FIN 301 HW 3

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? 6.38 7.99 6.65 5.12 7.41

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

Bamp;C Co. has net income of $48,200, sales of $947,100, a capital intensity ratio of .87, and an equity multiplier of 1.53. What is the return on equity? 6.77 percent 5.93 percent 8.95 percent 12.21 percent 14.09 percent

Return on equity = ($48,200/$947,100) ×(1/.87) ×1.53 = .0895, or 8.95 percent

Pizza Pie maintains a constant debt-equity ratio of .55. The firm had net income of $14,800 for the year and paid $12,000 in dividends. The firm has total assets of $248,000. What is the sustainable growth rate? 3.38 percent 2.27 percent 1.78 percent 3.62 percent 4.97 percent

Sustainable growth rate = {[($14,800/$248,000)×(1 + .55)] ×[($14,800 -12,000)/$14,800]}/(1 - {[($14,800/$248,000)×(1 + .55)] ×[($14,800 -12,000)/$14,800]}) = .0178, or 1.78 percent

A firm has an equity multiplier of 1.5. This means that the firm has a: debt-equity ratio of .67. debt-equity ratio of .33. total debt ratio of .50. total debt ratio of .67. total debt ratio of .33.

Total debt ratio = (1.5 - 1) / 1.5 = .33

Which one of the following best indicates a firm is utilizing its assets more efficiently than it has in the past? A decrease in the total asset turnover A decrease in the capital intensity ratio An increase in days' sales in receivables A decrease in the profit margin A decrease in the inventory turnover rate

A decrease in the capital intensity ratio

Which one of these statements is true concerning the price-earnings (PE) ratio? A high PE ratio may indicate that a firm is expected to grow significantly. A PE ratio of 16 indicates that investors are willing to pay $1 for every $16 of current earnings. PE ratios are unaffected by the accounting methods employed by a firm. The PE ratio is classified as a profitability ratio. The PE ratio is a constant value for each firm.

A high PE ratio may indicate that a firm is expected to grow significantly

Which one of the following statements is correct? Peer group analysis is easier when a firm is a conglomerate versus when it has only a single line of business. Peer group analysis is easier when seasonal firms have different fiscal years. Peer group analysis is simplified when firms use varying methods of depreciation. Comparing results across geographic locations is easier since all countries now use a common set of accounting standards. Adjustments have to be made when comparing the income statements of firms that use different methods of accounting for inventory.

Adjustments have to be made when comparing the income statements of firms that use different methods of accounting for inventory.

Mistletoe Gifts has $93,840 in total assets, depreciation of $2,106, and interest of $1,214. The total asset turnover rate is .94. Earnings before interest and taxes are equal to 19 percent of sales. What is the cash coverage ratio? 6.33 7.51 15.54 10.23 13.98

Cash coverage ratio = [.19 × .94 × $93,840)] + $2,106] / $1,214 = 15.54

Which one of the following actions will increase the current ratio, all else constant? Assume the current ratio is greater than 1.0. Cash purchase of inventory Cash payment on an account receivable Cash payment of an account payable Credit sale of inventory at cost Cash sale of inventory at a loss

Cash payment of an account payable

Donovan?s would like to increase its internal rate of growth. Decreasing which one of the following will help the firm achieve its goal? Return on assets Net income Retention ratio Dividend payout ratio Return on equity

Dividend payout ratio

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 and II only I and III only II, III, and IV only I, II, and IV only I, II, III, and IV

I, II, and IV only

A firm has adopted a policy whereby it will not seek any additional external financing. Given this, what is the maximum growth rate for the firm if it has net income of $32,600, total equity of $294,000, total assets of $503,000, and a 25 percent dividend payout ratio? 5.11 percent 4.88 percent 6.62 percent 7.67 percent 8.37 percent

Internal growth rate = [($32,600/$503,000) ×(1 -.25)]/{1 - [($32,600/$503,000) ×(1 -.25)]} = .0511, or 5.11 percent

Good Foods has net income of $82,490, total equity of $518,700, and total assets of $1,089,500. The dividend payout ratio is .30. What is the internal growth rate? 2.32 percent 3.57 percent 5.60 percent 2.87 percent 4.94 percent

Internal growth rate = [($82,490/$1,089,500) ×(1 -.30)]/{1 - [($82,490/$1,089,500) ×(1 -.30)]} = .0560, or 5.60 percent

A firm has a current ratio of 1.4 and a quick ratio of .9. Given this, you know for certain that the firm: pays cash for its inventory. has more than half its current assets invested in inventory. has more cash than inventory. has more current liabilities than it does current assets. has positive net working capital

has positive net working capital.

The sustainable growth rate is based on the premise that: an additional dollar of debt will be acquired only if an additional dollar in equity shares is issued. no additional equity will be added to the firm. the debt-equity ratio will be held constant. the dividend payout ratio will be zero. the dividend payout ratio will increase at a steady rate.

the debt-equity ratio will be held constant