Financial Management Sheaffer Rutgers Exam 1 Quizzes 1-5

The Paper Mill is operating at full capacity. Assets, costs, and current liabilities vary directly with sales. The dividend payout ratio is constant. The firm has sales of $42,700, net income of $5,500, total assets of $48,900, current liabilities of $3,650, long-term debt of $18,100, owners' equity of $27,150, and dividends of $1,925. What is the external financing need if sales increase by 14 percent? Multiple Choice −$1,816 −$1,268 $1,031 $3,504 $2,260

$2,260 Explanation EFN = 1.14($48,900) − 1.14($3,650) − $18,100 − 27,150 − ($5,500 − 1,925)(1.14)EFN = $2,260

At the beginning of the year, a firm had current assets of $121,306 and current liabilities of $124,509. At the end of the year, the current assets were $122,418 and the current liabilities were $103,718. What is the change in net working capital? −$19,679 −$11,503 $19,387 $15,497 $21,903

$21,903 Explanation Change in NWC = ($122,418 − 103,718) − ($121,306 − 124,509)Change in NWC = $21,903

Ryu and Fowler Attorneys has total assets of $4,900, fixed assets of $3,200, long-term debt of $2,900, and short-term debt of $1,400. What is the amount of net working capital? Multiple Choice −$100 $300 $600 $1,700 $1,800

$300 Explanation NWC = $4,900 − 3,200 − 1,400NWC = $300

Agrawal, Incorporated, has common stock of $6,200, paid-in surplus of $9,100, total liabilities of $8,400, current assets of $5,900, and fixed assets of $21,200. What is the total shareholders' equity that the company should report? Multiple Choice $6,900 $15,300 $18,700 $23,700 $35,500

$18,700 Explanation Shareholders' equity = $5,900 + 21,200 − 8,400Shareholders' equity = $18,700The amount of retained earnings is not provided, so you must use total assets minus total liabilities to derive the correct answer.

Nielsen's has annual sales of $352,400 and a net profit margin of 5.2 percent. The firm has beginning owners' equity of $136,400 and ending owners' equity of $139,900. The firm neither sold nor repurchased shares during the year. What is the firm's retention ratio? Multiple Choice 26.87% 40.00% 36.67% 19.10% 23.33%

19.10% Explanation Net income = .052($352,400)Net income = $18,324.80Retention ratio = ($139,900 − 136,400)/$18,324.80Retention ratio = .1910, or 19.10%

Digital Movement has a return on assets of 9 percent and a dividend payout ratio of 75 percent. What is the internal growth rate? Multiple Choice 3.24% 4.05% 3.97% 2.30% 2.25%

2.30% Explanation Internal growth rate = [.09(1 − .75)]/[1 − .09(1 − .75)]Internal growth rate = .0230, or 2.30%

Which form of business would be the best choice if it were necessary to raise large amounts of capital? Sole proprietorship Limited liability company Corporation General partnership Limited partnership

Corporation

A firm's liquidity is measured with which one of the following ratios? Multiple Choice Market-to-book ratio Current ratio Debt-equity ratio Net profit margin Net working capital ratio

Current ratio

Which one of the following questions involves a capital structure decision? Which one of two project proposals should the firm implement? How should the firm allocate its limited available funds among acceptable projects? How much funding should be allocated to financing customer purchases of a new product? How much debt should the firm incur to fund a project?How much inventory will be needed to support a project?

How much debt should the firm incur to fund a project?

Which one of the following questions is a working capital management decision? Multiple Choice Should the company issue new shares of stock or borrow money? Should the company refurbish its equipment or replace it? How much inventory should the company keep on hand? Should the company close one of its current stores? How much money should the company borrow to buy a new building?

How much inventory should the company keep on hand?

Which one of the following questions involves a capital budgeting decision? How many shares of stock should the firm issue? Should the firm purchase a new machine for the production line?Correct Should the firm borrow money to acquire new equipment? How much inventory should the firm keep on hand? How much money should be kept in the checking account?

Should the firm purchase a new machine for the production line?

Which one of the following statements is correct? A general partnership is a legal person. Taxable income earned by a partnership is treated as individual income. Partnerships are the most complicated type of business to form. All partnerships are required to have at least one limited partner. Only firms organized as partnerships have limited lives.

Taxable income earned by a partnership is treated as individual income.

The Natural Pet had sales of $763,500 in 2020, and $864,200 in 2021. The firm's current accounts remained constant. Given this information, which one of the following statements must be true? The total asset turnover rate increased. The days' sales in receivables increased. The receivables turnover rate decreased. The fixed asset turnover decreased. The net working capital turnover rate increased.

The net working capital turnover rate increased.

Tobin's Q relates the market value of a firm's assets to which one of the following? Initial cost of creating the firm Current book value of the firm Average asset value of similar firms Average market value of similar firms Today's cost to duplicate those assets

Today's cost to duplicate those assets

Agency problems are most likely to be associated with: Multiple Choice sole proprietorships. general partnerships. limited partnerships. corporations. limited liability companies.

corporations.

Bowman's Boats has an interval measure of 53. This means that the firm has sufficient liquid assets to : cover all of its accounts receivable that are due within the next 53 days. pay all of its debts that are due within the next 53 days. cover its operating costs for the next 53 days.Correct pay all of its accounts payable for the next 53 days. meet the sales quantity demands of its customers for the next 53 days.

cover its operating costs for the next 53 days.

Financial managers should primarily focus on the interests of: themselves.the vice president of finance. their immediate supervisor. shareholders. the board of directors.

shareholders

A firm owned by a single person who has unlimited liability for the firm's debt is called a: corporation. sole proprietorship. general partnership. limited partnership.

sole proprietorship.

The plowback ratio is: Multiple Choice equal to net income divided by the change in total equity. the percentage of net income available to the firm to fund future growth. equal to one minus the retention ratio. the change in retained earnings divided by the dividends paid. the dollar increase in net income divided by the dollar increase in sales.

the percentage of net income available to the firm to fund future growth.

Matsumoto Training has sales of $705,000, depreciation of $17,600, interest expense of $2,090, costs of $144,000, and a tax rate of 21 percent. What is the operating cash flow for the year? Multiple Choice $436,018 $418,899 $447,325 $434,409 $432,451

$447,325 Explanation EBIT = $705,000 − 144,000 − 17,600 EBIT = $543,400 Tax = ($543,400 − 2,090)(.21) Tax = $113,675 OCF = $543,400 + 17,600 − 113,675 OCF= $447,325

Jacob's Escape has accounts payable of $2,214, inventory of $7,950, cash of $1,263, fixed assets of $8,400, accounts receivable of $3,907, and long-term debt of $4,200. What is the value of the net working capital to total assets ratio? .31 .42 .47 .51 .56

.51 Explanation NWC to total assets = ($1,263 + 3,907 + 7,950 − 2,214)/($1,263 + 3,907 + 7,950 + 8,400)NWC to total assets = .51

Curtis and Company currently has annual sales of $52,600, net fixed assets of $38,900, and total assets of $56,300. The firm is currently operating at 79 percent of capacity. What is the capital intensity ratio at full capacity? Multiple Choice 1.18 1.10 .96 .91 .85

.85 Full-capacity sales = $52,600/.79 Full-capacity sales = $66,582.28 Capital intensity ratioFull capacity = $56,300/$66,582.28 Capital intensity ratioFull capacity = .85

Use the following information to answer this question: Bayside, Incorporated2021 Income Statement($ in thousands)Net sales$ 6,290Cost of goods sold4,700Depreciation450Earnings before interest and taxes$ 1,140Interest paid42Taxable income$ 1,098Taxes231Net income$ 867 Bayside, Incorporated2020 and 2021 Balance Sheets($ in thousands) 20202021 20202021Cash$ 165$ 270Accounts payable$ 1,830$ 1,860Accounts received1,1901,030Long-term debt910710Inventory1,9052,140Common stock3,4403,380Total$ 3,260$ 3,440Retained earnings9801,230Net fixed assets3,9003,740 Total assets$ 7,160$ 7,180Total liabilities & equity$ 7,160$ 7,180 What is the return on equity for 2021? 18.81% 23.82% 19.62% 19.21% 12.08%

18.81% Return on equity = $867/($3,380 + 1,230) = .1881, or 18.81%

Based on the tax table below, what is the average tax rate for a sole proprietor with taxable income of $155,000? Ignore any standard or itemized deductions. Taxable Income Tax Rate $ 0 − 9,875 10% 9,875 − 40,125 12% 40,125 − 85,525 22% 85,525 − 163,300 24% Multiple Choice 10.76% 20.18% 24.00% 16.26% 21.00%

20.18% Income Tax = [($9,875 − 0) × 10%] + [($40,125 − 9,875) × 12%] + [($85,525 − 40,125) × 22%] + [($155,000 − 85,525) × 24%] = $31,279.50Average tax rate = $31,279.50/$155,000Average tax rate = .2018, or 20.18%

Jupiter Explorers has $9,400 in sales. The profit margin is 4 percent. There are 5,400 shares of stock outstanding, with a price of $2.00 per share. What is the company's price-earnings ratio? Multiple Choice 14.36 times 28.72 times 13.93 times 13.60 times 27.85 times

28.72 times Explanation Earnings per share = ($9,400 × .04)/5,400 = $.06963Price-earnings ratio = $2.00/$.06963 = 28.72 times

Hennessey Chicken and Waffles had $594,500 in sales, and a net profit margin of 4 percent. The firm has 2,750 shares of stock outstanding, with a market price per share of $42.40. What is the price-earnings ratio? 3.97 4.90 8.85 1.70 0.20

4.90 PE = $42.40/{[.04($594,500)]/2,750}PE = 4.90

Last year, Trailer Corporation reported total assets of $1,184,000, sales of $721,000, and net income of $144,200. The firm paid $57,680 in dividends and intends to hold its dividend payout ratio constant. At what annual rate can the firm grow without having to raise external funds? Multiple Choice 5.1% 57.6% 32.2% 12.6% 7.9%

7.9% Explanation ROA = $144,200/$1,184,000ROA = .121791Retention rate = 1 − ($57,680/$144,200)Retention ratio = .60Internal growth rate = [(0.121791)(.60)]/{1 − [(0.121791)(.60)]}Internal growth rate = .079, or 7.9%

Mario's Home Systems has sales of $2,740, costs of goods sold of $2,080, inventory of $488, and accounts receivable of $422. How many days, on average, does it take Mario's to sell its inventory? Multiple Choice 84.46 days 65.01 days 74.05 days 85.63 days 56.22 days

85.63 days

An increase in which one of the following will increase a firm's quick ratio without affecting its cash ratio? Accounts payable Cash Inventory Accounts receivable Fixed assets

Accounts receivable

Which one of the following is a current liability? Multiple Choice A loan payable to the bank in 4 years An invoice payable to a supplier in 45 days An amount due from a customer in 90 days A note payable to a lender in 18 months An amount due from a customer, which is already past due

An invoice payable to a supplier in 45 days

Which one of the following is classified as a tangible fixed asset? Multiple Choice Accounts receivable Goodwill Computer equipment Cash Inventory

Computer equipment

Corporate dividends represent: tax-free income for the recipient because they are distributions of pretax income .tax-free income for the recipient because they are distributions of aftertax income. pretax income from the corporation which becomes taxable income for the recipient. taxable income for both the corporation and the shareholder, whether or not dividends are paid to shareholders. aftertax income from the corporation which becomes taxable income for the recipient.

aftertax income from the corporation which becomes taxable income for the recipient.

Pro forma statements: Multiple Choice must assume that no new equity is issued. are projections, not guarantees. are limited to a balance sheet and income statement. must assume that no dividends will be paid. exclude net working capital needs.

are projections, not guarantees.

Net working capital is defined as: Multiple Choice total liabilities minus shareholders' equity. current liabilities minus shareholders' equity. fixed assets minus long-term liabilities. current assets minus current liabilities. total assets minus total liabilities.

current assets minus current liabilities.

A firm's external financing need is met by: Multiple Choice retained earnings. net working capital and retained earnings. net income and retained earnings. debt and/or equity. owners' equity, including retained earnings.

debt and/or equity.

Decisions made by financial managers should primarily focus on increasing the: size of the firm. growth rate of the firm. gross profit per unit produced. market value per share of outstanding stock. total sales.

market value per share of outstanding stock.

The sustainable growth rate of a firm is best described as the ______ growth rate achievable ______. Multiple Choice minimum; assuming a 100 percent retention ratio minimum; if the firm maintains a constant equity multiplier maximum; excluding external financing of any kind maximum; excluding any external equity financing, while maintaining a constant debt-equity ratio maximum; with unlimited debt financing

maximum; excluding any external equity financing, while maintaining a constant debt-equity ratio

Financial plans: concentrate solely on income and expense items. often contain alternative options based on economic developments. frequently contain conflicting goals. assume that firms obtain no additional external financing. are based on a single set of economic assumptions.

often contain alternative options based on economic developments.

The cash flow that results from a company's ongoing, normal business activities is called: Multiple Choice operating cash flow. capital spending. net working capital. cash flow from assets. cash flow to creditor.

operating cash flow.

Shareholders' equity: Multiple Choice is referred to as a firm's financial leverage. is equal to total assets plus total liabilities. represents the residual value of a firm. includes patents, preferred stock, and common stock. decreases whenever new shares of stock are issued.

represents the residual value of a firm.