TMP 130 Quiz CH. 1-3

Klamath Corporation has asset turnover of 3.5, a profit margin of 5.2%, and a current ratio of 0.5. What is Klamath Corporation's return on equity?

Insufficient information to find ROE

In comparison to industry averages, Okra Corp. has a low inventory turnover, a high current ratio, and an average quick ratio. Which of the following would be the most reasonable inference about Okra Corp.?

Its inventory level is too high.

Please refer to the financial data for Link, Inc. above. Which of the following statements best describes how the Link's short-term liquidity changed from 2016 to 2017?

Link's short-term liquidity has deteriorated considerably, but from a high initial base.

Which of the following formulas describes the calculation of cash flow from operating activities?

Net income + Noncash items +/− Changes in current assets and liabilities

The forecast for retained earnings on the 2019 balance sheet can be determined as 2018 retained earnings plus projected 2019 after-tax earnings less projected 2019 dividends.

True

Breakers Bay Inc. has succeeded in increasing the amount of goods it sells while holding the amount of inventory on hand at a constant level. Assume that both the cost per unit and the selling price per unit also remained constant. All else held constant, how will this accomplishment be reflected in the firm's financial ratios?

increase in the inventory turnover rate

On a common-size balance sheet, all accounts are expressed as a percentage of

total assets.

At the end of 2017, Stacky Corp. had $500,000 in liabilities and a debt-to-assets ratio of 0.5. For 2017, Stacky had an asset turnover of 3.0. What were annual sales for Stacky in 2017?

$3,000,000 Liabilities/Assets = 0.5 = $500,000/$1,000,000 So Assets = $1,000,000 Then, Sales/$1,000,000 = 3 So sales = $3,000,000

Please refer to the financial data for Link, Inc. above. Assume a 365-day year for your calculations. Link's payables period in days, based on cost of goods sold, at the end of 2017 is

24.3. 13,962/(209,620/365) = 24.3

Scenario analysis involves changing one input to a financial forecast, whereas sensitivity analysis involves changing multiple inputs.

False

Ruff Wear expects sales of $560, $650, $670, and $610 for the months of May through August, respectively. The firm collects 20 percent of sales in the month of sale, 70 percent in the month following the month of sale, and 8 percent in the second month following the month of sale. The remaining 2 percent of sales is never collected. How much money does the firm expect to collect in the month of August?

$643 August collections = 0.20($610) + 0.70($670) + 0.08($650) = $643

JM Case Inc. has a market value of $5 million with 500,000 shares outstanding. The book value of its equity is $1,750,000. If the company repurchases 20 percent of its shares in the stock market, what will be the book value of equity if all else remains the same?

$750,000 JM Case will pay $10 per share for the 100,000 shares (= 0.20 × 500,000) it repurchases. This reduces the book value by $1 million. Assuming all else remains the same, the new book value should be $750,000.

Please refer to the income statement for VGA Associates below. Assuming that cost of goods sold are variable and operating expenses are fixed, what was VGA Associates' breakeven sales volume in 2017?

$80,000 Gross margin = 50,000/200,000 = 25%. Breakeven sales volume = Operating expenses/Gross margin = $20,000/0.25 = $80,000.

Please refer to the financial information for Foodtek, Inc. above. Assuming the company neither sold nor salvaged any assets during the year, what were Foodtek's capital expenditures (in millions of dollars) during 2017?

170 Net fixed assets rose $105 million, depreciation reduced net fixed assets by $65 million, so capital expenditures must have been $170 million (ignoring asset sales or write-offs). Letting bop stand for beginning of period, and eop for end of period, the equation is Net fixed assetseop = Net fixed assetsbop + Capital Expenditures - Depreciation Capital Expenditures = Change in net fixed assets + Depreciation $170 = $105 + $65

A company sells used equipment with a book value of $100,000 for $250,000 cash. How would this transaction affect the company's balance sheet?

Cash rises $250,000; net plant and equipment falls $100,000; equity rises $150,000.

All else equal, increasing the assumed payables period in a financial forecast will decrease external funding required.

True