Corporate Finance Essentials Global Edition Jordan Westerfield Ross 7th Edition- Test Bank
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Sample Test
Chapter 03
Working with Financial Statements
Multiple Choice Questions
1. Common-size
financial statements present all balance sheet account values as a percentage
of:
2. the
forecasted budget.
3. sales.
4. total
equity.
5. total
assets.
6. last
year’s account value.
2. The
ratios that are based on financial statement values and used for comparison
purposes are called:
3. financial
ratios.
4. industrial
statistics.
5. equity
standards.
6. accounting
returns.
7. analytical
standards.
3. The
Du Pont identity can be totally defined by which one of the following?
4. Return
on equity, total asset turnover, and equity multiplier
5. Equity
multiplier and return on assets
6. Profit
margin and return on equity
7. Total
asset turnover, profit margin, and debt-equity ratio
8. Equity
multiplier, return on assets, and profit margin
4. Which
one of the following is the maximum growth rate that a firm can achieve without
any additional external financing?
5. Du
Pont rate
6. External
growth rate
7. Sustainable
growth rate
8. Internal
growth rate
9. Cash
flow rate
5. The
sustainable growth rate is defined as the maximum rate at which a firm can grow
given which of the following conditions?
6. No
new external financing of any kind
7. No
new debt but additional external equity equal to the increase in retained
earnings
8. New
debt and external equity in equal proportions
9. New
debt and external equity, provided the debt-equity ratio remains constant
10.
No new equity and a constant debt-equity ratio
6. Which
one of the following is the abbreviation for the U.S. government coding system
that classifies a firm by its specific type of business operations?
7. BEC
8. SED
9. BID
10.
SIC
11.
SBC
7. Builder’s
Outlet just hired a new chief financial officer. To get a feel for the company,
she wants to compare the firm’s sales and costs over the past 3 years determine
if any trends are present and also determine where the firm might need to make
changes. Which one of the following statements will best suit her purposes?
8. Income
statement
9. Balance
sheet
10.
Common-size income statement
11.
Common-size balance sheet
12.
Statement of cash flows
8. A
common-size balance sheet helps financial managers determine:
9. which
customers are paying on a timely basis.
10.
if costs are increasing faster or slower than sales.
11.
if changes are occurring in a firm’s mix of assets.
12.
if a firm is generating more or less sales per dollar of assets
than in prior years.
13.
the rate at which the firm’s dividends are changing.
9. High Tower
Pharmacy pays a fixed percentage of its net income out to its shareholders in
the form of annual dividends. Given this, the percent shown on a common-size
income statement for the dividend account will:
10.
remain constant over time.
11.
be equal to the dividend amount divided by the net income.
12.
vary in direct relation to the net profit percentage.
13.
vary in direct relation to changes in the sales level.
14.
vary but not in direct relation to any other variable.
10.
Which one of the following transactions will increase the
liquidity of a firm?
11.
Cash purchase of new production equipment
12.
Payment of an account payable
13.
Cash purchase of inventory
14.
Credit sale of inventory at cost
15.
Cash payment of employee wages
11.
Which one of the following actions will increase the current
ratio, all else constant? Assume the current ratio is greater than 1.0.
12.
Cash purchase of inventory
13.
Cash payment of an account receivable
14.
Cash payment of an account payable
15.
Credit sale of inventory at cost
16.
Cash sale of inventory at a loss
12.
A firm has a current ratio of 1.4 and a quick ratio of 0.9.
Given this, you know for certain that the firm:
13.
pays cash for its inventory.
14.
has more than half its current assets invested in inventory.
15.
has more cash than inventory.
16.
has more current liabilities than it does current assets.
17.
has positive net working capital.
13.
Fred is the owner of a local feed store. Which one of the
following ratios should he compute if he wants to know how long the store can
pay its bills given the amount of cash the store currently has?
14.
Current ratio
15.
Debt ratio
16.
Cash coverage ratio
17.
Quick ratio
18.
Cash ratio
14.
Which one of the following is a measure of long-term solvency?
15.
Price-earnings ratio
16.
Profit margin
17.
Equity multiplier
18.
Receivables turnover
19.
Quick ratio
15.
The cash coverage ratio is used to evaluate the:
16.
liquidity of a firm.
17.
speed at which a firm generates cash.
18.
length of time that a firm can pay its bills if no additional
cash becomes available.
19.
ability of a firm to pay the interest on its debt.
20.
relationship between the firm’s cash balance and its current
liabilities.
16.
The equity multiplier is equal to:
17.
one plus the debt-equity ratio.
18.
one plus the total asset turnover.
19.
total debt divided by total equity.
20.
total equity divided by total assets.
21.
one divided by the total asset turnover.
17.
Blooming Gardens has an inventory turnover of 16. This means the
firm:
18.
sells its entire inventory every 16 days.
19.
only stocks its inventory every 16 days.
20.
buys 16 days of inventory with each order.
21.
sells its inventory by granting customers 16 days credit.
22.
sells its inventory an average of 16 times each year.
18.
Which one of the following best indicates a firm is utilizing
its assets more efficiently than it has in the past?
19.
Decrease in the total asset turnover
20.
Decrease in the capital intensity ratio
21.
Increase in days’ sales in receivables
22.
Decrease in the profit margin
23.
Decrease in the inventory turnover rate
19.
Kelso’s Pharmacy generates $2 in sales for every $1 the firm has
invested in total assets. Which one of the following ratios would reflect this
relationship?
20.
Receivables turnover
21.
Equity multiplier
22.
Profit margin
23.
Return on assets
24.
Total asset turnover
20.
Which one of the following will increase the profit margin of a
firm, all else constant?
21.
Increase in interest paid
22.
Increase in fixed costs
23.
Increase in depreciation expense
24.
Decrease in the tax rate
25.
Decrease in sales
21.
You would like to borrow money three years from now to build a
new building. In preparation for applying for that loan, you are in the process
of developing target ratios for your firm. Which set of ratios represents the
best target mix considering that you want to obtain outside financing in the
relatively near future?
22.
Times interest earned = 1.7; debt-equity ratio = 1.6
23.
Times interest earned = 1.5; debt-equity ratio = 1.2
24.
Cash coverage ratio = 0.8; debt-equity ratio = 0.8
25.
Cash coverage ratio = 2.6; debt-equity ratio = 0.3
26.
Cash coverage ratio = 0.5; total debt ratio = 0.2
22.
All else constant, which one of the following will decrease if a
firm increases its net income?
23.
Return on assets
24.
Profit margin
25.
Return on equity
26.
Price-sales ratio
27.
Price-earnings ratio
23.
Which one of the following statements is true concerning the
price-earnings (PE) ratio?
24.
A high PE ratio may indicate that a firm is expected to grow significantly.
25.
A PE ratio of 16 indicates that investors are willing to pay $1
for every $16 of current earnings.
26.
PE ratios are unaffected by the accounting methods employed by a
firm.
27.
The PE ratio is classified as a profitability ratio.
28.
The PE ratio is a constant value for each firm.
24.
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?
25.
Price-sales ratio
26.
Market-to-book ratio
27.
Profit margin
28.
ROE
29.
ROA
25.
The Du Pont identity can be used to help a financial manager
determine the:
26.
degree of financial leverage used by a firm.
27.
operating efficiency of a firm.
III. utilization rate of a firm’s assets.
1. rate
of return on a firm’s assets.
2. II
and III only
3. I and
III only
4. II,
III, and IV only
5. I,
II, and III only
6. I,
II, III, and IV
26.
The T-shirt Hut successfully managed to reduce its general and
administrative costs this year. This cost improvement will increase which of
the following ratios?
27.
Profit margin
28.
Return on assets
III. Total asset turnover
1. Return
on equity
2. I and
II only
3. I and
III only
4. II,
III, and IV only
5. I,
II, and IV only
6. I,
II, III, and IV
27.
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?
28.
Capital intensity ratio
29.
Return on assets
III. Total asset turnover
1. Return
on equity
2. I and
II only
3. II
and III only
4. II,
III, and IV only
5. I,
II, and IV only
6. I,
II, III, and IV
28.
Donovan Brothers, Inc. would like to increase its internal rate
of growth. Decreasing which one of the following will help the firm achieve its
goal?
29.
Return on assets
30.
Net income
31.
Retention ratio
32.
Dividend payout ratio
33.
Return on equity
29.
If a firm has a 100 percent dividend payout ratio, then the
internal growth rate of the firm is:
30.
zero percent.
31.
100 percent.
32.
equal to the ROA.
33.
negative.
34.
infinite.
30.
Which of the following are determinants of a firm’s sustainable
rate of growth?
31.
Amount of sales generated from each dollar invested in assets
32.
Amount of debt per dollar of equity
III. Amount of current assets per dollar of current liabilities
1. Percent
of net income distributed as dividends
2. I and
III only
3. II
and IV only
4. I,
II, and IV only
5. II,
III, and IV only
6. I,
II, III, and IV
31.
Which of the following will increase the sustainable rate of
growth for a firm?
32.
Decreasing the profit margin
33.
Increasing the dividend payout ratio
III. Decreasing the capital intensity ratio
1. Increasing
the target debt-equity ratio
2. I and
II only
3. III
and IV only
4. II
and IV only
5. I,
III, and IV only
6. I,
II, III, and IV
32.
Financial statement analysis:
33.
is primarily used to identify account values that meet the
normal standards.
34.
is limited to internal use by a firm’s managers.
35.
provides useful information that can serve as a basis for
forecasting future performance.
36.
provides useful information to shareholders but not to debt
holders.
37.
is enhanced by comparing results to those of a firm’s peers but
not by comparing results to prior periods.
33.
Which one of the following statements is correct?
34.
Peer group analysis is easier when a firm is a conglomerate
versus when it only has a single
35.
line of business.
36.
Peer group analysis is easier when seasonal firms have different
fiscal years.
37.
Peer group analysis is simplified when firms use varying methods
of depreciation.
38.
Comparing results across geographic locations is easier since
all countries now use a common
39.
set of accounting standards.
40.
Adjustments have to be made when comparing the income statements
of firms which use different methods of accounting for inventory.
34.
Russell’s Hardware has inventory of $218,000, equity of $421,800,
total assets of $647,700, and sales of $587,200. What is the common-size
percentage for the inventory account?
35.
26.81 percent
36.
33.66 percent
37.
37.12 percent
38.
49.09 percent
39.
51.68 percent
35.
A firm has inventory of $11,400, accounts payable of $9,800,
cash of $850, net fixed assets of $12,150, long-term debt of $9,500, accounts
receivable of $6,600, and total equity of $11,700. What is the common-size
percentage for the net fixed assets?
36.
19.60 percent
37.
26.67 percent
38.
39.19 percent
39.
42.08 percent
40.
48.75 percent
36.
Foreign Travel Services has net income of $48,400, total assets
of $219,000, total equity of $154,800, and total sales of $311,700. What is the
common-size percentage for the net income?
37.
9.00 percent
38.
13.90 percent
39.
15.53 percent
40.
22.10 percent
41.
31.27 percent
37.
Delmont Movers has a profit margin of 6.2 percent and net income
of $48,900. What is the common-size percentage for the cost of goods sold if
that expense amounted to $379,000 for the year?
38.
12.90 percent
39.
23.50 percent
40.
33.25 percent
41.
41.06 percent
42.
48.05 percent
38.
A firm has sales of $428,000 for the year. The profit margin is
3.4 percent and the retention ratio is 60 percent. What is the common-size
percentage for the dividends paid?
39.
0.99 percent
40.
1.18 percent
41.
1.21 percent
42.
1.36 percent
43.
1.42 percent
39.
Peter’s Motor Works has total assets of $689,400, long-term debt
of $299,500, total equity of $275,000, net fixed assets of $497,800, and sales
of $721,500. The profit margin is 4.6 percent. What is the current ratio?
40.
0.60
41.
0.91
42.
1.01
43.
1.67
44.
2.16
40.
Healthy Foods has total assets of $129,800, net fixed assets of
$71,500, long-term debt of $52,000, and total debt of $78,700. If inventory is
$31,800, what is the current ratio?
41.
0.33
42.
0.46
43.
0.84
44.
1.18
45.
2.18
41.
A firm has net working capital of $3,800 and current assets of
$11,700. What is the current ratio?
42.
0.34
43.
0.60
44.
1.48
45.
1.65
46.
2.92
42.
Slightly Used Goods has cash of $2,150, inventory of $28,470,
fixed assets of $9,860, accounts payable of $11,900, and accounts receivable of
$4,660. What is the cash ratio?
43.
0.08
44.
0.18
45.
0.32
46.
0.46
47.
0.51
43.
You are analyzing a company that has cash of $11,200, accounts
receivable of $27,800, fixed assets of $124,600, accounts payable of $31,300,
and inventory of $56,900. What is the quick ratio?
44.
0.30
45.
0.67
46.
0.80
47.
1.25
48.
1.37
44.
Tasty Dee-Lite has current liabilities of $6,630, net working
capital of $2,180, inventory of $2,750, and sales of $36,800. What is the quick
ratio?
45.
0.76
46.
0.84
47.
0.91
48.
1.09
49.
1.19
45.
Tressler Dry Cleaners has inventory of $1,700, accounts payable
of $4,200, cash of $1,950, and accounts receivable of $3,680. What is the cash
ratio?
46.
0.24
47.
0.46
48.
0.53
49.
0.98
50.
1.34
46.
Your firm has cash of $3,800, accounts receivable of $9,600,
inventory of $33,100, and net working capital of $1,100. What is the cash
ratio?
47.
0.04
48.
0.08
49.
0.87
50.
1.21
51.
3.45
47.
Wilson’s Realty has total assets of $46,800, net fixed assets of
$37,400, current liabilities of $6,100, and long-term liabilities of $24,600.
What is the total debt ratio?
48.
0.41
49.
0.60
50.
0.66
51.
0.78
52.
0.86
48.
Denton, Inc. has total equity of $389,600, long-term debt of
$116,400, net working capital of $1,600, and total assets of $527,600. What is
the total debt ratio?
49.
0.22
50.
0.26
51.
0.67
52.
1.49
53.
3.85
49.
A firm has total assets of $523,100, current assets of $186,500,
current liabilities of $141,000, and total debt of $215,000. What is the
debt-equity ratio?
50.
0.48
51.
0.70
52.
1.10
53.
1.43
54.
2.13
50.
The Jelly Jar has total assets of $79,600 and an equity
multiplier of 1.35. What is the debt-equity ratio?
51.
0.28
52.
0.35
53.
0.47
54.
0.58
55.
0.67
51.
Underwood Homes Sales has total assets of $589,900 and total
debt of $318,000. What is the equity multiplier?
52.
0.46
53.
0.54
54.
1.21
55.
1.85
56.
2.17
52.
A firm has an equity multiplier of 1.5. This means that the firm
has a:
53.
debt-equity ratio of 0.67.
54.
debt-equity ratio of 0.33.
55.
total debt ratio of 0.50.
56.
total debt ratio of 0.67.
57.
total debt ratio of 0.33.
53.
Preston’s Market has sales of $213,600, total assets of
$198,700, a debt-equity ratio of 1.6, and a profit margin of 2.4 percent. What
is the equity multiplier?
54.
0.60
55.
0.63
56.
1.83
57.
2.60
58.
2.84
54.
Friendly’s Shoe Store has earnings before interest and taxes of
$21,680 and net income of $12,542. The tax rate is 34 percent. What is the
times interest earned ratio?
55.
0.88
56.
1.67
57.
3.09
58.
5.59
59.
8.10
55.
The Berry Patch has sales of $438,000, cost of goods sold of
$369,000, depreciation of $37,400, and interest expense of $13,800. The tax
rate is 35 percent. What is the times interest earned ratio?
56.
2.29
57.
3.46
58.
3.87
59.
4.38
60.
4.79
56.
A firm has net income of $5,890 and interest expense of $2,130.
The tax rate is 34 percent. What is the firm’s times interest earned ratio?
57.
4.82
58.
5.19
59.
5.38
60.
5.67
61.
6.33
57.
A firm has net income of $31,300, depreciation of $5,100, taxes
of $14,600, and interest paid of $3,100. What is the cash coverage ratio?
58.
8.78
59.
10.10
60.
14.14
61.
16.32
62.
17.45
58.
Blue Water Cafe has $28,700 in total assets, depreciation of
$3,100, and interest of $1,400. The total asset turnover rate is 1.2. Earnings
before interest and taxes are equal to 28 percent of sales. What is the cash
coverage ratio?
59.
6.33
60.
7.51
61.
9.10
62.
10.23
63.
10.98
59.
The Global Network has sales of $418,700, cost of goods sold of
$264,900, and inventory of $61,900. What is the inventory turnover rate?
60.
1.33
61.
4.28
62.
6.76
63.
7.14
64.
8.47
60.
The Tourist Stop takes an average of 63 days to sell its
inventory and an average of 1.5 days to collect payment on its sales. What is
the inventory turnover rate?
61.
5.79
62.
7.29
63.
8.68
64.
10.18
65.
11.42
61.
Galaxy Sales has sales of $746,700, cost of goods sold of
$603,200, and inventory of $94,300. How long on average does it take the firm
to sell its inventory?
62.
6.40 days
63.
7.23 days
64.
48.68 days
65.
57.06 days
66.
61.10 days
62.
Handy Hardware sells its inventory in 85 days, on average. Costs
of goods sold for the year are $631,800. What is the average value of the
firm’s inventory?
63.
$114,706
64.
$123,506
65.
$147,132
66.
$161,096
67.
$182,513
63.
Kessler, Inc. has accounts receivable of $31,600, total assets
of $311,500, cost of goods sold of $208,400, and a capital intensity ratio of
1.08. What is the accounts receivables turnover rate?
64.
8.99
65.
9.13
66.
9.42
67.
9.61
68.
9.72
64.
It takes The Corner Store an average of 51 days to sell its
inventory and 32 days to collect its accounts receivable. The firm has sales of
$568,700 and costs of goods sold of $398,800. What is the accounts receivable
turnover rate?
65.
11.23
66.
11.41
67.
11.78
68.
12.23
69.
12.55
65.
Textile Mills has sales of $923,000, cost of goods sold of
$748,000, and accounts receivable of $106,700. How long on average does it take
the firm’s customers to pay for their purchases?
66.
8.65 days
67.
11.28 days
68.
25.01 days
69.
42.19 days
70.
45.33 days
66.
A firm has $42,900 in receivables and $211,800 in total assets.
The total asset turnover rate is 1.45 and the profit margin is 4.2 percent. How
long on average does it take the firm to collect its receivables?
67.
7.16 days
68.
9.45 days
69.
11.68 days
70.
31.25 days
71.
50.99 days
67.
Aardvaark & Co. has sales of $291,200, cost of goods sold of
$163,300, net profit of $11,360, net fixed assets of $154,500, and current
assets of $89,500. What is the total asset turnover rate?
68.
1.08
69.
1.11
70.
1.19
71.
1.24
72.
1.28
68.
Holiday House has sales of $648,000, a profit margin of 6.1
percent, and a capital intensity ratio of 0.84. What is the total asset
turnover rate?
69.
1.04
70.
1.08
71.
1.13
72.
1.19
73.
1.26
69.
Martha’s Fabric House has sales of $137,200, total equity of
$74,400, and a debt-equity ratio of 0.45. What is the capital intensity ratio?
70.
0.79
71.
0.83
72.
1.06
73.
1.20
74.
1.27
70.
Circle Stores has net income of $41,000, a profit margin of 6.7
percent, and a return on assets of 9 percent. What is the capital intensity
ratio?
71.
0.74
72.
0.86
73.
1.16
74.
1.34
75.
1.38
71.
Tally Ho Inn has annual sales of $737,000. Earnings before
interest and taxes is equal to 21 percent of sales. For the period, the firm
paid $7,900 in interest. What is the profit margin if the tax rate is 35
percent?
72.
12.46 percent
73.
12.95 percent
74.
13.33 percent
75.
15.29 percent
76.
16.11 percent
72.
The Medicine Cabinet has a return on equity of 18.2 percent, a
profit margin of 11.6 percent, and total equity of $738,000. What is the net
income?
73.
$85,608
74.
$113,875
75.
$134,316
76.
$142,311
77.
$149,897
73.
The Next Life has sales of $428,300, total assets of $389,100,
and a profit margin of 6.2 percent. What is the return on assets?
74.
6.29 percent
75.
6.54 percent
76.
6.83 percent
77.
7.01 percent
78.
7.27 percent
74.
Goshen Industrial Sales has sales of $828,900, total equity of
$539,200, a profit margin of 4.6 percent and a debt-equity ratio of 0.55. What
is the return on assets?
75.
3.89 percent
76.
4.56 percent
77.
6.67 percent
78.
12.86 percent
79.
13.33 percent
75.
Cross Hairs Gun Shop has sales of $189,000, a profit margin of
4.8 percent, and a capital intensity ratio of 0.79. What is the return on
assets?
76.
5.67 percent
77.
6.08 percent
78.
6.39 percent
79.
6.42 percent
80.
6.67 percent
76.
Freedom Health Centers has total equity of $861,300, sales of
$1.48 million, and a profit margin of 5.2 percent. What is the return on
equity?
77.
5.82 percent
78.
6.49 percent
79.
7.18 percent
80.
8.68 percent
81.
8.94 percent
77.
The Closet Shoppe has total sales of $713,200 and a profit
margin of 5.8 percent. Currently, the firm has 12,500 shares outstanding. What
are the earnings per share?
78.
$2.98
79.
$3.31
80.
$3.56
81.
$3.89
82.
$4.02
78.
Baxter & Baxter has total assets of $710,000. There are
45,000 shares of stock outstanding with a market value of $28 a share. The firm
has a profit margin of 7.1 percent and a total asset turnover of 1.29. What is
the price-earnings ratio?
79.
16.38
80.
17.99
81.
19.38
82.
20.12
83.
22.41
79.
Ratzell’s Place has a market-to-book ratio of 2.7, net income of
$68,400, a book value per share of $37, and 45,000 shares of stock outstanding.
What is the price-earnings ratio?
80.
24.34
81.
28.16
82.
55.10
83.
59.09
84.
65.72
80.
The Green House has a profit margin of 5.6 percent on sales of
$311,200. The firm currently has 15,000 shares of stock outstanding at a market
price of $11.60 per share. What is the price-earnings ratio?
81.
9.98
82.
10.02
83.
11.50
84.
11.93
85.
12.84
81.
A firm has sales of $311,000 and net income of $21,600.
Currently, there are 18,000 shares outstanding at a market price of $36 per
share. What is the price-sales ratio?
82.
2.08
83.
3.11
84.
4.26
85.
5.15
86.
6.95
82.
The common stock of The Burger Hut is selling for $16.25 a
share. The company has earnings per share of $0.42 and a book value per share
of $9.28. What is the market-to-book ratio?
83.
1.58
84.
1.69
85.
1.75
86.
1.87
87.
1.92
83.
Swanton Foods has a book value per share of $12.68, earnings per
share of $1.21, and a price-earnings ratio of 17.6. What is the market-to-book
ratio?
84.
1.32
85.
1.68
86.
1.99
87.
2.47
88.
2.61
84.
The Inside Door has total debt of $78,600, total equity of
$214,000, and a return on equity of 14.5 percent. What is the return on assets?
85.
9.14 percent
86.
10.61 percent
87.
21.45 percent
88.
34.61 percent
89.
39.48 percent
85.
The Noodle Place has total assets of $123,800, a debt-equity
ratio of 0.65, and net income of $7,100. What is the return on equity?
86.
3.48 percent
87.
3.73 percent
88.
8.01 percent
89.
9.46 percent
90.
13.61 percent
86.
Computer Geeks has sales of $521,000, a profit margin of 14.8
percent, a total asset turnover rate of 2.16, and an equity multiplier of 1.30.
What is the return on equity?
87.
8.91 percent
88.
12.67 percent
89.
18.28 percent
90.
32.11 percent
91.
41.56 percent
87.
Morrison Motors has total equity of $289,100 and net income of
$64,500. The debt-equity ratio is 0.45 and the total asset turnover is 1.6.
What is the profit margin?
88.
3.10 percent
89.
5.23 percent
90.
5.67 percent
91.
8.21 percent
92.
9.62 percent
88.
A firm has net income of $114,000, a return on assets of 12.6
percent, and a debt-equity ratio of 0.60. What is the return on equity?
89.
17.11 percent
90.
18.98 percent
91.
20.16 percent
92.
22.20 percent
93.
24.60 percent
89.
The Blue Lantern has a return on equity of 17.8 percent, an
equity multiplier of 1.9, and a total asset turnover of 1.45. What is the
profit margin?
90.
2.76 percent
91.
3.57 percent
92.
4.90 percent
93.
5.28 percent
94.
6.46 percent
90.
The Saw Mill has a return on assets of 6.1 percent, a total
asset turnover rate of 1.8, and a debt-equity ratio of 1.6. What is the return
on equity?
91.
4.26 percent
92.
9.76 percent
93.
12.28 percent
94.
15.86 percent
95.
19.03 percent
91.
Webster & Jones has net income of $49,200, sales of
$936,800, a capital intensity ratio of 0.74, and an equity multiplier of 1.5.
What is the return on equity?
92.
6.67 percent
93.
8.98 percent
94.
10.65 percent
95.
12.21 percent
96.
14.09 percent
92.
New Steel Products has total assets of $991,000, a total asset
turnover rate of 1.1, a debt-equity ratio of 0.6, and a return on equity of 8.7
percent. What is the firm’s net income?
93.
$53,885.63
94.
$58,303.33
95.
$64,624.14
96.
$70,548.09
97.
$77,236.67
93.
Eastern Hardwood Sales has total equity of $89,000, a profit
margin of 4.8 percent, an equity multiplier of 1.5, and a total asset turnover
of 1.3. What is the amount of the firm’s sales?
94.
$168,200
95.
$173,550
96.
$181,430
97.
$185,620
98.
$187,500
94.
Tessler Farms has a return on equity of 12.71 percent, a
debt-equity ratio of 0.75, and a total asset turnover of 0.9. What is the
return on assets?
95.
7.26 percent
96.
8.06 percent
97.
13.67 percent
98.
15.24 percent
99.
17.41 percent
95.
A firm earns $0.17 in profit for every $1 of equity in the firm.
The company borrows $0.60 for every $1 of equity. What is the firm’s return on
assets?
96.
10.63 percent
97.
13.53 percent
98.
25.15 percent
99.
26.07 percent
100.
28.33 percent
96.
The Veggie Hut has net income of $26,400, total equity of
$102,700, and total assets of $189,500. The dividend payout ratio is 0.30. What
is the internal growth rate?
97.
7.99 percent
98.
8.57 percent
99.
10.81 percent
100.
16.87 percent
101.
21.94 percent
97.
Quick Foods has sales of $238,900, total assets of $217,000,
total equity of $121,300, net income of $18,700, and dividends paid of $6,000.
What is the internal growth rate?
98.
5.48 percent
99.
6.22 percent
100.
6.67 percent
101.
7.34 percent
102.
7.92 percent
98.
A firm has adopted a policy whereby it will not seek any
additional external financing. Given this, what is the maximum growth rate for
the firm if it has net income of $12,100, total equity of $94,000, total assets
of $156,000, and a 40 percent dividend payout ratio?
99.
4.88 percent
100.
5.11 percent
101.
6.62 percent
102.
7.67 percent
103.
8.37 percent
99.
Underwood Enterprises earns $0.07 in profit on every $1 of sales
and has $0.67 in assets for every $1 of sales. The firm pays out 20 percent of
its profits to its shareholders. What is the internal growth rate?
100.
6.37 percent
101.
7.76 percent
102.
8.80 percent
103.
9.12 percent
104.
9.65 percent
100.
Joshua’s Antiques has a total asset turnover rate of 1.2, an
equity multiplier of 1.4, a profit margin of 5 percent, a retention ratio of
0.8, and total assets of $120,000. What is the sustainable growth rate?
101.
6.98 percent
102.
7.20 percent
103.
7.33 percent
104.
7.54 percent
105.
7.91 percent
101.
A firm has a return on equity of 16 percent, a return on assets
of 11 percent, and a 40 percent dividend payout ratio. What is the sustainable
growth rate?
102.
5.72 percent
103.
6.84 percent
104.
7.12 percent
105.
9.58 percent
106.
10.62 percent
102.
Valentino’s maintains a constant debt-equity ratio of 0.45. The
firm had net income of $11,800 for the year and paid $6,500 in dividends. The
firm has total assets of $92,000. What is the sustainable growth rate?
103.
7.38 percent
104.
8.27 percent
105.
9.11 percent
106.
9.62 percent
107.
10.38 percent
103.
The Donut Hut has sales of $68,000, current assets of $11,300,
net income of $5,100, net fixed assets of $54,900, total debt of $23,800, and
dividends of $800. What is the sustainable growth rate?
104.
10.48 percent
105.
11.29 percent
106.
11.79 percent
107.
12.08 percent
108.
12.39 percent
104.
Last year, a firm earned $31,200 in net income on sales of
$217,600. The company paid $7,500 in dividends. What is the dividend payout
ratio?
105.
3.45 percent
106.
4.71 percent
107.
14.34 percent
108.
22.85 percent
109.
24.04 percent
105.
Last year, Blakely’s Fashions earned net income of $68,400 and
had 12,000 shares of stock outstanding. The dividends per share were $2.20.
What is the dividend payout ratio?
106.
32.98 percent
107.
34.00 percent
108.
38.60 percent
109.
40.21 percent
110.
44.14 percent
106.
Gabriel Furniture has a profit margin of 8.2 percent and a
dividend payout ratio of 30 percent. What is the plowback ratio?
107.
10.66 percent
108.
27.33 percent
109.
54.60 percent
110.
70.00 percent
111.
78.20 percent
107.
Town Centre Market has sales of $311,800, a profit margin of 2.9
percent, and dividends of $4,500. What is the plowback ratio?
108.
46.32 percent
109.
49.78 percent
110.
50.23 percent
111.
51.15 percent
112.
53.68 percent
108.
Use the following financial information to answer this question.
What are the values of the three components of the DuPont
identity? Use ending balance sheet values.
1. 0.15;
1.02; 0.35
2. 0.15;
2.02; 0.35
3. 0.15;
0.98; 2.86
4. 0.16;
0.98; 0.35
5. 0.16;
1.02; 2.86
109.
Global Ventures has a return on equity of 9.8 percent, a
retention ratio of 60 percent, and a profit margin of 4.5 percent. The company
paid $378 in dividends and has net working capital of $100. Net fixed assets
are $18,550 and current liabilities are $520. What is the total equity of the
firm?
110.
$6,457
111.
$6,890
112.
$7,360
113.
$9,643
114.
$11,480
Essay Questions
110.
Assume this is your first day on the job as the new chief
financial officer of a mid-size company. Identify the three key ratios that you
would compute first as you begin to try to understand the financial status of
the firm. Explain why you selected the three ratios that you did.
111.
You are trying to compare the financial performance of your firm
to that of similar firms. What are some of the key problems you might encounter
in doing this comparison?
112.
Explain why the DuPont identity is so useful to a financial
manager.
113.
Since there are no perfect or ideal standard ratios for a firm,
why is ratio analysis still considered a valuable management tool?
Multiple Choice Questions
114.
Peterboro Supply has a current accounts receivable balance of
$391,648. Credit sales for the year just ended were $5,338,411. How long did it
take on average for credit customers to pay off their accounts during the past
year?
115.
24.78 days
116.
26.78 days
117.
29.09 days
118.
31.15 days
119.
33.33 days
115.
Sunshine Rentals has a debt-equity ratio of 0.84. Return on
assets is 7.9 percent, and total equity is $438,000. What is the net income?
116.
$41,147.09
117.
$54,311.29
118.
$63,667.68
119.
$48,887.02
120.
$50,458.95
116.
Turner’s Store had a profit margin of 6.8 percent, sales of
$898,200, and total assets of $798,000. If management set a goal of increasing
the total asset turnover to 1.40 times, what would the new sales figure need to
be, assuming no increase in total assets?
117.
$860,333
118.
$984,320
119.
$1,088,500
120.
$1,117,200
121.
$1,257,480
117.
True Blue Transport has a current stock price of $27. For the
past year, the company had net income of $2,187,400, total equity of $13,892,300,
sales of $26,511,000, and 2.5 million shares outstanding. What is the
market-to-book ratio?
118.
3.54
119.
3.81
120.
3.99
121.
4.27
122.
4.86
118.
Taylor, Inc. has sales of $11,898, total assets of $9,315, and a
debt-equity ratio of 0.55. If its return on equity is 14 percent, what is its
net income?
119.
$841.35
120.
$887.16
121.
$904.10
122.
$911.16
123.
$927.46
119.
Mercier United has net income of $128,470. There are currently
32.67 days’ sales in receivables. Total assets are $1,419,415, total
receivables are $122,306, and the debt-equity ratio is 0.40. What is the return
on equity?
120.
11.42 percent
121.
12.67 percent
122.
13.09 percent
123.
13.48 percent
124.
15.03 percent
120.
For the most recent year, Wilson Enterprises had sales of
$689,000, cost of goods sold of $470,300, depreciation expense of $61,200, and additions
to retained earnings of $48,560. The firm currently has 12,000 shares of common
stock outstanding, and the previous year’s dividends per share were $1.18.
Assuming a 35 percent tax rate, what was the times interest earned ratio?
121.
1.47
122.
2.09
123.
2.58
124.
3.15
125.
3.67
121.
A fire has destroyed a large percentage of the financial records
of the Strongwell Co. You have the task of piecing together information in
order to release a financial report. You have found the return on equity to be
13.8 percent. Sales were $979,000, the total debt ratio was 0.42, and total
debt was $548,000. What is the return on assets?
122.
6.92 percent
123.
8.00 percent
124.
8.45 percent
125.
9.03 percent
126.
9.29 percent
122.
Donegal’s Industrial Products wishes to maintain a growth rate
of 6 percent a year, a debt-equity ratio of 0.45, and a dividend payout ratio
of 30 percent. The ratio of total assets to sales is constant at 1.25. What
profit margin must the firm achieve?
123.
4.68 percent
124.
5.29 percent
125.
6.33 percent
126.
6.97 percent
127.
8.19 percent
123.
A firm wishes to maintain an internal growth rate of 4.5 percent
and a dividend payout ratio of 60 percent. The current profit margin is 7.5
percent and the firm uses no external financing sources. What must the total
asset turnover be?
124.
0.98
125.
1.06
126.
1.21
127.
1.44
128.
1.59
Chapter 03 Working with Financial Statements Answer Key
Multiple Choice Questions
1. Common-size
financial statements present all balance sheet account values as a percentage
of:
2. the
forecasted budget.
3. sales.
4. total
equity.
5. total
assets.
6. last
year’s account value.
Refer to section 3.1.
Bloom’s: Knowledge
Difficulty: Basic
Learning Objective: 03-01 Standardize financial statements for
comparison purposes.
Section: 3.1
Topic: Common-size statement
2. The
ratios that are based on financial statement values and used for comparison
purposes are called:
3. financial
ratios.
4. industrial
statistics.
5. equity
standards.
6. accounting
returns.
7. analytical
standards.
Refer to section 3.2.
Bloom’s: Knowledge
Difficulty: Basic
Learning Objective: 03-02 Compute and; more importantly;
interpret some common ratios.
Section: 3.2
Topic: Financial ratios
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