Question 1

Given the following information,calculate the market price per share of WAM Inc. Earnings after interest and taxes = $200,000
Earnings per share = $2.00
Stockholders' equity = $2,000,000
Market/Book ratio = 0.20
A) $20.00
B) $8.00
C) $4.00
D) $2.00
E) $1.00

Accepted Answer

The Market/Book ratio is given as 0.20. To find the market price per share, you can use the formula: Market Price per Share = (Market/Book Ratio) * (Stockholders' Equity / Number of Shares). Given the earnings per share is $2.00, we can infer there are 100,000 shares ($200,000 / $2.00). Therefore, the book value per share is $20 ($2,000,000 / 100,000 shares). Multiplying the book value per share by the Market/Book ratio gives us the market price per share: $20 * 0.20 = $4.00.

Question 2

Lombardi Trucking Company has the following data:  What is Lombardi's TIE ratio?
A) 0.95
B) 1.75
C) 2.10
D) 2.67
E) 3.45

Accepted Answer

The answer of Lombardi Trucking Company has the following data:...

Question 3

Retailers Inc.and Computer Corp.each have assets of $10,000 and a return on common equity equal to 15%.Retailers has twice as much debt and twice as many sales relative to Computer Corp.Retailers' net income equals $750,and its total asset turnover is equal to 3.What is Computer Corp.'s profit margin?
A) 2.50%
B) 5.00%
C) 7.50%
D) 10.00%
E) 12.50%

Accepted Answer

The answer of Retailers Inc.and Computer Corp.each have assets of...

Question 4

Savelots Stores' current financial statements are shown below:  A recently released report indicates that Savelots' current ratio of 1.9 is in line with the industry average.However,its accounts payable,which have no interest cost and which are due entirely to purchases of inventories,amount to only 20% of inventory versus an industry average of 60%.Suppose Savelots took actions to increase its accounts payable to inventories ratio to the 60% industry average,but it (1)kept all of its assets at their present levels (that is,the asset side of the balance sheet remains constant)and (2)also held its current ratio constant at 1.9.Assume that Savelots' tax rate is 40%,that its cost of short-term debt is 10%,and that the change in payments will not affect operations.In addition,common equity would not change.With the changes,what would be Savelots' new ROE?
A) 10.5%
B) 7.8%
C) 9.0%
D) 13.2%
E) 12.0%

Accepted Answer

The answer of Savelots Stores' current financial statements are shown...

Question 5

On its December 31st balance sheet,LCG Company reported gross fixed assets of $6,500,000 and net fixed assets of $5,000,000.Depreciation for the year was $500,000.Net fixed assets a year earlier on December 31st,had been $4,700,000.What figure for "Cash Flows Associated with Long-Term Investments (Fixed Assets)" should LCG report on its Statement of Cash Flows for the current year?
A) $500,000
B) $600,000
C) $700,000
D) $800,000
E) $900,000

Accepted Answer

To calculate the cash flows associated with long-term investments (fixed assets), we need to use the formula:
Cash Flows Associated with Long-Term Investments (Fixed Assets) = Net Fixed Assets (Current Year) - Net Fixed Assets (Prior Year) + Depreciation

Substituting the given values:
Cash Flows Associated with Long-Term Investments (Fixed Assets) = $5,000,000 - $4,700,000 + $500,000
= $800,000

Therefore, the correct choice is D.

Question 6

Harvey Supplies Inc.has a current ratio of 3.0,a quick ratio of 2.4,and an inventory turnover ratio of 6.Harvey's total assets are $1 million and its debt ratio is 0.20.The firm has no long-term debt.What is Harvey's sales figure if the total cost of goods sold is 75% of sales?
A) $960,000
B) $720,000
C) $1,620,000
D) $120,000
E) $540,000

Accepted Answer

- Current Ratio = Current Assets / Current Liabilities
Current Assets = Current Ratio x Current Liabilities
Current Assets = 3 x Current Liabilities

- Quick Ratio = (Current Assets - Inventory) / Current Liabilities
Inventory = Current Assets - Quick Ratio x Current Liabilities
Inventory = 2.4 x Current Liabilities
Inventory turnover ratio = Cost of Goods Sold / Inventory
Inventory turnover ratio = 6
Days to sell inventory = 365 / Inventory turnover ratio
Days to sell inventory = 60.8 days

- Debt Ratio = Total Debt / Total Assets
Total Debt = Debt Ratio x Total Assets
Total Debt = 0.20 x $1 million
Total Debt = $200,000

- Total Liabilities = Current Liabilities + Total Debt
Total Liabilities = Current Liabilities + $200,000
Total Liabilities = 4 x Current Liabilities

- Total Assets = Total Liabilities + Owner's Equity
$1 million = 4 x Current Liabilities + Owner's Equity
Owner's Equity = $1 million - 4 x Current Liabilities

- Quick Ratio = (Current Assets - Inventory) / Current Liabilities
2.4 = (3 x Current Liabilities - 2.4 x Current Liabilities) / Current Liabilities
2.4 = 0.6 x Current Liabilities
Current Liabilities = $400,000

- Owner's Equity = $1 million - 4 x Current Liabilities
Owner's Equity = $1 million - 4 x $400,000
Owner's Equity = $1 million - $1.6 million
Owner's Equity = -$600,000 (negative indicates a deficit)

- Sales = Cost of Goods Sold / (1 - Gross Margin Percentage)
Sales = Cost of Goods Sold / 0.25 (since 75% of sales are the cost of goods sold)
Sales = 4 x Inventory turnover ratio x Inventory / 0.25
Sales = 4 x 6 x 2.4 x $400,000 / 0.25
Sales = $960,000

Therefore, the best choice is A) $960,000.

Quiz 2: Analysis of Financial Statements

Given the following information,calculate the market price per share of WAM Inc. Earnings after interest and taxes = $200,000 Earnings per share = $2.00 Stockholders' equity = $2,000,000 Market/Book ratio = 0.20

Lombardi Trucking Company has the following data: What is Lombardi's TIE ratio?

Harvey Supplies Inc.has a current ratio of 3.0,a quick ratio of 2.4,and an inventory turnover ratio of 6.Harvey's total assets are $1 million and its debt ratio is 0.20.The firm has no long-term debt.What is Harvey's sales figure if the total cost of goods sold is 75% of sales?