intro to finance chapter 3 problems

Use the below information to answer the following question. Income Statement For the Year Net sales $827,500 COGS 611,800 Depreciation 23,100 EBIT $192,600 Interest 9,700 Taxable income $182,900 Taxes 6,200 Net income $176,700 Balance Sheet Beginning of Year End of Year Cash $ 38,200 $43,700 Accounts receivable 91,400 86,150 Inventory 203,900 214,600 Net fixed assets 516,100 537,950 Total assets $849,600 $882,400 Accounts payable $136,100 $104,300 Long-term debt 329,500 298,200 Common stock ($1 par value) 75,000 82,000 Retained earnings 309,000 397,900 Total Liab. & Equity $849,600 $882,400 What is the cash coverage ratio for the year?

Cash coverage ratio = ($192,600 + 23,100) / $9,700 = 22.24

A firm has sales of $96,400, costs of $53,800, interest paid of $2,800, and depreciation of $7,100. The tax rate is 34 percent. What is the value of the cash coverage ratio?

Cash coverage ratio = ($96,400 − 53,800) / $2,800 = 15.21

A firm generated net income of $911. The depreciation expense was $47 and dividends were paid in the amount of $25. Accounts payables increased by $15, accounts receivables increased by $28, inventory decreased by $14, and net fixed assets decreased by $8. There was no interest expense. What was the net cash flow from operating activity?

Net cash from operating activities = $911 + 47 + 15 − 28 + 14 = $959

Barlow's Feed had the following current account values. What effect did the change in net working capital have on the firm's cash flows for the year? Beginning of Year End of Year Cash $179 $164 Accounts receivable 415 480 Inventory 987 923 Accounts payable 562 649

Net source of cash of $101. Cash $15 Accounts receivable $65 Inventory 64 Accounts payable 87 Net source (use) of cash = $15 - 65 + 64 + 87 = $101

During the year, Al's Tools decreased its accounts receivable by $160, increased its inventory by $115, and decreased its accounts payable by $70. How did these three accounts affect the firm's cash flows for the year?

Net use of cash of $25. Source Use Accounts receivable $160 Inventory $115 Accounts payable 70 Net source (use) of cash = $160 − 115 − 70 = −$25

Uptown Men's Wear 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?

Net working capital to total assets = ($1,263 + 3,907 + 7,950 - 2,214) / ($1,263 + 3,907 + 7,950 + 8,400) = .51

Which one of these correctly expresses the calculation of the common-size, base year value of inventory for 2015? Assume 2014 is the base year.

(2015 inventory / 2015 total assets) / (2014 inventory / 2014 total assets) )

An increase in which one of the following will increase a firm's quick ratio without affecting its cash ratio?

Accounts receivable

On a common-base year financial statement, accounts receivables for the current year will be expressed relative to which one of the following?

Base-year accounts receivables.

The price-sales ratio is especially useful when analyzing firms that have which one of the following?

negative earnings

Use the below information to answer the following question. Income Statement For the Year Net sales $631,000 COGS 442,220 Depreciation 28,100 EBIT $160,700 Interest 14,900 Taxable income $145,800 Taxes 49,600 Net income $96,200 Balance Sheet Beginning of Year End of Year Cash $ 38,200 $43,700 Accounts receivable 91,400 86,150 Inventory 203,900 214,600 Net fixed assets 516,100 537,950 Total assets $849,600 $882,400 Accounts payable $136,100 $104,300 Long-term debt 329,500 298,200 Common stock ($1 par value) 75,000 82,000 Retained earnings 309,000 397,900 Total Liab. & Equity $849,600 $882,400 What is the amount of the cash flow from investment activity for the year?

Cash flow from investment activity = $537,950 − 516,100 + 28,100 = $49,950

A firm has sales of $4,300, net income of $320, total assets of $4,800, and total equity of $2,950. Interest expense is $65. What is the common-size statement value of the interest expense?

Common-size interest = $65 / $4,300 = .0151, or 1.51 percent

Use the below information to answer the following question. Income Statement For the Year Net sales $631,000 COGS 442,220 Depreciation 28,100 EBIT $160,700 Interest 14,900 Taxable income $145,800 Taxes 49,600 Net income $96,200 Balance Sheet Beginning of Year End of Year Cash $ 38,200 $43,700 Accounts receivable 91,400 86,150 Inventory 203,900 214,600 Net fixed assets 516,100 537,950 Total assets $849,600 $882,400 Accounts payable $136,100 $104,300 Long-term debt 329,500 298,200 Common stock ($1 par value) 75,000 82,000 Retained earnings 309,000 397,900 Total Liab. & Equity $849,600 $882,400 What is the equity multiplier at year-end?

Equity multiplier at year-end = $882,400 / ($82,000 + 397,900) = 1.84

Relationships determined from a firm's financial information and used for comparison purposes are known as:

Financial ratios

Which of the following represent problems encountered when comparing the financial statements of two separate entities? I. Either one, or both, of the firms may be conglomerates and thus have unrelated lines of business. II. The operations of the two firms may vary geographically. III. The firms may use differing accounting methods. IV. The two firms may be seasonal in nature and have different fiscal year ends.

I, II, III, and IV.

Which of these are factors to consider when comparing utility firms that generate electric power and have the same SIC code? I. Type of ownership. II. Regulatory considerations. III. Fiscal year end. IV. Methods of power generation

I, II, III, and IV.

Hungry Lunch has net income of $68,710, a price-earnings ratio of 13.7, and earnings per share of $.24. How many shares of stock are outstanding?

Number of shares = $68,710 / $.24 = 286,292

Use the below information to answer the following question. Income Statement For the Year Net sales $827,500 COGS 611,800 Depreciation 23,100 EBIT $192,600 Interest 9,700 Taxable income $182,900 Taxes 6,200 Net income $176,700 Balance Sheet Beginning of Year End of Year Cash $ 38,200 $43,700 Accounts receivable 91,400 86,150 Inventory 203,900 214,600 Net fixed assets 516,100 537,950 Total assets $849,600 $882,400 Accounts payable $136,100 $104,300 Long-term debt 329,500 298,200 Common stock ($1 par value) 75,000 82,000 Retained earnings 309,000 397,900 Total Liab. & Equity $849,600 $882,400 What is the price-sales ratio if the market price is $43.20 per share? (Use end-of-year values)

Price-sales ratio = $43.20 / [$827,500 / ($82,000 / $1)] = 4.28

Duke's Garage has cash of $68, accounts receivable of $142, accounts payable of $235, and inventory of $318. What is the value of the quick ratio?

Quick ratio = ($68 + 142) / $235 = .89

TJ's has annual sales of $813,200, total debt of $176,000, total equity of $395,000, and a profit margin of 5.63 percent. What is the return on assets?

Return on assets = (.0563 × $813,200) / ($176,000 + 395,000) = .0802, or 8.02 percent

Taylor's Men's Wear has a debt-equity ratio of 56 percent, sales of $829,000, net income of $38,300, and total debt of $206,300. What is the return on equity?

Return on equity = $38,300 / ($206,300 / .56) = .1040, or 10.40 percent

A firm has a debt-equity ratio of .57. What is the total debt ratio?

The debt-equity ratio is .57. If total debt is $57 and total equity is $100, then total assets are $157. Total debt ratio = $57 / $157 = .36.

Use the below information to answer the following question. Income Statement For the Year Net sales $631,000 COGS 442,220 Depreciation 28,100 EBIT $160,700 Interest 14,900 Taxable income $145,800 Taxes 49,600 Net income $96,200 Balance Sheet Beginning of Year End of Year Cash $ 38,200 $43,700 Accounts receivable 91,400 86,150 Inventory 203,900 214,600 Net fixed assets 516,100 537,950 Total assets $849,600 $882,400 Accounts payable $136,100 $104,300 Long-term debt 329,500 298,200 Common stock ($1 par value) 75,000 82,000 Retained earnings 309,000 397,900 Total Liab. & Equity $849,600 $882,400 What is the times interest earned ratio for the year? 9.63 6.46

Times interest earned = $160,700 / $14,900 = 10.79

Dixie Supply has total assets with a current book value of $368,900 and a current replacement cost of $486,200. The market value of these assets is $464,800. What is the value of Tobin's Q?

Tobin's Q = $464,800 / $486,200 = .96

A firm has total assets with a current book value of $71,600, a current market value of $82,300, and a current replacement cost of $90,400. What is the value of Tobin's Q?

Tobin's Q = $82,300 / $90,400 = .91

A firm has net working capital of $2,715, net fixed assets of $22,407, sales of $31,350, and current liabilities of $3,908. How many dollars worth of sales are generated from every $1 in total assets?

Total asset turnover = $31,350 / ($2,715 + 22,407 + 3,908) = 1.08 Every $1 in total assets generates $1.08 in sales.

On a common-size balance sheet all accounts for the current year are expressed as a percentage of:

Total assets for the current year.

A firm has total debt of $4,850 and a debt-equity ratio of .57. What is the value of the total assets?

Total equity = $4,850 / .57 = $8,508.77 Total assets = $4,850 + 8,508.77 = $13,358.77

Which one of the following is a source of cash for a non-tax-paying firm?

increase in common stock

Ratios that measure how efficiently a firm manages its assets and operations to generate net income are referred to as _____ ratios.

profitability

A common-size income statement is an accounting statement that expresses all of a firm's expenses as a percentage of:

sales

The sources and uses of cash over a stated period of time are reflected on the:

statement of cash flows

Tobin's Q relates the market value of a firm's assets to which one of the following?

today's cost to duplicate those assets

Activities of a firm that require the spending of cash are known as:

uses of cash

Which one of the following standardizes items on the income statement and balance sheet relative to their values as of a chosen point in time?

common-base year statement

According to the statement of cash flows, an increase in interest expense will _____ the cash flow from _____ activities.

Decrease; operating.

According to the statement of cash flows, an increase in inventory will _____ the cash flow from _____ activities.

Decrease; operating.

If a firm has a debt-equity ratio of 1.0, then its total debt ratio must be which one of the following?

.5

Townsend Enterprises has a PEG ratio of 5.3, net income of $49,200, a price-earnings ratio of 17.6, and a profit margin of 7.1 percent. What is the earnings growth rate?

5.3 = 17.6 / (Earnings growth rate ×100); Earnings growth rate = .0332, or 3.32 percent

Lenders probably have the most interest in which one of the following sets of ratios?

Long-term debt and times interest earned.

Use the below information to answer the following question. Income Statement For the Year Net sales $631,000 COGS 442,220 Depreciation 28,100 EBIT $160,700 Interest 14,900 Taxable income $145,800 Taxes 49,600 Net income $96,200 Balance Sheet Beginning of Year End of Year Cash $ 38,200 $43,700 Accounts receivable 91,400 86,150 Inventory 203,900 214,600 Net fixed assets 516,100 537,950 Total assets $849,600 $882,400 Accounts payable $136,100 $104,300 Long-term debt 329,500 298,200 Common stock ($1 par value) 75,000 82,000 Retained earnings 309,000 397,900 Total Liab. & Equity $849,600 $882,400 What is the net cash flow to stockholders for the year?

Cash flow to stockholders = ($96,200 - ($397,900 - 309,000) - ($82,000 - 75,000) = $300

Use the below information to answer the following question. Income Statement For the Year Net sales $631,000 COGS 442,220 Depreciation 28,100 EBIT $160,700 Interest 14,900 Taxable income $145,800 Taxes 49,600 Net income $96,200 Balance Sheet Beginning of Year End of Year Cash $ 38,200 $43,700 Accounts receivable 91,400 86,150 Inventory 203,900 214,600 Net fixed assets 516,100 537,950 Total assets $849,600 $882,400 Accounts payable $136,100 $104,300 Long-term debt 329,500 298,200 Common stock ($1 par value) 75,000 82,000 Retained earnings 309,000 397,900 Total Liab. & Equity $849,600 $882,400 How does accounts payable affect the statement of cash flows for the year?

Change in accounts payable = $104,300 − 136,100 = −$31,800 A decrease in accounts payable is a use of cash as an operating activity.

Last year, which is used as the base year, a firm had cash of $52, accounts receivable of $223, inventory of $509, and net fixed assets of $1,107. This year, the firm has cash of $61, accounts receivable of $204, inventory of $527, and net fixed assets of $1,216. What is the common-base year value of inventory?

Common-base year inventory = $527 / $509 = 1.04

A firm has sales of $3,340, net income of $274, net fixed assets of $2,600, and current assets of $920. The firm has $430 in inventory. What is the common-size statement value of inventory?

Common-size inventory = $430 / ($2,600 + 920) = .1222, or 12.22 percent

A firm has an interval measure of 48. This means that the firm has sufficient liquid assets to do which one of the following?

Cover its operating costs for the next 48 days.

BL Industries has ending inventory of $302,800 and cost of goods sold for the year just ended was $1.41 million. On average, how long did a unit of inventory sit on the shelf before it was sold?

Day's sales in inventory = 365 / ($1,410,000 / $302,800) = 78.38 days

The Up-Towner has sales of $913,400, costs of goods sold of $579,300, inventory of $187,400, and accounts receivable of $78,900. How many days, on average, does it take the firm to sell its inventory assuming that all sales are on credit?

Days in inventory = 365 / ($579,300 / $187,400) = 118.08 days

Flo's Flowers has accounts receivable of $4,511, inventory of $1,810, sales of $138,609, and cost of goods sold of $64,003. How many days does it take the firm to sell its inventory and collect the payment on the sale assuming that all sales are on credit?

Days in inventory = 365 / ($64,003 / $1,810) = 10.322 days Days' sales in receivables = 365 / ($138,609 / $4,511) = 11.879 days Total days in inventory and receivables = 10.322 + 11.879 = 22.20 days

Use the below information to answer the following question. Income Statement For the Year Net sales $631,000 COGS 442,220 Depreciation 28,100 EBIT $160,700 Interest 14,900 Taxable income $145,800 Taxes 49,600 Net income $96,200 Balance Sheet Beginning of Year End of Year Cash $ 38,200 $43,700 Accounts receivable 91,400 86,150 Inventory 203,900 214,600 Net fixed assets 516,100 537,950 Total assets $849,600 $882,400 Accounts payable $136,100 $104,300 Long-term debt 329,500 298,200 Common stock ($1 par value) 75,000 82,000 Retained earnings 309,000 397,900 Total Liab. & Equity $849,600 $882,400 How many days on average does it take to sell the inventory? (Use year-end values)

Days' sales in inventory = 365 / ($442,200 / $214,600) = 177.13 days

Corner Supply has a current accounts receivable balance of $246,000. Credit sales for the year just ended were $2,430,000. How many days on average did it take for credit customers to pay off their accounts during this past year?

Days' sales in receivables = 365 / ($2,430,000 / $246,000) = 36.95 days

Use the below information to answer the following question. Income Statement For the Year Net sales $827,500 COGS 611,800 Depreciation 23,100 EBIT $192,600 Interest 9,700 Taxable income $182,900 Taxes 6,200 Net income $176,700 Balance Sheet Beginning of Year End of Year Cash $ 38,200 $43,700 Accounts receivable 91,400 86,150 Inventory 203,900 214,600 Net fixed assets 516,100 537,950 Total assets $849,600 $882,400 Accounts payable $136,100 $104,300 Long-term debt 329,500 298,200 Common stock ($1 par value) 75,000 82,000 Retained earnings 309,000 397,900 Total Liab. & Equity $849,600 $882,400 How many days of sales are in receivables at year-end?

Days' sales in receivables at year-end = 365 / ($827,500 / $86,150) = 38.00

Use the below information to answer the following question. Income Statement For the Year Net sales $827,500 COGS 611,800 Depreciation 23,100 EBIT $192,600 Interest 9,700 Taxable income $182,900 Taxes 6,200 Net income $176,700 Balance Sheet Beginning of Year End of Year Cash $ 38,200 $43,700 Accounts receivable 91,400 86,150 Inventory 203,900 214,600 Net fixed assets 516,100 537,950 Total assets $849,600 $882,400 Accounts payable $136,100 $104,300 Long-term debt 329,500 298,200 Common stock ($1 par value) 75,000 82,000 Retained earnings 309,000 397,900 Total Liab. & Equity $849,600 $882,400 What is debt-equity ratio at year-end?

Debt-equity ratio = ($104,300 + 298,200) / ($82,000 + 397,900) = .84

Coulter Supply has a total debt ratio of .46. What is the equity multiplier?

Debt-equity ratio = .46 / (1 − .46) = .85 Equity multiplier = 1 + .85 = 1.85

Which one of the following is a use of cash?

Decrease in accounts payable

Which one of the following is a source of cash?

Decrease in inventory

Use the below information to answer the following question. Income Statement For the Year Net sales $631,000 COGS 442,220 Depreciation 28,100 EBIT $160,700 Interest 14,900 Taxable income $145,800 Taxes 49,600 Net income $96,200 Balance Sheet Beginning of Year End of Year Cash $ 38,200 $43,700 Accounts receivable 91,400 86,150 Inventory 203,900 214,600 Net fixed assets 516,100 537,950 Total assets $849,600 $882,400 Accounts payable $136,100 $104,300 Long-term debt 329,500 298,200 Common stock ($1 par value) 75,000 82,000 Retained earnings 309,000 397,900 Total Liab. & Equity $849,600 $882,400 What is the amount of the dividends paid during the year?

Dividends paid = $96,200 - ($397,900 - 309,000) = $7,300

Use the below information to answer the following question. Income Statement For the Year Net sales $631,000 COGS 442,220 Depreciation 28,100 EBIT $160,700 Interest 14,900 Taxable income $145,800 Taxes 49,600 Net income $96,200 Balance Sheet Beginning of Year End of Year Cash $ 38,200 $43,700 Accounts receivable 91,400 86,150 Inventory 203,900 214,600 Net fixed assets 516,100 537,950 Total assets $849,600 $882,400 Accounts payable $136,100 $104,300 Long-term debt 329,500 298,200 Common stock ($1 par value) 75,000 82,000 Retained earnings 309,000 397,900 Total Liab. & Equity $849,600 $882,400 How many dollars of sales are being generated from every dollar of net fixed assets? (Use year-end values)

Fixed asset turnover = $631,000 / $537,950 = $1.17 For every $1 in net fixed assets, the firm generates $1.17 in sales.

On the statement of cash flows, which of the following are considered operating activities? I. Costs of goods sold. II. Decrease in accounts payable. III. Purchase of equipment. IV. Dividends paid

I and II only.

On the statement of cash flows, which of the following are considered financing activities? I. Increase in long-term debt. II. Decrease in accounts payable. III. Interest paid. IV. Dividends paid.

I and IV only.

Which of the following ratios are measures of a firm's liquidity? I. Cash coverage ratio. II. Interval measure. III. Debt-equity ratio. IV. Quick ratio.

I, II, and IV only.

A firm has total assets of $310,100 and net fixed assets of $168,500. The average daily operating costs are $2,980. What is the value of the interval measure?

Interval measure = ($310,100 − 168,500) / $2,980 = 47.52 days

Use the below information to answer the following question. Income Statement For the Year Net sales $631,000 COGS 442,220 Depreciation 28,100 EBIT $160,700 Interest 14,900 Taxable income $145,800 Taxes 49,600 Net income $96,200 Balance Sheet Beginning of Year End of Year Cash $ 38,200 $43,700 Accounts receivable 91,400 86,150 Inventory 203,900 214,600 Net fixed assets 516,100 537,950 Total assets $849,600 $882,400 Accounts payable $136,100 $104,300 Long-term debt 329,500 298,200 Common stock ($1 par value) 75,000 82,000 Retained earnings 309,000 397,900 Total Liab. & Equity $849,600 $882,400 What is the net working capital to total assets ratio at year-end?

Net working capital to total assets at year-end = ($43,700 + 86,150 + 214,600 - 104,300) / $882,400 = .2722, or 27.22 percent

Big Tree Lumber has earnings per share of $1.36. The firm's earnings have been increasing at an average rate of 2.9 percent annually and are expected to continue doing so. The firm has 21,500 shares of stock outstanding at a price per share of $23.40. What is the firm's PEG ratio?

PEG ratio = ($23.40 / $1.36) / (.029 ×100) = 5.93

The cash coverage ratio directly measures the ability of a firm to meet which one of its following obligations?

Payment of interest to a lender.

Bernice's has $823,000 in sales. The profit margin is 3.9 percent and the firm has 7,500 shares of stock outstanding. The market price per share is $15. What is the price-earnings ratio?

Price-earnings ratio = $15 / [(.039 × $823,000) / 7,500] = 3.51

Use the below information to answer the following question. Income Statement For the Year Net sales $631,000 COGS 442,220 Depreciation 28,100 EBIT$160,700 Interest 14,900 Taxable income $145,800 Taxes 49,600 Net income $96,200 Balance Sheet Beginning of Year End of Year Cash $ 38,200 $ 43,700 Accounts receivable 91,400 86,150 Inventory 203,900 214,600 Net fixed assets 516,100 537,950 Total assets $849,600 $882,400 Accounts payable $136,100 $104,300 Long-term debt 329,500 298,200 Common stock ($1 par value) 75,000 82,000 Retained earnings 309,000 397,900 Total Liab. & Equity $849,600 $882,400 What is the quick ratio at the end of the year?

Quick ratio for year-end = ($43,700 + 86,150) / $104,300 = 1.24

Use the below information to answer the following question. Income Statement For the Year Net sales $631,000 COGS 442,220 Depreciation 28,100 EBIT $160,700 Interest 14,900 Taxable income $145,800 Taxes 49,600 Net income $96,200 Balance Sheet Beginning of Year End of Year Cash $ 38,200 $43,700 Accounts receivable 91,400 86,150 Inventory 203,900 214,600 Net fixed assets 516,100 537,950 Total assets $849,600 $882,400 Accounts payable $136,100 $104,300 Long-term debt 329,500 298,200 Common stock ($1 par value) 75,000 82,000 Retained earnings 309,000 397,900 Total Liab. & Equity $849,600 $882,400 What is the return on equity using year-end values?

Return on equity = $96,200 / ($82,000 + 397,900) = .2005, or 20.05 percent

Drive-Up has sales of $31.4 million, total assets of $27.6 million, and total debt of $14.9 million. The profit margin is 3.7 percent. What is the return on equity?

Return on equity = (.037 × $31.4m) / ($27.6m - 14.9m) = .0915, or 9.15 percent

Ratios that measure a firm's liquidity are known as _____ ratios.

Short-term solvency.

The U.S. government coding system that classifies a firm by the nature of its business operations is known as the:

Standard industrial classification codes

Which one of the following is a source of cash?

acquisition of debt

A supplier, who requires payment within 10 days, should be most concerned with which one of the following ratios when granting credit?

cash