FIN 310 Exam 1
Rondo, Inc., has current assets of 2,396, net fixed assets of 9500, current liabilities of 1360, and LT of debt of 4000. What is its Net Working Capital balance?
$1,036
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?
$1,400
Roscoe's purchased new machinery three years ago for $1.8 million. The machinery can be sold to Stewart's today for $1.2 million. Roscoe's current balance sheet shows net fixed assets of $960,000, current liabilities of $348,000, and net working capital of $121,000. If all the current assets were liquidated today, the company would receive $518,000 cash. The book value of the firm's assets today is _____ and the market value is _____.
$1,429,000; $1,718,000
The Play House's December 31, 2009 balance sheet showed net fixed assets of $1,238,000 and the December 31, 2010 balance sheet showed net fixed assets of $1,416,000. The company's 2010 income statement showed a depreciation expense of $214,600. What was the firm's net capital spending for 2010?
$392,600
Andersen's Nursery has sales of $318,400, costs of $199,400, depreciation expense of $28,600, interest expense of $1,100, and a tax rate of 34 percent. The firm paid out $16,500 in dividends. What is the addition to retained earnings?
$42,438
Boyd, Inc., has a total debt ratio of 0.25. What is its debt-equity ratio? What is its equity multiplier?
0.33 1.33
Profit margin= 8.6% Capital intensity ratio= 0.47 Debt-equity ratio= 0.62 Net income=$97,000 Dividends=$43,000 Required: Based on the above information, calculate the sustainable growth rate for Southern Lights Co
19.76
Which one of the following statements concerning the balance sheet is correct?
Assets are listed in descending order of liquidity.
Which one of the following terms is defined as the total tax paid divided by the total taxable income?
Average tax rate
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 account 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 3 years before the shares can be sold
Which of the following are advantages of the corporate form of organization? I) Ability to raise large sums of equity capital II) Ease of ownership transfer III) Profits taxed at the corporate level IV) Limited liability for all owners
I, II, and IV only
Martha's Sweet Shop reduced its fixed assets this year without affecting the shop's operations, sales, or equity. This reduction will increase which of the following ratios? I. Capital intensity ratio II. Return on assets III. Total asset turnover IV. Return on equity
II and III only
Which of the following will increase the sustainable rate of growth for a firm? I. Decreasing the profit margin II. Increasing the dividend payout ratio III. Decreasing the capital intensity ratio IV. Increasing the target debt-equity ratio
III and IV only
What does it mean when we say the New York Stock Exchange is an auction market? How are auction markets different from dealer markets? What kind of market is NASDAQ?
In auction markets like the NYSE, Brokers and agents meet at a physical location to buy and sell their assets. Markets like Nasdaq represent Dealers operating in dispersed locales who buy and sell assets themselves, usually communicating with other dealers electronically or literally over the counter.
Which one of the following relates to a negative change in net working capital?
Increase in current liabilities with no change in current assets for the period
Which one of the following best describes the primary intent of the Sarbanes-Oxley Act of 2002?
Increase protection against corporate fraud
Sara is investing $1,000 today. Which one of the following will increase the future value of that amount?
Increasing the interest rate
Which one of the following is an advantage of being a limited partner?
Losses limited to capital invested
Which one of the following is the tax rate that applies to the next dollar of taxable income that a firm earns?
Marginal tax rate
Which one of the following indicates that a firm has generated sufficient internal cash flow to finance its entire operations for the period?
Positive cash flow from assets
New Century Products is a company that was founded last year. While the outlook for the company is positive, it currently has negative earnings. If you wanted to measure the progress of this firm, which one of the following ratios would probably be best to monitor given the firm's current situation?
Price-sales ratio
Which one of the following will increase cash flow from assets but not affect the operating cash flow?
Sale of a fixed asset
Which one of the following statements is correct? 2
Shareholders' equity is the residual value of a firm.
Terry invested $2,000 today in an investment that pays 6.5 percent annual interest. Which one of the following statements is correct, assuming all interest is reinvested?
Terry could have the same future value and invest less than $2,000 initially if he could earn more than 6.5 percent interest.
Firms that compile financial statements according to GAAP:
can still manipulate their earnings to some degree.
The present value of a lump sum future amount:
increases as the interest rate decreases.
If a firm has a negative cash flow from assets every year for several years, the firm:
may be continually increasing in size.
You've probably noticed coverage in the financial press of an initial public offering (IPO) of a company's securities. Web search company Google is a relatively recent example. IPO is a
primary market transaction
Limited liability companies are primarily designed to:
provide limited liability while avoiding double taxation.
Financial statement analysis:
provides useful information that can serve as a basis for forecasting future performance.
Given an interest rate of zero percent, the future value of a lump sum invested today will always:
remain constant, regardless of the investment time period.
Arredondo, Inc., has current assets of 2,755, net fixed assets of 9500, current liabilities of 1360, and LT of debt of 4000. What is the value of the shareholders' equity account for this firm?
$6,895
Daniel's Market has sales of $36,600, costs of $28,400, depreciation expense of $3,100, and interest expense of $1,500. If the tax rate is 34 percent, what is the operating cash flow, OCF?
$6,976
Precision Manufacturing had the following operating results for 2010: sales = $38,900; cost of goods sold = $24,600; depreciation expense = $1,700; interest expense = $1,400; dividends paid = $1,000. At the beginning of the year, net fixed assets were $14,300, current assets were $8,700, and current liabilities were $6,600. At the end of the year, net fixed assets were $13,900, current assets were $9,200, and current liabilities were $7,400. The tax rate for 2010 was 34 percent. What is the cash flow from assets for 2010?
$9,492
Which are advantages and which are disadvantages of the corporate form of organization? 1) Limited liability 2) The double taxation to shareholders of distributed earnings and dividends 3) Ability to raise capital 4) Ease of transferability 5) Unlimited life
1) Advantage 2) Disadvantage 3) Advantage 4) Advantage 5) Advantage
Below are examples of business transactions. Choose the type of financial management decision that is relevant to each. Deciding whether to expand a manufacturing plant Deciding whether to issue new equity and use the proceeds to retire outstanding debt Modifying the firm's credit collection policy with its customers
1) Capital budgeting 2) Capital structure 3) Working capital management
SDJ, Inc., has net working capital of $1,240, current liabilities of $6,800, and inventory of $1,235. What is the current ratio?
1.18
Allison & Co. and Bee, Inc. reported the following numbers (in millions) for fiscal year 2010. Allison & Co. Bee, Inc. Net income$575.70 $197.24 Shares outstanding 87.15 57.20 Stock price$90.59 $35.26 Total equity$1,718.30 $939.48 Required: Calculate the earnings per share, market-to-book ratio, and price-earnings ratio for each company. For Allison & Co.: Earnings per share: Market-to-book ratio: Price-earnings ratio: For Bee,Inc: Earnings per share: Market-to-book ratio: Price-earnings ratio:
6.61 4.59 13.71 3.45 2.15 10.23
The most recent financial statements for Shinoda Manufacturing Co. are shown below: Income StatementBalance Sheet Sales$64,000 Current assets$27,000 Debt$43,200 Costs 44,780 Fixed assets 79,900 Equity 63,700 Taxable income$19,220 Total$106,900 Total$106,900 Tax (35%) 6,727 Net Income$12,493 Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 40 percent dividend payout ratio. No external financing is possible. Required:What is the internal growth rate?
7.54
Lisa has $1,000 in cash today. Which one of the following investment options is most apt to double her money?
8 percent interest for 9 years
Which one of the following statements is true concerning the price-earnings (PE) ratio?
A high PE ratio may indicate that a firm is expected to grow significantly.
Which one of the following statements is correct?
All stock trades between existing shareholders are secondary market transactions.
What goal should always motivate the actions of the firm's financial manager?
Current market value(share price) of the equity
Which one of the following best indicates a firm is utilizing its assets more efficiently than it has in the past?
Decrease in the capital intensity ratio
Which one of the following will increase the profit margin of a firm, all else constant?
Decrease in the tax rate
Jamie is employed as a commercial loan officer for a regional bank centered in the Midwestern section of the U.S. Her job falls into which one of the following areas of finance?
Financial institutions
Which one of the following is a working capital decision?
How much cash should the firm keep in reserve?
The Du Pont 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.
I, II, III, and IV
Which of the following are potential ways to align management goals with shareholder interests? I) Employee stock options II) Threat of a takeover III) Management bonuses tied to performance goals IV) Threat of a proxy fight
I, II, III, and IV
Who owns a corporation? Describe the process whereby the owners control the firm's management. What is the main reason that an agency relationship exists in the corporate form of organization? In this context, what kinds of problems can arise?
In the corporate form of ownership, the shareholders are the owners of the firm. The shareholders elect the Board of directors of the corporations, who in turn appoint the firm's management. This separation of ownership from control in the corporate form of organization is what causes agency problems to exist. Management may act in its own or someone else's best interests, rather than those of the shareholders. If such events occur, they may contradict the goal of maximizing the share price of the equity of the firm.
Which one of the following best matches the primary goal of financial management?
Increasing the market value of firm
Bethesda Mining Company reports the following balance sheet information for 2009 and 2010. BETHESDA MINING COMPANYBalance Sheets as of December 31, 2009 and 2010 2009 2010 2009 2010 Assets Liabilities and Owners' Equity Current assets Current liabilities Cash$45,262 $57,602 Accounts payable$190,922 $198,611 Accounts receivable 61,281 81,639 Notes payable 86,020 137,588 Inventory 126,088 192,061 Total$276,942 $336,199 Total$232,631 $331,302 Long-term debt 239,000 175,750 Owners' equity Common stock and paid-in surplus$216,000 $216,000 Accumulated retained earnings 158,636 192,931 Fixed assets Net plant and equipment$657,947 $589,578 Total$374,636 $408,931 Total assets$890,578 $920,880 Total liabilities and owners' equity$890,578 $920,880 Suppose that the Bethesda Mining Company had sales of $2,236,873 and net income of $101,381 for the year ending December 31, 2010. Required:Calculate ROE using the Du Pont identity. (Do not include the percent signs (%). Round your answers to 2 decimal places (e.g., 32.16).)Profit margin Total asset turnover Equity multiplier Return on equity
PM: 4.53 TAT: 2.43 EM: 2.25 ROE: 24.79
High Flyer, Inc., wishes to maintain a growth rate of 16 percent per year and a debt-equity ratio of 0.90. The profit margin is 4.8 percent, and total asset turnover is constant at 1.08. What is the dividend payout ratio?
We can find the payout ratio from the sustainable growth rate formula. First, we need the return on equity. Using the Du Pont identity, we find the return on equity is: ROE= (Profit margin)(Total asset turnover)(Equity multiplier)ROE= (0.048)(1.08)(1 + 0.90)ROE= 0.0985 or 9.85% Now we can use the sustainable growth rate equation to find the retention ratio, which is: Sustainable growth rate= [(ROE)(b)] / [1 - (ROE)(b)]0.16= [0.0985(b)] / [1 - 0.0985(b)]b= 1.4000 So, the payout ratio is: Payout ratio= 1 - bPayout ratio= 1 - 1.4000Payout ratio= -0.4000 or -40.04%
