Fundamentals of Corporate Finance Chapter 3 Introduction to Corporate Finance

Days' sales in receivables

365/Receivables turnover

*Which one of the following is a primary market transaction?

sale of new share of stock to an individual investor

The equity multiplier

1+ D/E

Russel's Deli has cash of $136, accounts receivable of $95 accounts payable of $210, and inventory of $409. What is the value of the quick ratio?

1.10

Which one of the following correctly defines the retention ratio?

addition to retained earnings divided by net income

*The purchase and sale of securities after the original issuance occurs in the:

secondary market

Return on Assets

Net Income/Total Assets

Kindle Fire Prevention Corp. has a profit margin of 6.3 percent, total asset turnover of 2.2, and ROE of 18.44 percent. What is this firm's debt-equity ratio?

ROE = (PM)(TAT)(EM) ROE = 0.1844 = (0.063)(2.20)(EM) EM = 0.1844 / (0.063)(2.20) = 1.33 D/E = EM - 1 = 1.33 - 1 = 0.33

What is receivables turnover?

Sales/Receivables

All else unchanged, which of the following occurs when a firm buys inventory with cash?

The quick ratio declines but the current radio remains unchanged

The management of the firm's short-term assets and liabilities is called:

working capital management

Diamond Eyes, Inc., has sales of $18 million, total assets of $16.7 million, and total debt of $7.2 million. Assume the profit margin is 5 percent. What is Net Income?

$900,000

Return on Equity

(PM)(TAT)(EM)

High Mountain Foods has an equity multiplier of 1.55, a total asset turnover of 1.3, and a profit margin of 7.5 percent. What is the return on equity?

(TAT)(PM)(EM)

If Roten Rooters, Inc., has an equity multiplier of 1.54, total asset turnover of 1.80, and a profit margin of 6.4 percent, what is its ROE?

.1774 of 17.74%

Diamond Eyes, Inc., has sales of $18 million, total assets of $16.7 million, and total debt of $7.2 million. Assume the profit margin is 5 percent. What is Return on Assets?

.539

Perry, Inc., has a total debt ratio of 0.36. What is its debt-equity ratio?

.56

In other words, what does an equity multiplier of 2 mean?

Each dollar in equity the firm has supports $2 in assets

Which one of the following accurately describes the three parts of the Du Point Identity?

equity multiplier, profit margin, and total asset turnover

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

financial ratios

Ratios that measure a firm's financial leverage known as ___ ratios.

long-term-solvency

A firm has a debt-equity ratio of 0.42. What is the total debt ratio?

0.30 (add 1 divide by .42)

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

0.5

The current ratio is measured as:

Current assets divided by current liabilities.