Essentials of corporate finance ch3

A firm has a current ratio of 1.4 and a quick ratio of .9. Given this, you know for certain that the firm: A has positive net working capital. B has more current liabilities than it does current assets. C has more than half its current assets invested in inventory. D has more cash than inventory. E pays cash for its inventory.

A

Computer Geeks has sales of $618,900, a profit margin of 13.2 percent, a total asset turnover rate of 1.54, and an equity multiplier of 1.06. What is the return on equity? A 21.55 percent B 12.67 percent C 18.91 percent D 18.28 percent E 22.11 percent

A

Fast Kars has a return on equity of 22.3 percent, a profit margin of 14.2 percent, and total equity of $467,000. What is the net income? A $104,141 B $109,897 C $66,314 D $113,875 E $69,608

A

Galaxy Sales has sales of $938,300, cost of goods sold of $764,500, and inventory of $123,600. How long on average does it take the firm to sell its inventory? A 59.01 days B 6.40 days C 61.10 days D 48.68 days E 7.23 days

A

The DuPont identity can be accurately defined as: A Equity multiplier × Return on assets. B Equity multiplier × Return on assets × Profit margin. C Total asset turnover × Profit margin × Debt-equity ratio. D Return on equity × Total asset turnover × Equity multiplier. E Profit margin × Return on equity.

A

The Wood Shop generates $.97 in sales for every $1 invested in total assets. Which one of the following ratios would reflect this relationship? A Profit margin B Return on assets C Equity multiplier D Total asset turnover E Receivables turnover

D

The sustainable growth rate is based on the premise that: A the debt-equity ratio will be held constant. B the dividend payout ratio will be zero. C an additional dollar of debt will be acquired only if an additional dollar in equity shares is issued. D no additional equity will be added to the firm. E the dividend payout ratio will increase at a steady rate.

A

Towne Realty has total assets of $346,200, net fixed assets of $277,400, current liabilities of $16,100, and long-term liabilities of $124,600. What is the total debt ratio? A .41 B .56 C .68 D .52 E .47

A

The sustainable growth rate is defined as the maximum rate at which a firm can grow given which of the following conditions? A No new debt but additional external equity equal to the increase in retained earnings B No new external equity and a constant debt-equity ratio C New debt and external equity, provided the debt-equity ratio remains constant D No new external financing of any kind E New debt and external equity in equal proportions

B

Which one of the following is the maximum growth rate that a firm can achieve without any additional external financing? A External growth rate B Internal growth rate C Cash flow rate D DuPont rate E Sustainable growth rate

B

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

B

A firm has total assets of $638,727, current assets of $203,015, current liabilities of $122,008, and total debt of $348,092. What is the debt-equity ratio? A .87 B 1.03 C 1.20 D 1.43 E 1.31

C

BR Trucking has total sales of $911,300, a total asset turnover of 1.1, and a profit margin of 5.87 percent. Currently, the firm has 18,500 shares outstanding. What are the earnings per share? A $2.58 B $2.86 C $2.89 D $2.92 E $2.97

C

Health Centers, Inc., has total equity of $948,300, sales of $1.523 million, and a profit margin of 4.4 percent. What is the return on equity? A 8.68 percent B 7.18 percent C 7.07 percent D 6.49 percent E 4.21 percent

C

Suppose Healey Corp. has the following characteristics: Shares outstanding: 68,500 Current share price: $13.50 Total debt: $438,500 Total cash: $63,100 Based on the formula above, what is the enterprise value of this company? A $1,500,400 B $948,850 C $1,300,150 D $880,900 E $1,125,600

C

Which one of the following is the abbreviation for the U.S. government coding system that classifies a firm by its specific type of business operations? A SBC B SED C SIC D BID E BEC

C

ABD common stock is selling for $36.08 a share. The company has earnings per share of $.34 and a book value per share of $12.19. What is the market-to-book ratio? A 7.69 B 8.71 C 3.97 D 2.96 E 5.92

D

You would like to borrow money three years from now to build a new building. In preparation for applying for that loan, you are in the process of developing target ratios for your firm. Which set of ratios represents the best target mix considering that you want to obtain outside financing in the relatively near future? A Times interest earned = 1.5; debt-equity ratio = 1.2 B Cash coverage ratio = .8; debt-equity ratio = .8 C Cash coverage ratio = .5; total debt ratio = .2 D Cash coverage ratio = 2.6; debt-equity ratio = .3 E Times interest earned = 1.7; debt-equity ratio = 1.6

D

Builder's Outlet just hired a new chief financial officer. To get a feel for the company, she wants to compare the firm's sales and costs over the past three years to determine if any trends are present and also determine where the firm might need to make changes. Which one of the following statements will best suit her purposes? A Income statement B Common-size balance sheet C Balance sheet D Statement of cash flows E Common-size income statement

E

Common-size financial statements present all balance sheet account values as a percentage of: A last year's account value. B the forecasted budget. C total equity. D sales. E total assets.

E

Donovan's would like to increase its internal rate of growth. Decreasing which one of the following will help the firm achieve its goal? A Retention ratio B Return on equity C Net income D Return on assets E Dividend payout ratio

E

The Inside Door has total debt of $208,600, total equity of $343,560, and a return on equity of 13.27 percent. What is the return on assets? A 9.14 percent B 9.48 percent C 11.45 percent D 9.61 percent E 8.26 percent

E

The Kids' Mart has a market-to-book ratio of 3.3, net income of $87,100, a book value per share of $18.50, and 7,500 shares of stock outstanding. What is the price-earnings ratio? A 5.61 B 4.34 C 8.16 D 6.25 E 5.26

E

Which one of the following will increase the profit margin of a firm, all else held constant? A Increase in fixed costs B Increase in interest paid C Decrease in sales D Increase in depreciation expense E Decrease in the tax rate

E