Finance

AV Sales has net revenue of $513,000 and costs of $406,800. The depreciation expense is $43,800, interest paid is $11,200, and dividends for the year are$4,500. The tax rate is 33 percent. What is the addition to retained earnings?

(513000 - 406800 - 43800 - 11200) x .67 = 34304 - 4500 = 29804

Use the following tax table to answer this question: Taxable Income Tax Rate $0-9,525 10% 9,525-38,700 12 38,700-82,500 22 82,500-157,500 24 157,500-200,000 32 200,000-500,000 35 500,000+ 37 Andrews Dried Fruit, LLC has taxable income of $630,000. How much does it owe in taxes?v

(9525 - 0) x .10 = 952.5 (38700 - 9525) x .12 = 3501 (82500 - 38700) x .22 = 9636 (157500 - 82500) x .24 = 18000 (200000 - 157500) x .32 = 13600 (500000 - 200000) x .35 = 105000 (630000 - 500000) x .37 = 48100 952.5 + 3501 + 9636 + 18000 + 13600 + 105000 + 48100 = 198790

Marcia has sales of $79,600. The cost of goods sold is $48,200 and the other costs are $18,700. Depreciation is $8,300 and the tax rate is 35 percent. What is the net income?

79600 - 48200 - 18700 - 8300 = 4400 x .65 = 2860

Andre's Dog House had current assets of $67,200 and current liabilities of $71,100 last year. This year, the current assets are $82,600 and the current liabilities are $85,100. The depreciation expense for the past year is $9,600 and the interest paid is $8,700. What is the amount of the change in net working capital?

82600 - 85100 = -2500 67200 - 71100 = -3900 -2500 - -3900 = 1400

Donut Delite has total assets of $31,300, long-term debt of $8,600, net fixed assets of $19,300, and owners' equity of $21,100. What is the value of the net working capital?

8600 - 19300 + 21100 = 10400

Neiger Flours owes $9,741 in taxes on taxable income of $61,509. If the firm earns $100 more in income, it will owe an additional $22 in taxes. What is the average tax rate on income of $61,609?

9741 + 22 = 9763 9763 / 61609 = .1585 = 15.85 percent

Wes Motors has total assets of $98,300, net working capital of $11,300, owners' equity of $41,600, and long-term debt of $38,600. What is the value of the current assets?

98300 + 11300 - 41600 - 38600 = 29400

Which one of the following situations is most apt to create an agency conflict?

Basing management bonuses on the length of employment

Which one of the following actions will increase the current ratio, all else constant? Assume the current ratio is greater than 1.0.

Cash payment of an account payable

The balance sheet of Binger, Inc. has the following balances: Beginning balance Ending balance Cash $30,300 $32,800 Accounts receivable 48,200 51,600 Inventory 126,500 129,200 Net fixed assets 611,900 574,300 Accounts payable 43,200 53,600 Long-term debt 415,000 304,200 What is the amount of the change in net working capital?

Change in net working capital = ($32,800 + 51,600 + 129,200 − 53,600) − ($30,300 + 48,200 + 126,500 − 43,200) = −$1,800

Which one of the following is most apt to align management's priorities with shareholders' interests?

Compensating managers with shares of stock that must be held for a minimum of three years

Philippe Organic Farms has total assets of $689,400, long-term debt of $198,375, total equity of $364.182, net fixed assets of $512,100, and sales of $1,021,500. The profit margin is 6.2 percent. What is the current ratio?

Current ratio = ($689,400 − 512,100) / ($689,400 − 364,182 − 198,375) = 1.40

Daisy Co. has $267,000 in taxable income and Binget Co. has $1,600,000 in taxable income. Suppose both firms have identified a new project that will increase taxable income by $10,000. The additional project will increase Daisy Co.'s taxes by _____ and Binget Co.'s taxes by ____. Taxable Income Tax Rate $0-9,525 10% 9,525-38,700 12 38,700-82,500 22 82,500-157,500 24 157,500-200,000 32 200,000-500,000 35 500,000+ 37

Daisy Co. tax = $10,000 × 0.35 = $3,500 Binget Co. tax = $10,000 × .37 = $3,700

The Bike Shoppe has total assets of $536,712 and an equity multiplier of 1.36. What is the debt-equity ratio?

Debt-equity ratio = 1.36 − 1 = .36

Which one of the following will increase the profit margin of a firm, all else held constant?

Decrease in the tax rate

Dixie's sales for the year were $1,678,000. Cost of goods sold, administrative and selling expenses, and depreciation expenses were $1,141,000, $304,000, and $143,000, respectively. In addition, the company had an interest expense of $74,000 and a tax rate of 34 percent. What is the operating cash flow for the year?

EBIT = ($1,678,000 − 1,141,000 − 304,000 − 143,000 = $90,000 Tax = ($90,000 − 74,000) × .34 = $5,440 OCF = $90,000 + 143,000 − 5,440 = $227,560

The Pretzel Factory has net sales of $821,300 and costs of $698,500. The depreciation expense is $28,400 and the interest paid is $8,400. What is the amount of the firm's operating cash flow if the tax rate is 34 percent?

Earnings before interest and taxes = $821,300 − 698,500 − 28,400 = $94,400 Tax = ($94,400 − 8,400) × .34 = $29,240 Operating cash flow = $94,400 + 28,400 − 29,240 = $93,560

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?

Earnings per share = (.0587 × $911,300)/18,500 = $2.89

Allyba Dance Supply has total assets of $550,000 and total debt of $295,000. What is the equity multiplier?

Equity multiplier = $550,000 / ($550,000 − 295,000) = 2.16

The DuPont identity can be accurately defined as:

Equity multiplier × Return on assets.

Which one of the following is a capital structure decision?

Establishing the preferred debt-equity level

Which one of the following is a working capital decision?

How much cash should the firm keep in reserve?

The DuPont identity can be used to help a financial manager determine the: I. degree of financial leverage used by a firm. II. operating efficiency of a firm. III. utilization rate of a firm's assets. IV. rate of return on a firm's assets.

I, II, III, and IV

Outdoor Gear reduced its general and administrative costs this year. This cost improvement will increase which of the following ratios? I. Profit margin II. Return on assets III. Total asset turnover IV. Return on equity

I, II, and IV only

Maria is the sole proprietor of an antique store that is located in a rented warehouse. The store has an outstanding loan with the local bank but no other debt obligations. There are no specific assets pledged as security for the loan. Due to a sudden and unexpected downturn in the economy, the store is unable to generate sufficient funds to pay the loan payments due to the bank. Which of the following options does the bank have to collect the money it is owed? I. Sell the inventory and apply the proceeds to the debt II. Sell the lighting fixtures from the building and apply the proceeds to the debt III. Withdraw funds from Maria's personal account at the bank to pay the store's debt IV. Sell any assets Maria personally owns and apply the proceeds to the store's debt

I, III, and IV only

Fried Donuts has sales of $764,900, total assets of $687,300, total equity of $401,300, net income of $68,200, and dividends paid of $27,000. What is the internal growth rate?

Internal growth rate = {($68,200/$687,300) × [($68,200 − 27,000)/$68,200]}/(1 − {($68,200/$687,300) × [($68,200 − 27,000)/$68,200]}) = .0638, or 6.38 percent

Prisqua Rentals has inventory of $147,500, equity of $320,000, total assets of $658,800, and sales of $800,780. What is the common-size percentage for the inventory account?

Inventory common-size percentage = $147,500/$658,800 = .2239 = 22.39 percent

UXZ has sales of $683,200, cost of goods sold of $512,900, and inventory of $74,315. What is the inventory turnover rate?

Inventory turnover = $512,900 / $74,315 = 6.90 times

SRC, Inc., sells its inventory in an average of 43 days and collects its receivables in 3.6 days, on average. What is the inventory turnover rate? Assume a 365-day year.

Inventory turnover = 365 / 43 = 8.49 times

Which one of the following forms of business organization offers liability protection to some of its owners but not to all of its owners?

Limited partnership

Which one of the following is an advantage of being a limited partner?

Losses limited to capital invested

Saki Kale Farms has net income of $96,320, total assets of $975,200, total equity of $555,280, and total sales of $1,141,275. What is the common-size percentage for the net income?

Net income common-size percentage = $96,320 / $1,141,275 = .0844 = 8.44 percent

The sustainable growth rate is defined as the maximum rate at which a firm can grow given which of the following conditions?

No new external equity and a constant debt-equity ratio

Which one of the following statements correctly applies to a sole proprietorship?

Obtaining additional equity is dependent on the owner's personal finances.

Donegal's has compiled the following information: Sales $406,300 Interest paid 21,200 Long-term debt 248,700 Owners' equity 211,515 Depreciation 23,800 Accountsreceivable 24,400 Other costs 38,600 Inventory 41,500 Accountspayable 22,600 Cost of goods sold 218,900 Cash 16,300 Taxes 34,100 What is the operating cash flow for the year?

Operating cash flow = $406,300 − 218,900 − 38,600 − 34,100 = $114,700

All else held constant, which one of the following will decrease if a firm increases its net income?

Price-earnings ratio

KBJ has total assets of $613,000. There are 21,000 shares of stock outstanding with a market value of $13 a share. The firm has a profit margin of 6.2 percent and a total asset turnover of 1.08. What is the price-earnings ratio?

Price-earnings ratio = $13 /{[.062 × ($613,000 × 1.08)]/21,000} = 6.65

Bed Bug Inn has annual sales of $137,000. Earnings before interest and taxes are equal to 5.8 percent of sales. For the period, the firm paid $4,700 in interest. What is the profit margin if the tax rate is 34 percent?

Profit margin = {[(.058 × $137,000) − $4,700] × (1 − .34)} / $137,000 = .0156, or 1.56 percent

You are analyzing a company that has cash of $8,800, accounts receivable of $15,800, fixed assets of $87,600, accounts payable of $40,300, and inventory of $46,900. What is the quick ratio?

Quick ratio = ($8,800 + 15,800) / $40,300 = .61

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

Return on assets = (.093 × $723,450)/[(1 + .42) × $490,000)] = .0967, or 9.67 percent

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?

Return on assets = (.1327 × $343,560)/($208,600 + 343,560)= .0826, or 8.26 percent

World Exports has total assets of $938,280, a total asset turnover rate of 1.18, a debt-equity ratio of .47, and a return on equity of 18.7 percent. What is the firm's net income?

Return on equity = .187 = (Net income/$938,280) × (1 + .47) Net income = $119,359.43

Capital budgeting includes the evaluation of which of the following?

Size, timing, and risk of future cash flows

Margie opened a used bookstore and is both the 100 percent owner and the store's manager. Which type of business entity does Margie own if she is personally liable for all the store's debts?

Sole proprietorship

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

Times interest earned ratio = $56,850 / {$56,850 − [$23,954 / (1 − .30)]} = 2.51

Gracie Human Resource Consulting has total revenue of $285,400, cost of goods sold equal to 68 percent of sales, and a profit margin of 9.2 percent. Net fixed assets are $126,400 and current assets are $65,880. What is the total asset turnover rate?

Total asset turnover = $285,400 / ($126,400 + 65,880) = 1.48

Whitt's BBQ has sales of $1,318,000, a profit margin of 7.4 percent, and a capital intensity ratio of .78. What is the total asset turnover rate?

Total asset turnover = 1 / .78 = 1.28

One advantage of the corporate form of organization is the

ability to raise larger sums of equity capital than other organizational forms.

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

agency

total tax paid divided by the total taxable income

average tax rate

Highly liquid assets:

can be sold quickly at close to full value.

Firms that compile financial statements according to GAAP:

can still manipulate their earnings to some degree.

Uptown Markets is financed with 45 percent debt and 55 percent equity. This mixture of debt and equity is referred to as the firm's:

capital structure

Matt and Alicia created a firm that is a separate legal entity and will share ownership of that firm on a 75/25 basis. Which type of entity did they create if they have no personal liability for the firm's debts?

corporation

The goal of financial management is to increase the:

current market value per share.

An increase in which one of the following will increase operating cash flow for a profitable, tax-paying firm?

depreciation

A firm can increase its sustainable rate of growth by decreasing its:

dividends.

Will and Bill both enjoy sunshine, water, and surfboards. Thus, the two friends decided to create a business together renting surfboards, paddle boats, and inflatable devices in California. Will and Bill will equally share in the decision making and in the business profits or losses. Which type of business did they create if they both have full personal liability for the firm's debts?

general partnership

Over the past year, a firm decreased its current assets and increased its current liabilities. As a result, the firm's net working capital:

had to decrease

A sole proprietorship:

has its profits taxed as personal income.

A firm has a current ratio of 1.4 and a quick ratio of .9. Given this, you know for certain that the firm:

has positive net working capital.

Outdoor Sports paid $12,500 in dividends and $9,310 in interest over the past year. Sales totaled $361,820 with costs of $267,940. The depreciation expense was $16,500 and the tax rate was35 percent. What was the amount of the operating cash flow?

ignore dividends EBIT = 361820 - 267940 - 16500 = 77380 Taxes = (77380 - 9310) x .35 = 23824.5 OCF = 77380 + 16500 - 23824.5 = 70056

Financial leverage:

increases the potential return to the stockholders.

Net working capital increases when:

inventory is sold at a profit

A corporation:

is a legal entity separate from its owners.

Given a profitable firm, depreciation:

lowers taxes.

The tax rate that determines the amount of tax that will be due on the next dollar of taxable income earned is called the:

marginal tax rate

The primary goal of financial management is most associated with increasing the:

market value of the firm.

Shareholders' equity is equal to:

net fixed assets minus long-term debt plus net working capital.

The original sale of securities by governments and corporations to the general public occurs in the:

primary market

Limited liability companies are primarily designed to:

provide limited liability while avoiding double taxation.

quick ratio

quick assets/current liabilities

sales in which securities are bought and sold after the original sale

secondary market

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

secondary market.

The primary goal of financial management is to maximize:

the market value of existing stock.

Shareholders' equity is best defined as:

the residual value of a firm.

In a general partnership, each partner is personally liable for:

the total debts of the partnership, even if he or she was unaware of those debts.

Common-size financial statements present all balance sheet account values as a percentage of:

total assets.

Net income is distributed either to dividends or retained earnings.

true

The daily financial operations of a firm are primarily controlled by managing the:

working capital

Theo's BBQ has $48,000 in current assets and $39,000 in current liabilities. Decisions related to these accounts are referred to as:

working capital management

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

zero percent