Financial Management Chapter 3

Coulter Supply has a total debt ratio of .46. What is the equity multiplier? -.89 -1.17 -1.47 -1.85 -2.17

1.85 Debt-equity ratio = .46 / (1 − .46) = .85 Equity multiplier = 1 + .85 = 1.85

The Docksider has net income for the most recent year of $24,650. The tax rate was 15 percent. The firm paid $1,800 in total interest expense and deducted $2,900 in depreciation expense. What was the cash coverage ratio for the year? -20.48 times -11.48 times -12.39 times -18.72 times -13.69 times

18.72 times Earnings before taxes = $24,650 / (1 - .15) = $29,000 Earnings before interest and taxes = $29,000 + 1,800 = $30,800 Cash coverage ratio = ($30,800 + 2,900) / $1,800 = 18.72 times

A firm has a debt-total asset ratio of 58 percent and a return on total assets of 13 percent. What is the return on equity? -26.27 percent -30.95 percent -45.00 percent -22.41 percent -13.50 percent

30.95% (Total assets - Total equity) / Total assets = .58 Total equity = .42 Total assets Net income = .13 Total assets Return on equity = .13 Total assets / .42 Total assets = .3095, or 30.95percent

See #12 Chap. 3

38.00 days Days' sales in receivables at year-end = 365 / ($827,500 / $86,150) = 38.00

See #13 Chap. 3

4.28 Price-sales ratio = $43.20 / [$827,500 / ($82,000 / $1)] = 4.28

BL Industries has ending inventory of $302,800 and cost of goods sold for the year just ended was $1.41 million. On average, how long did a unit of inventory sit on the shelf before it was sold? -47.64 days -22.18 days -78.38 days -61.78 days -83.13 days

78.38 days Day's sales in inventory = 365 / ($1,410,000 / $302,800) = 78.38 days

Which one of the following statements is correct? -If the total debt ratio is greater than .50, then the debt-equity ratio must be less than 1.0. -Long-term creditors would prefer the times interest earned ratio be 1.4 rather than 1.5. -The debt-equity ratio can be computed as 1 plus the equity multiplier. -An equity multiplier of 1.2 means a firm has $1.20 in sales for every $1 in equity. -An increase in the depreciation expense will not affect the cash coverage ratio.

An increase in the depreciation expense will not affect the cash coverage ratio

On a common-base year financial statement, accounts receivables for the current year will be expressed relative to which one of the following? -Current year sales. -Current year total assets. -Base-year sales. -Base-year total assets. -Base-year accounts receivables.

Base-year accounts receivables.

Which one of the following is a use of cash? -Decrease in fixed assets. -Decrease in inventory. -Increase in long-term debt. -Decrease in accounts receivables. -Decrease in accounts payable.

Decrease in accounts payable

An increase in current liabilities will have which one of the following effects, all else held constant? Assume all ratios have positive values. -Increase in the cash ratio. -Increase in the net working capital to total assets ratio. -Decrease in the quick ratio. -Decrease in the cash coverage ratio. -Increase in the current ratio.

Decrease in the quick ratio

If a firm produces a 13 percent return on assets and also a 13 percent return on equity, then the firm: -May have short-term, but not long-term debt. -Is using its assets as efficiently as possible. -Has no net working capital. -Has a debt-equity ratio of 1.0. -Has an equity multiplier of 1.0.

Has an equity multiplier of 1.0

On the statement of cash flows, which of the following are considered operating activities? I. Costs of goods sold. II. Decrease in accounts payable. III. Purchase of equipment. IV. Dividends paid.

I. Costs of goods sold. II. Decrease in accounts payable.

Which of the following ratios are measures of a firm's liquidity? I. Cash coverage ratio. II. Interval measure. III. Debt-equity ratio. IV. Quick ratio.

II. Interval measure. IV. Quick ratio.

Which one of the following is a source of cash for a non-tax-paying firm? -Increase in accounts receivable. -Increase in depreciation. -Decrease in accounts payable. -Increase in common stock. -Increase in inventory.

Increase in common stock

According to the statement of cash flows, an increase in inventory will _____ the cash flow from _____ activities. -Increase; operating. -Decrease; financing. -Decrease; operating. -Increase; financing. -Increase; investment.

Decrease; operating

See #10 Chap. 3

$101 See #10 Chap. 3 for explanation

See #14 Chap. 3

$7,300 Dividends paid = $96,200 - ($397,900 - 309,000) = $7,300

Best-Ever Chicken has a debt-equity ratio of .94. Return on assets is 8.5 percent, and total equity is $520,000. What is the net income? -$44,200 -$88,880 -$85,748 -$41,548 -$74,909

$85,748 Equity multiplier = 1 + .94 = 1.94 Return on equity = .085 × 1.94 = .1649 Net income = .1649 × $520,000 = $85,748

Which one of these correctly expresses the calculation of the common-size, base year value of inventory for 2015? Assume 2014 is the base year. -2015 inventory / 2015 Total assets -2015 inventory / 2014 inventory -(2015 inventory / 2015 total assets) / (2014 inventory / 2014 total assets) ) -(2015 inventory / 2014 inventory) / (2015 total assets / 2014 total assets) -(2015 inventory / 2015 sales) / (2014 inventory / 2014 sales)

(2015 inventory / 2015 total assets) / (2014 inventory / 2014 total assets) )

Flo's Flowers has accounts receivable of $4,511, inventory of $1,810, sales of $138,609, and cost of goods sold of $64,003. How many days does it take the firm to sell its inventory and collect the payment on the sale assuming that all sales are on credit? -11.88 days -22.20 days -16.23 days -14.50 days -18.67 days

22.20 days Days in inventory = 365 / ($64,003 / $1,810) = 10.322 days Days' sales in receivables = 365 / ($138,609 / $4,511) = 11.879 days Total days in inventory and receivables = 10.322 + 11.879 = 22.20 days

See #15 Chap. 3

27.22% Net working capital to total assets at year-end = ($43,700 + 86,150 + 214,600 - 104,300) / $882,400 = .2722, or 27.22 percent

Which one of the following standardizes items on the income statement and balance sheet relative to their values as of a chosen point in time? -Statement of standardization. -Statement of cash flows. -Common-base year statement. -Common-size statement. -Base reconciliation statement.

Common-base year statement

The DuPont identity can be used to help managers answer which of the following questions related to a firm's operations? I. How many sales dollars has the firm generated per each dollar of assets? II. How many dollars of assets has a firm acquired per each dollar in shareholders' equity? III. How much net profit is a firm generating per dollar of sales? IV. Does the firm have the ability to meet its debt obligations in a timely manner?

I. How many sales dollars has the firm generated per each dollar of assets? II. How many dollars of assets has a firm acquired per each dollar in shareholders' equity? III. How much net profit is a firm generating per dollar of sales?

The sources and uses of cash over a stated period of time are reflected on the: -Income statement. -Balance sheet. -Tax reconciliation statement. -Statement of cash flows. -Statement of operating position.

Statement of cash flows