Module 1 (Chapter 1-3)

Which of the following statements is false?

Acorns is a creative crowdfunding app, allowing smaller investors to join together to fund design ventures.

The Sarbanes-Oxley Act in 2002 was primarily prompted by which one of the following from the 1990s?

Corporate accounting and financial fraud

The DuPont identity can be accurately defined as:

Equity multiplier × Return on assets.

Nikki Heart Photography has total assets of $31,300, long-term debt of $8,600, net fixed assets of $25,600, and owners' equity of $20,540. What is the value of the net working capital?

Current assets = $31,300 − 25,600 = $5,700Current liabilities = $31,300 − 20,540 − 8,600 = $2,160NWC = $5,700 − 2,160 = $3,540

A firm has net working capital of $8,200 and current assets of $37,500. What is the current ratio?

Current ratio = $37,500/($37,500 − 8,200) = 1.28

Which one of the following is a measure of long-term solvency

cash coverage ratio

A common-size balance sheet helps financial managers determine:

if changes are occurring in a firm's mix of assets.

financial leverage

increases the potential return to the stockholders.

A corporation:

is a legal entity separate from its owners.

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.

Production equipment is classified as:

a tangible fixed asset.

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

agency

Net working capital includes:

an invoice from a supplier.

Market values:

reflect expected selling prices given the current economic situation.

The primary goal of financial management is to maximize:

the market value of existing stock.

Raleigh 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

Firefly, Incorporated, has sales of $1,366,400, cost of goods sold of $897,575, and inventory of $148,630. What is the inventory turnover rate?

6.04 times

The concept of marginal taxation is best exemplified by which one of the following?

Burke's Grocer increased its sales by $52,000 last year and had to pay an additional $16,000 in taxes.

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? Sell the inventory and apply the proceeds to the debt Sell the lighting fixtures from the building and apply the proceeds to the debt Withdraw funds from Maria's personal account at the bank to pay the store's debt Sell any assets Maria personally owns and apply the proceeds to the store's debt

I and II only

SRC, Incorporated, sells its inventory in an average of 52 days and collects its receivables in 3.6 days, on average. What is the inventory turnover rate? Assume a 365-day year.

Inventory turnover = 365/52 = 7.02 times

The Taylor Company has an ROA of 8.2 percent, a profit margin of 10 percent, and an ROE of 16 percent. What is the company's total asset turnover? Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. What is the equity multiplier? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.

One equation to calculate ROA is: ROA = (Profit margin)(Total asset turnover) We can solve this equation to find total asset turnover as: .082 = .1000(Total asset turnover) Total asset turnover = .82 times Now solve the ROE equation to find the equity multiplier, which is: ROE = (ROA)(Equity multiplier) .1600 = .082(Equity multiplier) Equity multiplier = 1.95 times

Vera opened a used bookstore and is both the 100 percent owner and the store's manager. Which type of business entity does Vera own if she is personally liable for all the store's debts?

Sole proprietorship

The December 31, 2021, balance sheet of Justin's Golf Shop, Incorporated, showed current assets of $1,195 and current liabilities of $960. The December 31, 2022, balance sheet showed current assets of $1,410 and current liabilities of $1,085. What was the company's 2022 change in net working capital, or NWC?

The change in net working capital is the end of period net working capital minus the beginning of period net working capital, so: Change in NWC = NWCending − NWCbeginning Change in NWC = (CAending − CLending) − (CAbeginning − CLbeginning) Change in NWC = ($1,410 − 1,085) − ($1,195 − 960) Change in NWC = $90

Nataro, Incorporated, has sales of $638,000, costs of $329,000, depreciation expense of $74,000, interest expense of $39,000, and a tax rate of 21 percent. What is the net income for this firm?

The income statement starts with revenues and subtracts costs to arrive at EBIT. We then subtract out interest to get taxable income, and then subtract taxes to arrive at net income. Doing so, we get: Income StatementSales$ 638,000Costs329,000Depreciation74,000EBIT$ 235,000Interest39,000Taxable income$ 196,000Taxes (21%)41,160Net income$ 154,840

Rogers, Incorporated, has an equity multiplier of 1.36, total asset turnover of 1.62, and a profit margin of 8 percent. What is the company's ROE? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.

With the information given, we must use the DuPont identity to calculate return on equity. Doing so, we find: ROE = (Profit margin)(Total asset turnover)(Equity multiplier) ROE = (.08)(1.62)(1.36) ROE = .1763, or 17.63%

The most recent financial statements for Mandy Company are shown below: Income StatementBalance SheetSales$ 98,400Current assets$ 38,000Debt$ 49,200Costs69,750Fixed assets96,800Equity85,600Taxable income$ 28,650Total$ 134,800Total$ 134,800Tax (23%)6,590 Net Income$ 22,060 Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 35 percent dividend payout ratio. No external financing is possible. What is the internal growth rate?

To calculate the internal growth rate, we need to find the ROA and the plowback ratio. The ROA for the company is: ROA = Net income/Total assets ROA = $22,060/$134,800 ROA = .1636, or 16.36% And the plowback ratio is: b = 1 − Payout ratio b = 1 − .35 b = .65 Now we can use the internal growth rate equation to find: Internal growth rate = [(ROA)(b)]/[1 − (ROA)(b)] Internal growth rate = [.1636(.65)]/[1 − .1636(.65)] Internal growth rate = .1190, or 11.90%

Which one of the following is an intangible fixed asset?

copyright

The goal of financial management is to increase the:

current market value per share.

The ratios that are based on financial statement values and used for comparison purposes are called:

financial ratios

Which one of the following is a measure of long-term solvency?

Cash coverage ratio

SDJ, Incorporated, has net working capital of $1,165, current liabilities of $6,775, and inventory of $1,185. What is the current ratio? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. What is the quick ratio? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.

To find the current assets, we must use the net working capital equation. Doing so, we find: NWC = Current assets − Current liabilities $1,165 = Current assets − $6,775 Current assets = $7,940 Now use this number to calculate the current ratio and the quick ratio. The current ratio is: Current ratio = Current assets/Current liabilities Current ratio = $7,940/$6,775 Current ratio = 1.17 times And the quick ratio is: Quick ratio = (Current assets − Inventory)/Current liabilities Quick ratio = ($7,940 − 1,185)/$6,775 Quick ratio = 1.00 times

Mobius, Incorporated, has a total debt ratio of .61. What is its debt-equity ratio? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. What is its equity multiplier? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.

Total debt ratio = Total debt/Total assets .61 = Total debt/(Total debt + Total equity) .39(Total debt) = .61(Total equity) Total debt/Total equity = .61/.39 Debt-equity ratio = 1.56 And the equity multiplier is one plus the debt-equity ratio, so: Equity multiplier = 1 + D/E Equity multiplier = 1 + 1.56 Equity multiplier = 2.56

A limited liability company (LLC):

prefers its profits be taxed as personal income to its owners.