Taylor's Men's Wear has a debt-equity ratio of 56 percent, sales of $829,000, net income of $38,300, and total debt of $206,300. What is the return on equity?

B. 10.40 percent

66. Oscar's Dog House has a profit margin of 5.6 percent, a return on assets of 12.5 percent, and an equity multiplier of 1.49. What is the return on equity?

B. 18.63 percent

59. Flo's Flowers has accounts receivable of $4,511, inventory of $1,810, sales of $138,609, and cost of goods sold of $64,003. How many days does it take the firm to sell its inventory and collect the payment on the sale assuming that all sales are on credit?

B. 22.20 days

101. A firm has a debt-total asset ratio of 58 percent and a return on total assets of 13 percent. What is the return on equity?

B. 30.95 percent

53. A firm has total assets of $310,100 and net fixed assets of $168,500. The average daily operating costs are $2,980. What is the value of the interval measure?

B. 47.52 days

10. Which one of the following is a source of cash?

B. Acquisition of debt,

33. Al's has a price-earnings ratio of 18.5. Ben's also has a price-earnings ratio of 18.5. Which one of the following statements must be true if Al's has a higher PEG ratio than Ben's?

B. Ben's is increasing its earnings at a faster rate than the Al's.

21. A supplier, who requires payment within 10 days, should be most concerned with which one of the following ratios when granting credit?

B. Cash,

36. Lenders probably have the most interest in which one of the following sets of ratios?

B. Long-term debt and times interest earned.

35. The price-sales ratio is especially useful when analyzing firms that have which one of the following?

B. Negative earnings.

29. RJ's has a fixed asset turnover rate of 1.26 and a total asset turnover rate of .97. Sam's has a fixed asset turnover rate of 1.31 and a total asset turnover rate of .94. Both companies have similar operations. Based on this information, RJ's must be doing which one of the following?

B. Utilizing its total assets more efficiently than Sam's.

25. If a firm has a debt-equity ratio of 1.0, then its total debt ratio must be which one of the following?

B. .5

96. 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?

B. .73

95. 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 equity?

B. 8.98 percent

91. Drive-Up has sales of $31.4 million, total assets of $27.6 million, and total debt of $14.9 million. The profit margin is 3.7 percent. What is the return on equity?

B. 9.15 percent

79. How many dollars of sales are being generated from every dollar of net fixed assets? (Use year-end values)

D. $1.17

76. What is the amount of the cash flow from investment activity for the year?

D. $49,950

52. Uptown Men's Wear has accounts payable of $2,214, inventory of $7,950, cash of $1,263, fixed assets of $8,400, accounts receivable of $3,907, and long-term debt of $4,200. What is the value of the net working capital to total assets ratio?

D. .51

72. What is debt-equity ratio at year-end?

D. .84

51. Duke's Garage has cash of $68, accounts receivable of $142, accounts payable of $235, and inventory of $318. What is the value of the quick ratio?

D. .89

50. Last year, which is used as the base year, a firm had cash of $52, accounts receivable of $223, inventory of $509, and net fixed assets of $1,107. This year, the firm has cash of $61, accounts receivable of $204, inventory of $527, and net fixed assets of $1,216. What is the common-base year value of inventory?

D. 1.04

80. What is the equity multiplier at year-end?

D. 1.84 Equity multiplier at year-end

57. Terry's Pets paid $2,380 in interest and $2,200 in dividends last year. The times interest earned ratio is 2.4 and the depreciation expense is $760. What is the value of the cash coverage ratio?

D. 2.72

22. A firm has an interval measure of 48. This means that the firm has sufficient liquid assets to do which one of the following?

D. Cover its operating costs for the next 48 days.

28. The Corner Hardware has succeeded in increasing the amount of goods it sells while holding the amount of inventory on hand at a constant level. Assume that both the cost per unit and the selling price per unit also remained constant. This accomplishment will be reflected in the firm's financial ratios in which one of the following ways?

D. Decrease in the day's sales in inventory.

6. Which one of these identifies the relationship between the return on assets and the return on equity?

D. DuPont identity.

8. Which one of the following is a source of cash for a non-tax-paying firm?

D. Increase in common stock.

45. Barlow's Feed had the following current account values. What effect did the change in net working capital have on the firm's cash flows for the year?

D. Net source of cash of $101.

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

D. Profitability.

16. On a common-size balance sheet all accounts for the current year are expressed as a percentage of:

D. Total assets for the current year. \\

103. Beach Wear has current liabilities of $350,000, a quick ratio of 1.65, inventory turnover of 3.2, and a current ratio of 2.9. What is the cost of goods sold?

D. $1,400,000

2. The sources and uses of cash over a stated period of time are reflected on the:

D. Statement of cash flows

55. A firm has total debt of $4,850 and a debt-equity ratio of .57. What is the value of the total assets?

E. $13,358.77

98. Canine Supply has sales of $2,800, total assets of $1,900, and a debt-equity ratio of .5. Its return on equity is 15 percent. What is the net income?

E. $190

75. What is the amount of the dividends paid during the year?

E. $7,300

62. Reliable Cars has sales of $807,200, total assets of $1,105,100, and a profit margin of 9.68 percent. The firm has a total debt ratio of 64 percent. What is the return on equity?

E. 19.64 percent

64. Hungry Lunch has net income of $68,710, a price-earnings ratio of 13.7, and earnings per share of $.24. How many shares of stock are outstanding?

E. 286,292

70. How many days of sales are in receivables at year-end?

E. 38.00

84. Big Tree Lumber has earnings per share of $1.36. The firm's earnings have been increasing at an average rate of 2.9 percent annually and are expected to continue doing so. The firm has 21,500 shares of stock outstanding at a price per share of $23.40. What is the firm's PEG ratio?

E. 5.93

24. Which one of the following statements is correct?

E. An increase in the depreciation expense will not affect the cash coverage ratio.

17. On a common-base year financial statement, accounts receivables for the current year will be expressed relative to which one of the following?

E. Base-year accounts receivables. ]

9. Which one of the following is a use of cash?

E. Decrease in accounts payable.

11. Which one of the following is a source of cash?

E. Decrease in inventory,

31. If a firm produces a 13 percent return on assets and also a 13 percent return on equity, then the firm:

E. Has an equity multiplier of 1.0. \

44. Which of the following represent problems encountered when comparing the financial statements of two separate entities? I. Either one, or both, of the firms may be conglomerates and thus have unrelated lines of business. II. The operations of the two firms may vary geographically. III. The firms may use differing accounting methods. IV. The two firms may be seasonal in nature and have different fiscal year ends.

E. I, II, III, and IV.

46. During the year, Al's Tools decreased its accounts receivable by $160, increased its inventory by $115, and decreased its accounts payable by $70. How did these three accounts affect the firm's cash flows for the year?

E. Net use of cash of $25.

32. Which one of the following will decrease if a firm can decrease its operating costs, all else constant?

E. Price-earnings ratio.

34. Tobin's Q relates the market value of a firm's assets to which one of the following?

E. Today's cost to duplicate those assets.

83 How does accounts payable affect the statement of cash flows for the year?

E. a use of $31,800 of cash as an operating activity

3. A common-size income statement is an accounting statement that expresses all of a firm's expenses as a percentage of:

E. sales