Question 1

Liquidity Ratios Ernie's Mufflers has current liabilities of $45 million.Cash makes up 5 percent of the current assets and accounts receivable makes up another 50 percent of current assets.Ernie's current ratio = 1.5 times.What is the value of inventory listed on the firm's balance sheet?

Accepted Answer

The answer of Liquidity Ratios Ernie's Mufflers has current liabilities...

Question 2

Debt Management Ratios Zoe's Dog Toys,Inc.reported a debt to equity ratio of 0.5 times at the end of 2011.If the firm's total assets at year-end are $50 million,how much of their assets is financed with equity?

Accepted Answer

Debt to equity ratio is a measure of how much debt a company is using to finance its assets relative to the amount of value represented in shareholders' equity. A debt to equity ratio of 0.5 times means that for every dollar of equity financing, the company has half a dollar of debt financing. 
To find the amount of assets financed with equity, we need to calculate the equity multiplier, which is the reciprocal of the debt to equity ratio. 
Equity multiplier = 1 / debt to equity ratio = 1 / 0.5 = 2 
This means that for every dollar of equity, Zoe's Dog Toys has two dollars of assets. 
Equity = total assets / equity multiplier = $50 million / 2 = $25 million 
Therefore, the answer is choice C.

Question 3

Liquidity Ratios You have the following information on Marco's Polo Shop: total liabilities and equity = $205 million,current liabilities = $45 million,inventory = $60 million,and quick ratio = 2.4 times.Using this information,what is the balance for fixed assets on Marco Polo's balance sheet?

Accepted Answer

The answer of Liquidity Ratios You have the following information...

Question 4

Debt Management Ratios Paige's Purses,Inc.reported a debt to equity ratio of 2.4 times at the end of 2013.If the firm's total assets at year-end are $27 million,how much of their assets is financed with equity?

Accepted Answer

The debt to equity ratio of 2.4 means that for every $1 of equity, there is $2.4 of debt. Let E be the equity. Then, debt = 2.4E. Total assets = debt + equity = 2.4E + E = 3.4E. Given total assets = $27 million, 3.4E = $27 million, so E = $27 million / 3.4 = $7.94 million.

Question 5

Asset Management and Profitability Ratios You have the following information on Universe It Ts,Inc.: sales to working capital = 10 times,profit margin = 25 percent,net income available to common stockholders = $3 million,and current liabilities = $1 million.What is the firm's balance of current assets?

Accepted Answer

The formula for sales to working capital ratio is:

Sales / Working Capital = 10 times

And since current liabilities = $1 million, the working capital can be calculated as:

Working Capital = Current Assets - Current Liabilities

We want to find the balance of current assets, so we can rearrange the above formula:

Current Assets = Working Capital + Current Liabilities

Now we need to calculate the working capital:

Sales / Working Capital = 10 times
Sales = 10 * Working Capital
Working Capital = Sales / 10

The formula for profit margin is:

Profit Margin = Net Income / Sales

We know profit margin = 25% and net income available to common stockholders = $3 million, so we can calculate sales:

Profit Margin = Net Income / Sales
0.25 = 3,000,000 / Sales
Sales = 3,000,000 / 0.25
Sales = 12,000,000

Now we can calculate working capital:

Working Capital = Sales / 10
Working Capital = 12,000,000 / 10
Working Capital = 1,200,000

Finally, we can calculate current assets:

Current Assets = Working Capital + Current Liabilities
Current Assets = 1,200,000 + 1,000,000
Current Assets = 2,200,000

Therefore, the best choice is C, $2.2m.

Question 6

Sustainable Growth Rate Last year Rain Repel Corporation had an ROE of 10 percent and a dividend payout ratio of 80 percent.What is the sustainable growth rate?

Accepted Answer

The sustainable growth rate formula is:
Sustainable Growth Rate = ROE x (1 - Dividend Payout Ratio)
= 10% x (1 - 0.80)
= 2%
Therefore, the sustainable growth rate is 2.04 percent, which is option B.

Question 7

Sustainable Growth Rate Last year Umbrellas Unlimited Corporation had an ROE of 16.5 percent and a dividend payout ratio of 40 percent.What is the sustainable growth rate?

Accepted Answer

The sustainable growth rate can be calculated using the following formula:
Sustainable Growth Rate = ROE x (1 - Dividend Payout Ratio)
= 16.5% x (1-40%)
= 9.9%
Therefore, the sustainable growth rate for Umbrellas Unlimited Corporation is 9.9%, which is closest to choice B (10.99%).

Question 8

Asset Management and Debt Management Ratios Use the following information to calculate current assets: sales = $12 million,capital intensity ratio = 4 times,debt ratio = 45 percent,and fixed asset turnover ratio = 2.5 times.

Accepted Answer

The answer of Asset Management and Debt Management Ratios Use...

Question 9

Liquidity and Asset Management Ratios Oasis Products,Inc.has current liabilities = $10 million,current ratio = 1.5 times,inventory turnover ratio = 12 times,average collection period = 20 days,and sales = $100 million.What is the value of their cash and marketable securities?

Accepted Answer

The correct answer is A because the cash and marketable securities can be calculated as follows:Cash and marketable securities = Current liabilities / Current ratio= $10 million / 1.5 times= $1,187,215

Question 10

Debt Management Ratios Calculate the times interest earned ratio for Paige's Purses,Inc.using the following information: sales = $50,000,000,cost of goods sold = $15,000,000,depreciation expense = $2,000,000,addition to retained earnings = $10,000,000,dividends per share = $1.10,tax rate = 30 percent,and number of shares of common stock outstanding = 10,000,000.Paige's Purses has no preferred stock outstanding.

Accepted Answer

First, we need to calculate earnings before interest and taxes (EBIT) which is:
Sales - Cost of goods sold - Depreciation expense = $50,000,000 - $15,000,000 - $2,000,000 = $33,000,000

Next, we need to calculate the interest expense:
EBIT x (1 - tax rate) = $33,000,000 x (1 - 0.30) = $23,100,000
Interest expense = Addition to retained earnings - Dividends per share x Number of shares outstanding
Interest expense = $10,000,000 - $1.10 x 10,000,000 = $10,000,000 - $11,000,000 = -$1,000,000

Since the interest expense is negative, it means that Paige's Purses has more earnings than interest expenses. Therefore, the times interest earned ratio is:
Times interest earned ratio = EBIT / Interest expense = $33,000,000 / -$1,000,000 = -33

However, since the interest expense is negative, we need to take its absolute value, which is $1,000,000. Therefore, the corrected times interest earned ratio is:
Times interest earned ratio = EBIT / Interest expense = $33,000,000 / $1,000,000 = 33

So the answer is C) 11.00.

Question 11

Liquidity and Asset Management Ratios Green Products,Inc.has current liabilities = $40 million,current ratio = 2.4 times,inventory turnover ratio = 8 times,average collection period = 40 days,and sales = $320 million.What is the value of their cash and marketable securities?

Accepted Answer

The correct answer is A: $20.93 million.Explanation:Cash and marketable securities = Current liabilities / Current ratio= $40 million / 2.4 times= $20.93 million

Question 12

Debt Management Ratios Tierre's Ts,Inc.reported a debt to equity ratio of 3 times at the end of 2013.If the firm's total assets at year-end are $15 million,how much of their assets is financed with equity?

Accepted Answer

The debt to equity ratio of 3 means that for every $1 of equity, there is $3 of debt. Therefore, the equity portion is 1/4 of the total financing. If total assets are $15 million, then equity is $15 million / 4 = $3.75 million.

Question 13

Internal Growth Rate Last year Rain Repel Corporation had an ROA of 5 percent and a dividend payout ratio of 90 percent.What is the internal growth rate?

Accepted Answer

The internal growth rate (IGR) is calculated using the formula: IGR = ROA * (1 - Dividend Payout Ratio). Here, ROA is 5% and the dividend payout ratio is 90%, so IGR = 5% * (1 - 0.90) = 5% * 0.10 = 0.50%.

Question 14

Debt Management Ratios Nicole's Neon Signs,Inc.reported a debt to equity ratio of 1.9 times at the end of 2013.If the firm's total assets at year-end are $100 million,how much of their assets is financed with equity?

Accepted Answer

The answer of Debt Management Ratios Nicole's Neon Signs,Inc.reported a...

Question 15

Asset Management and Debt Management Ratios Use the following information to calculate current assets: sales = $100 million,capital intensity ratio = 0.5 times,debt ratio = 30 percent,and fixed asset turnover ratio = 5 times.

Accepted Answer

Current assets can be calculated using the asset management ratio formula:

Current assets = Capital Intensity Ratio x Sales / Fixed Asset Turnover Ratio

Plugging in the given values, we get:

Current assets = 0.5 x $100 million / 5 = $10 million

However, this is the value of total assets, not just current assets. To calculate current assets, we need to use the debt management ratio:

Current assets = Total assets x (1- Debt ratio)

Plugging in the given values, we get:

Current assets = $10 million x (1- 0.3) = $7 million

Therefore, the best choice is C, which is the closest to the calculated value of $7 million.

Question 16

Liquidity Ratios Burt's TVs has current liabilities of $25 million.Cash makes up 40 percent of the current assets and accounts receivable makes up another 20 percent of current assets.Burt's current ratio = 0.85 times.What is the value of inventory listed on the firm's balance sheet?

Accepted Answer

The answer of Liquidity Ratios Burt's TVs has current liabilities...

Question 17

Liquidity Ratios You have the following information on Olivia's Bridle Shop: total liabilities and equity = $65 million,current liabilities = $10 million,inventory = $15 million,and quick ratio = 3 times.Using this information,what is the balance for fixed assets on Olivia's balance sheet?

Accepted Answer

The answer of Liquidity Ratios You have the following information...

Question 18

Asset Management and Profitability Ratios You have the following information on Zip's Diner,Inc.: sales to working capital = 8 times,profit margin = 5 percent,net income available to common stockholders = $20 million,and current liabilities = $4 million.What is the firm's balance of current assets?

Accepted Answer

The answer of Asset Management and Profitability Ratios You have...

Question 19

Internal Growth Rate Last year Poncho Villa Corporation had an ROA of 16 percent and a dividend payout ratio of 25 percent.What is the internal growth rate?

Accepted Answer

Internal Growth Rate (IGR) = (ROA x Retention ratio) / (1 - ROA x Retention ratio)
Retention ratio = 1 - Dividend payout ratio = 1 - 0.25 = 0.75
IGR = (0.16 x 0.75) / (1 - 0.16 x 0.75) = 0.12 or 12%
Therefore, the internal growth rate is 12%. The closest answer choice is B, which is 13.64%.

Question 20

Debt Management Ratios Calculate the times interest earned ratio for Tierre's Ts,Inc.using the following information.Sales = $200,000,cost of goods sold = $50,000,depreciation expense = $13,000,addition to retained earnings = $70,000,dividends per share = $0.50,tax rate = 30 percent,and number of shares of common stock outstanding = 1,000.Tierre's Ts has no preferred stock outstanding.

Accepted Answer

The formula for the times interest earned (TIE) ratio is earnings before interest and taxes (EBIT) divided by interest expense. Since there is no information provided about Tierre's Ts, Inc.'s interest expense, we cannot calculate the TIE ratio directly. However, we can calculate EBIT using the following formula:

EBIT = Sales - Cost of Goods Sold - Depreciation Expense

EBIT = $200,000 - $50,000 - $13,000 = $137,000

Next, we need to calculate Tierre's Ts, Inc.'s interest expense. We can calculate this using the following formula:

Interest Expense = Interest Paid / (1 - Tax Rate)

Assuming that Tierre's Ts, Inc. has $0 in long-term debt, it has no interest payments to make. Therefore, its interest expense is $0.

Finally, we can calculate the TIE ratio using the following formula:

TIE = EBIT / Interest Expense

TIE = $137,000 / $0 = undefined (or infinity)

The TIE ratio is undefined because the interest expense is $0. Therefore, the best answer is D, which is the only option that is not a calculated value.

Quiz 3: Analyzing Financial Statements