FINANCE

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?

(82,600-85,100)-(67,200-71,100)= 1400

capital structure decision questions

1. how much should the firm borrow? 2. what are the least expensive sources of funds for the firm?

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?

56,850/(56,850 -[23,954/(1-0.30)

Quick Ratio

= (Current Assets - Inventory) / Current Liabilities

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?

CA= NWC+Owners' equity

The DuPont identity can be accurately defined as:

Equity multiplier × Return on assets.

Outdoor Gear reduced its general and administrative costs this year. This cost improvement will increase which of the following ratios?

I, II and IV

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

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?

NWC= CA-CL Total Liabilities=(31300 - 21100 = 10200) Current Liabilities= (10200 - 8600 = 1600) Current Assets=(31300 - 19300 = 12000) NWC=(12000 - 8600 = 10400)

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

equity multiplier

Total Assets/Total Equity

Which one of the following terms is defined as the total tax paid divided by the total taxable income?

average tax rate

highly liquid assets:

can be sold quickly at close to full value

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

capital structure decision

establishing the preferred debt-equity level

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

sole proprietorship

has its profits taxed as personal income

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

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

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?

(0.42 x 723,450) / 490,000) / ((1+0.42) x 490,000))

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?

(0.58 x 137,000) - 4,700) X (1 X 0.34)/137,00

Limited liability companies are primarily designed to:

-provide limited liability while avoiding double taxation -the goal of this entity is to operate and be taxed like a partnership but retain limited liability for owners. -essentially a hybrid of partnership and a corporation

financial leverage

-use of debt in a firm's capital structure -increases the potential return to the stockholders -the more debt a firm has (as a percentage of assets), the greater is its degree of financial leverage -increases potential reward to shareholders, but also increases potential for financial distress and business failure ratio TA/TE= 1+D/E

working capital decision questions

1. how much cash and inventory should we keep on hand? 2. should we sell on credit to our customers? 3. how will we obtain any needed short-term financing? 4. if we borrow in the short term, how and where should we do it?

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?

1/0.78

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?

70,056

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

= 512,900/74,315

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

= Total assets/(total assets - total debt)

debt-equity ratio

= equity multipler - 1

Marcie's has sales of $179,600,depreciation of $14,900, costs of goods sold of $138,200, and other costs of $28,400. The tax rate is 35 percent. What is the net income?

NI= (179,600 - 14900 - 138200 - 28400) (1-0.35) Sales - COGS - selling general, administrative - depreciation = earnings before interest and taxes (EBIT) - Interest = earning before tax - tax = NI

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

Size, timing, and risk of future cash flows

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

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

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

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

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

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

obtaining additional equity is dependent on the owner's personal finances

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?

Common Size percentage of Net Income = Net Income / Sales * 100= 96320 / 1141275 * 100= 8.44 percent

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?

EBIT = 821,300 - 698,500 - 28,400 = 94,400 Tax = (94,400 - 8,400)(.34) = 29,240 OCF = 94,400 + 28,400 - 29,240 = 93,560 OCF= EBIT + Depreciation expense - tax

One advantage of the corporate form of organization is the:

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

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?

addition to retained earnings = [(513,000 - 406,800 - 43,800 - 11,200)(1-.33)] = 29,804

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

agency

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.

all of the above

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?

average tax rate = (9,741 + 22)/(61509 + 100) = .1586 or 15.86%

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

basing management bonuses on the length of employment

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

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 accountable payable

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

the goal of financial management

current market value per share

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) Current Ratio = (total assets - net fixed assets)/(total assets - total equity - long-term debt)

Which one of these is correct? a. Depreciation has no effect on taxes. b. Interest paid is a noncash item. c. Taxable income must be a positive value. d. Net income is distributed either to dividends or retained earnings. e. Taxable income equals net income divided by (1 + Average tax rate).

d. net income is distributed either to dividends or retained earnings

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

decrease in the tax rate

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

net working capital increases when:

inventory is sold at a profit

a corporation

is a legal entity separate from its owners

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

price-earnings ratio

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

) 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

tax = 10,000(0.35)= 3500 tax = 10,000(0.37)= 3700

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

total assets

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

working capital