finance test 1 questions

If Roten Rooters, Inc., has an equity multiplier of 1.46, total asset turnover of 1.50, and a profit margin of 5.6 percent, what is its ROE?

12.26%

The market value of the equity of Hudgins, Inc., is $595,000. The balance sheet shows $34,000 in cash and $205,000 in debt, while the income statement has EBIT of $106,000 and a total of $150,000 in depreciation and amortization. What is the enterprise value-EBITDA multiple for this company?

2.99 times

Heritage, Inc., had a cost of goods sold of $44,121. At the end of the year, the accounts payable balance was $8,143. How long on average did it take the company to pay off its suppliers during the year?

67.34 days

Beach Front Industries has sales of $546,000, costs of $295,000, depreciation expense of $37,000, interest expense of $15,000, and a tax rate of 21 percent. The firm paid $59,000 in cash dividends. What is the addition to retained earnings? A. $98,210 B. $81,700 C. $95,200 D. $103,460 E. $121,680

A

For 2017, Nevada Mining had projected taxable income of $94,800. Its actual taxable income exceeded this projection by $21,000. How much additional tax did the firm owe due to the $21,000 increase in taxable income? A. $7,930 B. $8,036 C. $8,150 D. $7,682 E. $8,197

A

SLG, Inc., has annual sales of $40,934, depreciation of $3,100, interest paid of $750, cost of goods sold of $22,400, taxes of $3,084, and dividends paid of $4,060. The firm has total assets of $55,300 and total debt of $32,600. The firm wants to maintain a constant payout ratio but does not want to incur any additional external financing. What is the firm's maximum rate of growth? A. 15.79 percent B. 16.18 percent C. 11.49 percent D. 9.03 percent E. 13.97 percent

A

The financial planning method that uses the projected sales level as the basis for determining changes in balance sheet and income statement account values is referred to as the _______method. A. Percentage of sales B. sales dilution C. sales reconciliation D. common-size E. trend

A

Urban's, which is currently operating at full capacity, has sales of $47,000, current assets of $5,100, current liabilities of $6,200, net fixed assets of $51,500, and a profit margin of 5 percent. The firm has no long-term debt and does not plan on acquiring any. The firm does not pay any dividends. Sales are expected to increase by 3 percent next year. If all assets, short-term liabilities, and costs vary directly with sales, how much additional equity financing is required for next year? A. −$908.50 B. −$722.50 C. $967.30 D. $1,698.00 E. $1,512.00

A

Williamsburg Markets has an operating cash flow of $4,267 and depreciation of $1,611. Current assets decreased by $1,356 while current liabilities decreased by $2,662, and net fixed assets decreased by $382 during the year. What is free cash flow for the year? A. $1,732 B. $2,247 C. $2,961 D. $3,915 E. $4,267

A

A firm has $680 in inventory, $2,140 in fixed assets, $210 in accounts receivables, $250 in accounts payable, and $80 in cash. What is the amount of the net working capital? A. $970 B. $720 C. $640 D. $3,110 E. $2,860

B

HiWay Furniture has sales of $316,000, depreciation of $47,200, interest expense of $41,400, costs of $148,200, and taxes of $16,632. The firm has net capital spending of $36,400 and a decrease in net working capital of $14,300. What is the cash flow from assets for the year? A. $145,985 B. $129,068 C. $119,655 D. $120,810 E. $134,585

B

On your tenth birthday, you received $300 which you invested at 4.5 percent interest, compounded annually. Your investment is now worth $756. How old are you today? A. Age 20 B. Age 31 C. Age 30 D. Age 23 E. Age 21

B

One disadvantage of the corporate form of business ownership is the: A. limited liability of its shareholders for the firm's debts. B. double taxation of distributed profits. C. firm's greater ability to raise capital than other forms of ownership. D. firm's potential for an unlimited life. E. firm's ability to issue additional shares of stock.

B

Porter's Corner has sales of $4,650 net income of $490, total assets of $5,820, and total debt of $2,760. Assets and costs are proportional to sales. Debt and equity are not. No dividends or taxes are paid. Next year's sales are projected to be $5,487. What is the amount of the external financing needed? A. −$28 B. $469 C. $611 D. $1,048 E. $823

B

Travis invested $8,000 in an account that pays 4 percent simple interest. How much more could he have earned over a 7-year period if the interest had compounded annually? A. $291.41 B. $287.45 C. $302.16 D. $266.67 E. $258.09

B

A business formed by two or more individuals who each have unlimited liability for all of the firm's business debts is called a: A. corporation B. sole proprietorship C. general partnership D. limited partnership E. limited liability company

C

Alex invested $2,550 in an account that pays 5 percent simple interest. How much money will he have at the end of four years? A. $2,650.00 B. $3,100.26 C. $3,060.00 D. $3,250.00 E. $3,099.54

C

Flo's Flowers has annual sales of $61,888, depreciation of $8,100, interest paid of $970, cost of goods sold of $29,400, taxes of $4,918, and dividends paid of $4,810. The firm has total assets of $105,300 and total debt of $51,600. The firm does not want any additional external equity financing and also wants to maintain a constant debt-equity ratio. What rate of growth can this firm maintain? A. 27.16 percent B. 12.27 percent C. 34.22 percent D. 13.27 percent E. 23.82 percent

C

Renee invested $2,000 six years ago at 4.5 percent interest. She spends all of her interest earnings immediately so she only receives interest on her initial $2,000 investment. Which type of interest is she earning? A. Free interest B. Complex interest C. Simple interest D. Interest on interest E. Compound interest

C

What is the average tax rate for a firm with taxable income of $118,740 in 2017? A. 26.68 percent B. 34.87 percent C. 24.89 percent D. 36.67 percent E. 39.00 percent

C

Which one of the following are you most apt to estimate first as you begin the process of preparing pro forma statements? A. Need for additional fixed assets B. Current fixed costs C. Projected sales D. Desired net income E. Desired dividend payments

C

Which one of the following statements is correct? A. The majority of firms in the U.S. are structured as corporations. B. Corporate profits are taxable income to the shareholders when earned. C. Corporations can have an unlimited life. D. Shareholders are protected from all potential losses. E. Shareholders directly elect the corporate president.

C

You're trying to save to buy a new $68,000 sports car. Currently, you have saved $36,840 which is invested at 4.9 percent annual interest. How many years will it be before you purchase the car, assuming the price of the car remains constant? A. 9.67 years B. 17.18 years C. 12.81 years D. 16.91 years E. 10.84 years

C

Your father invested a lump sum 28 years ago at 4.05 percent annual interest. Today, he gave you the proceeds of that investment, totalling $48,613.24. How much did your father originally invest? A. $14,929.47 B. $16,500.00 C. $15,994.70 D. $15,500.00 E. $16,099.45

C

Four years ago, Ship Express purchased a mailing machine at a cost of $218,000. This equipment is currently valued at $97,400 on today's balance sheet but could actually be sold for $92,900. This is the only fixed asset the firm owns. Net working capital is $41,300 and long-term debt is $102,800. What is the book value of shareholders' equity? A. $31,400 B. $47,700 C. $35,900 D. $249,400 E. $253,900

C. shareholders equity=assets-liabilities book value of shareholders equity= (current value of ship + NWC) - long term debt

A firm is operating at 90 percent of capacity. This information is primarily needed to project which one of the following account values when compiling pro forma statements? A. Sales B. Cost of goods sold C. Accounts receivable D. Fixed assets E. Long-term debt

D

A pro forma statement indicates that both sales and fixed assets are projected to increase by 7 percent over their current levels. Given this, you can safely assume the firm: A. is projected to grow at the internal rate of growth B. is projected to grow at the sustainable rate of growth C. currently has excess capacity D. is currently operating at full capacity E. retains all of its net income

D

Agency problems are most associated with: A. sole proprietorships. B. general partnerships. C. limited partnerships. D. corporations. E. limited liability companies.

D

Capital structure decisions include determining: A. which one of two projects to accept. B. how to allocate investment funds to multiple projects. C. the amount of funds needed to finance customer purchases of a new product. D. how much debt should be assumed to fund a project. E. how much inventory will be needed to support a project.

D

Financial managers should primarily focus on the interests of: A. stakeholders. B. the vice president of finance. C. their immediate supervisor. D. shareholders. E. the board of directors.

D

Next year's pro forma statement is based on an annual increase in sales of four percent. The firm is currently operating at 85 percent of capacity. Net working capital and all costs vary directly with sales. The tax rate and the dividend payout ratio are fixed. Given this information, the: A. projected dividends must equal the current dividends. B. depreciation expense will decrease by four percent. C. retained earnings will increase by 85 percent of projected net income. D. total assets will increase by less than four percent. E. total liabilities and owners' equity will increase by four percent.

D

One year ago, you invested $1,750. Today it is worth $1,815.48. What rate of interest did you earn? A. 3.59 percent B. 4.33 percent C. 3.88 percent D. 3.74 percent E. 4.01 percent

D

The Two Sisters has a return on assets of 9 percent and a dividend payout ratio of 75 percent. What is the internal growth rate? A. 3.24 percent B. 4.05 percent C. 3.97 percent D. 2.30 percent E. 2.25 percent

D

The sustainable growth rate of a firm is best described as the _____ growth rate achievable _____. A. minimum; assuming a 100 percent retention ratio B. minimum; if the firm maintains a constant equity multiplier C. maximum; excluding external financing of any kind D. maximum; excluding any external equity financing while maintaining a constant debt-equity ratio E. maximum; with unlimited debt financing

D

Which one of these will increase the present value of a set amount to be received sometime in the future? A. Increase in the time until the amount is received B. Increase in the discount rate C. Decrease in the future value D. Decrease in the interest rate E. Decrease in both the future value and the number of time periods

D

Bill's has a profit margin of 5 percent and a dividend payout ratio of 20 percent. The total asset turnover is 1.6 and the debt-equity ratio is .4. What is the sustainable rate of growth? A. 11.20 percent B. 9.60 percent C. 10.89 percent D. 9.26 percent E. 9.84 percent

E

LL Companies has sales of $9,800, net income of $1,060, total assets of $8,950, and total debt of $4,760. Assets and costs are proportional to sales. Debt and equity are not. A dividend of $371 was paid, and the company wishes to maintain a constant payout ratio. Next year's sales are projected to be $10,584. What is the amount of the external financing need? A. $716 B. $1,333 C. −$1,574 D. −$382 E. −$28

E

Marti's coin collection contains fifty 1948 silver dollars. Her grandparents purchased them at their face value in 1948. These coins have appreciated by 7.6 percent annually. How much will the collection be worth in 2025? A. $13,611.18 B. $18,987.56 C. $14,122.01 D. $11,218.27 E. $14,077.16

E

RTF Oil has total sales of $911,400 and costs of $787,300. Depreciation is $52,600 and the tax rate is 21 percent. The firm is all-equity financed. What is the operating cash flow? A. $108,410 B. $108,320 C. $109,924 D. $106,417 E. $109,085

E

The interest earned on both the initial principal and the interest reinvested from prior periods is called: A. free interest. B. dual interest. C. simple interest. D. interest on interest. E. compound interest.

E

Which one of the following actions by a financial manager is most apt to create an agency problem? A. Refusing to borrow money when doing so will create losses for the firm B. Refusing to lower selling prices if doing so will reduce the net profits C. Refusing to expand the company if doing so will lower the value of the equity D. Agreeing to pay bonuses based on the market value of the company's stock rather than on its level of sales E. Increasing current profits when doing so lowers the value of the company's equity

E

Which one of the following best illustrates that the management of a firm is adhering to the goal of financial management? A. An increase in the amount of the quarterly dividend B. A decrease in the per unit production costs C. An increase in the number of shares outstanding D. A decrease in the net working capital E. An increase in the market value per share

E

Which one of the following is least apt to help convince managers to work in the best interest of the stockholders? Assume there are no golden parachutes. A. Compensation based on the value of the stock B. Stock option plans C. Threat of a company takeover D. Threat of a proxy fight E. Increasing managers' base salaries

E

Which one of the following terms is defined as the mixture of a firm's debt and equity financing? A. Working capital management B. Cash management C. Cost analysis D. Capital budgeting E. Capital structure

E

Which one of the following will produce the lowest present value interest factor? A. 6 percent interest for 5 years B. 6 percent interest for 8 years C. 6 percent interest for 10 years D. 8 percent interest for 5 years E. 8 percent interest for 10 years

E

Which one of the following is a means by which shareholders can replace company management? A. Stock options B. Promotion C. Sarbanes-Oxley Act D. Agency play E. Proxy fight

E. proxy fight- An attempt by a person or group to overthrow management and take over the business by getting its stockholders to grant them the authority to vote its shares to replace the current management.

Queen, Inc., has a total debt ratio of .32. a. What is its debt-equity ratio? b. What is its equity multiplier?

a. 0.47 b. 1.47

Twist Corp. has a current accounts receivable balance of $348,800. Credit sales for the year just ended were $4,482,080. a. What is the company's receivables turnover? b. What is the company's days' sales in receivables? c. How long did it take on average for credit customers to pay off their accounts during the past year?

a. 12.82 b. 28.47 c. 28.47

The King Corporation has ending inventory of $483,565, and cost of goods sold for the year just ended was $4,448,798. a. What is the inventory turnover? b. What is the days' sales in inventory? c. How long on average did a unit of inventory sit on the shelf before it was sold?

a. 9.20 b. 39.67 c. 39.67

You are given the following information for Thrice Corp.: Decrease in inventory $500 Decrease in accounts payable $200 Increase in notes payable $185 Increase in accounts receivable $215 Did cash go up or down? By how much?

increased by $270

market to book ratio

market to book ratio= Market value per share/book value per share NOT GIVEN ON FORMULA SHEET: book value per share= total equity/number of shares

how do you prepare a 2017 and 2018 common-size balance sheets

you divide every number by total assets