FINA 3320 Ch 1 and 3 - STUDY FOR EXAM 1 - Due 3/27

A firm has a total debt of 1350 and a debt-equity ratio of .20. What is the value of the total assets?

1. 1350 / total equity (x) = .20 x = 6750 2. Total assets = 1350 + (x) which is 6750 = 8100 Total assets = 1350 + 6750 = 8100

A firm has sales of 1170, net income of 221, net fixed assets of 534 and current assets of 290. The firm has 96 in inventory. What is the common-size balance sheet value of inventory?

1. Total assets = 534+290 =824 2. Common-size value of inventory = 96/824 = .1165 or 11.65%

A firm has total assets of $638,727, current assets of $203,015, current liabilities of $122,008, and total debts of $348,092. What is the debt-equity ratio?

1.20 Debt-equity ratio = $348,092 / ($638,727 - $348,092) = 1.20

Use the following information to answer this question. Bayside, Inc.2017 Income Statement ($ in thousands) Net sales $5,840 Cost of goods sold 4,250 Depreciation 335 Earnings before interest and taxes $1,255 Interest paid 31 Taxable income $1,224 Taxes 367 Net income$857 Bayside, Inc.2016 and 2017 Balance Sheets ($ in thousands) 2016 THEN 2017 for # order below: Cash$90 .. $195 Accounts payable$1,435 ... $1,405 Accounts rec. 960 ... 800 Long-term debt 760 ... 560 Inventory 1,605 ... 1,990 Common stock 3,230 ... 3,230 Total $2,655 ... $2,985 Retained earnings 830 ... 1,080 Net fixed assets 3,600 ... 3,290 Total assets $6,255 ... $6,275 Total liab. & equity $6,255 ... $6,275 What is the return on equity for **2017**?

19.88% Return on equity = 857 / (3230 + 1080) = .1988 or 19.88%

Assume earning before interest and taxes of $56,850 and net income of $23,954. The tax rate is 30%. What is the times interest earned ratio?

2.51 Times interest earned ratio = $56,850 / {$56,850 - [23954/(1-.30)]} = 2.51

Prime Electronic Sales has sales of $723,450, total equity of $490,000, a profit margin of 9.3%, and a debt-equity ratio of .42. What is the return on assets?

9.67 Return on assets = (.098 * 723450) / [(1+.42) * 490000)] = 0.967 or 9.67%

The potential conflict of interest between a firm's owners and its managers is referred to as which type of conflict?

Agency

Which one of these transactions will increase liquidity of the firm?

Credit sale of inventory at cost

Jupiter Explorers has 5600 in sales. The profit margin is 3%. there are 4000 shares of stock outstanding, with a price of 1.20 per share. What is the company's price-earnings ratio?

Earnings per share = (5600 * 0.03) / 4000 = 0.042 Price-earnings ratio = 1.20 / 0.042 = 28.57

Which one of the following is a working capital decision:

How much cash should the firm keep in its reserve?

Which one of the following is the maximum growth rate that a firm can achieve without any additional external financing

Internal Growth Rate

If you accept a job as a domestic security analyst for a brokerage firm, you are most likely working in which one of the following financial areas?

Investments

Lee Sun's has sales of 3250, total assets of 2950 and a profit margin of 4%. The firm has a totall debt ratio of 40%. What is the return on equity?

Net income - 3250*.04 = 130 Total debt ratio = .40 = (2950 - total equity) / 2950 Total equity = 1770 Return on equity = 130/1770 = .0734 or 7.34%

Last year a firm earned 67800 in net income on sales of 934600. Total assets increased by 62000 and total equity increased by 43500 for the year. No new equity was issued and no shared were repurchased. What is the retention rate?

Plowback ratio = 43500 / 67800 = .67416 or 64.16%

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?

SIC

One example of a primary market transaction would be the:

Sale of 1,000 shares of newly issued stock by Alt Company to Miquel

You contacted your stock broker this morning and placed an order to sell 300 shared of a stock that trades on the NYSE. This sale will occur in the:

Secondary market

An agency issue is most apt to develop when:

The control of a firm is separated from the firm's ownership

Capital Structure

The mixture of debt and equity maintained by a firm

The goal of financial management is to increase the:

current market value per share

A sole propietorship:

has its profits taxed as personal income

A corporation:

is a legal entity separate from its owners

If a firm has a 100 percent dividend payout ratio, then the internal growth rate of the firm is:

zero percent/ 0%