Finance 320 - Ch. 3 Quiz

World Exports has total assets of $938,280, a total asset turnover rate of 1.18, a debt-equity ratio of .47, and a return on equity of 18.7 percent. What is the firm's net income?

$119,359.43 Debt-equity ratio = 0.47. Therefore, equity multiplier = 1 + 0.47 = 1.47 From the DuPont identity: 0.187 = Profit margin x 1.18 x 1.47 Therefore, profit margin = 0.187/(1.18*1.47) From the total asset turnover ratio, we know that: Sales/938,280 = 1.18 Therefore, sales = 938,280 x 1.18 Therefore, NI = 938,280 x 1.18 x 0.187/(1.18*1.47) = 119,359.43

Preston Woods has 17,500 shares of stock outstanding along with $408,000 of debt. The market and book values of the debt are the same. The firm has sales of $697,000 and a profit margin of 6.8 percent. The tax rate is 21 percent, the debt-equity ratio is 40 percent, and the price-earnings ratio is 11.8. The firm has $130,000 of current assets of which $41,200 is cash. What is the enterprise value?

$926,073 Sales = 697,000 Profit margin = 0.068. Therefore, net income = 697,000 x 0.068 Therefore, EPS = 697,000 x 0.068/17,500 P/E = 11.8 Therefore, price per share = 11.8 x EPS = 697,000 x 0.068 x 11.8/17,500 Therefore, market value of stock = 697,000 x 0.068 x 11.8/17,500 x 17,500 = 559,272.80 Book value of debt = 408,000 Cash = 41,200 Therefore, enterprise value = market value of stock + book value of debt - cash = 559,272.80 + 408,000 - 41,200 = 926,073

Gracie Human Resource Consulting has total revenue of $285,400, cost of goods sold equal to 68 percent of sales, and a profit margin of 9.2 percent. Net fixed assets are $126,400 and current assets are $65,880. What is the total asset turnover rate?

1.48 Total assets = 126,400 + 65,880 = 192,280 Total asset turnover ratio = 285,400/192,280 = 1.484

Southern Foods has net income of $39,900, net sales of $318,600, total assets of $663,000, common stock of $106,800 (with 106,800 shares with a par value of $1 per share), and retained earnings of $224,400. The stock has a market value of $5.45 per share. What is the price-earnings ratio?

14.59 Number of shares = 106,800 EPS = $39,900/(106,800) PE ratio = $5.45/[$39,900/($106,800/$1)] = 14.59

Skylar's Bed and Breakfast has $126,500 in total assets, depreciation of 3,500, and interest of $1,850. The total asset turnover rate is 1.02. Earnings before interest and taxes are equal to 24 percent of sales. What is the cash coverage ratio?

18.63 Total asset turnover = 1.02. Assets = 126,500. Therefore, sales = 126,500 x 1.02 EBIT = Sales x 0.24 = 126,500 x 1.02 x 0.24 Cash coverage ratio = (126,500 x 1.02 x 0.24+3,500)/1,850 = 18.631

Rosita's Resources paid $11,310 in interest and $16,500 in dividends last year. The times interest earned ratio is 2.9, the depreciation expense is $7,900, and the tax rate is 21 percent. What is the value of the cash coverage ratio?

3.60 Tie ratio = 2.9. Interest = $11,310. Therefore, EBIT = 2.9($11,310) EBIT = $32,799 Cash coverage ratio = ($32,799 + 7,900)/$11,310 Cash coverage ratio = 3.60

Western Wear has total sales of $642,100, EBIT of $93,900, net income of $50,800, current assets of $153,500, total assets of $658,000, current liabilities of $78,900, and total liabilities of $213,600. What are the values of the three components of the DuPont identity?

7.91 percent; .98; 1.48 Profit margin = $50,800/$642,100 = .0791 or 7.91% Total asset turnover = $642,100/$658,000 = .98 Equity multiplier = $658,000/($658,000 − 213,600) = 1.48

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

Has positive net working capital. Current ratio > 1 implies CA > CL which implies CA - CL > 0

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

I, II, and IV only. I. Profit Margin II. Return on Assets III. Total Asset Turnover IV. Return on Equity Because general and administrative expenses are not included in sales, changes in this item will not affect the total asset turnover ratio. Changes in general and administrative expenses do impact net income, which appears in all the remaining three ratios.

Sweet Candies reduced its fixed assets this year without affecting the shop's operations, sales, or equity. This reduction will increase which of the following ratios?

II and III only. I. Capital intensity ratio = Total Assets/Sales II. Return on assets = NI /Total Assets III. Total asset turnover = Sales/Total Assets IV. Return on equity = NI/Total Equity