Question 1

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?
A)1.47
B)2.09
C)2.58
D)3.15
E)3.67

Accepted Answer

Net income = $48,560 + ($1.18 × 12,000) = $62,720; Earnings before taxes = [$62,720/(1 - 0.35)] = $96,492.31; Earnings before interest and taxes = $689,000 - $470,300 - $61,200 = $157,500; Interest = $157,500 - $96,492.31 = $61,007.69; Times interest earned = $157,500/$61,007.69 = 2.58

Question 2

Last year,Teresa's Fashions earned net income of $68,400 and had 12,000 shares of stock outstanding.The dividends per share were $1.20.What is the dividend payout ratio?
A)21.05 percent
B)24.07 percent
C)38.60 percent
D)40.21 percent
E)44.14 percent

Accepted Answer

Dividend payout ratio = $1.20/($68,400/12,000) = 21.05 percent

Question 3

Lawler's BBQ has sales of $311,800,a profit margin of 3.9 percent,and dividends of $4,500.What is the plowback ratio?
A)46.32 percent
B)49.78 percent
C)50.23 percent
D)58.09 percent
E)62.99 percent

Accepted Answer

Plowback ratio = 1 - [$4,500/(0.039 × $311,800)] = 62.99 percent

Question 4

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?
A)4.68 percent
B)5.29 percent
C)6.33 percent
D)6.97 percent
E)8.19 percent

Accepted Answer

Sustainable growth = 0.06 = {[PM × (1/1.25) × (1 + 0.45)] × (1 - 0.30)}/1 - {[PM × (1/1.25) × (1 + 0.45)] × (1 - 0.30)} = 6.97 percent

Question 5

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?
A)7.38 percent
B)8.27 percent
C)9.11 percent
D)9.62 percent
E)10.38 percent

Accepted Answer

Sustainable growth rate = {$11,800/[$92,000/(1 + 0.45)]} × [($11,800 - $6,500)/$11,800]/{1 - {$11,800/[$92,000/(1 + 0.45)]} × [($11,800 - $6,500)/$11,800]} = 9.11 percent

Question 6

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?
A)$860,333
B)$984,320
C)$1,088,500
D)$1,117,200
E)$1,257,480

Accepted Answer

Total asset turnover = 1.40 × $798,000 = $1,117,200

Question 7

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?
A)6.92 percent
B)8.00 percent
C)8.45 percent
D)9.03 percent
E)9.29 percent

Accepted Answer

Debt-equity ratio = 0.42/(1 - 0.42) = 0.72414; Return on assets = 0.138/(1 + 0.72414) = 8.00 percent

Question 8

Suppose Gallinger Corp.has the following characteristics:
A)$9,500,000
B)$10,500,000
C)$11,500,000
D)$12,000,000
E)$13,500,000

Accepted Answer

Shares outstanding: 1,000,000
Current share price: $10
Total debt: $1,000,000
Total cash: $500,000
Based on the formula above, what is the enterprise value of Gallinger Corp.?

Question 9

Last year,a firm earned $31,200 in net income on sales of $217,600.The company paid $8,500 in dividends.What is the dividend payout ratio?
A)3.45 percent
B)4.71 percent
C)16.25 percent
D)22.85 percent
E)27.24 percent

Accepted Answer

Dividend payout ratio = $8,500/$31,200 = 27.24 percent

Question 10

A firm has a return on equity of 16 percent,a return on assets of 11 percent,and a 30 percent dividend payout ratio.What is the sustainable growth rate?
A)5.72 percent
B)6.84 percent
C)7.12 percent
D)11.38 percent
E)12.61 percent

Accepted Answer

Sustainable growth rate = [0.16 × (1 - 0.30)]/{1 - [0.16 × (1 - 0.30)]} = 12.61 percent

Question 11

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?
A)$41,147.09
B)$54,311.29
C)$63,667.68
D)$48,887.02
E)$50,458.95

Accepted Answer

Return on equity = 0.079 × (1 + 0.84) = 0.14536; Net income = 0.14536 × $438,000 = $63,667.68

Question 12

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?
A)11.42 percent
B)12.67 percent
C)13.09 percent
D)13.48 percent
E)15.03 percent

Accepted Answer

Return on equity = ($128,470/$1,419,415) × (1 + 0.40)] = 12.67 percent

Question 13

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.
A)0.15; 1.02; 0.35
B)0.15; 2.02; 0.35
C)0.15; 0.98; 2.86
D)0.16; 0.98; 0.35
E)0.16; 1.02; 2.86

Accepted Answer

Profit margin = $1,220/$8,200 = 0.15; Total asset turnover = $8,200/$8,340 = 0.98; Equity multiplier = $8,340/($1,500 + $1,420) = 2.86

Question 14

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?
A)24.78 days
B)26.78 days
C)29.09 days
D)31.15 days
E)33.33 days

Accepted Answer

Accounts receivable turnover = $5,338,411/$391,648 = 13.63064; Days' sales in receivables = 365/13.63064 = 26.78 days

Question 15

Adell Furniture has a profit margin of 8.2 percent and a dividend payout ratio of 40 percent.What is the plowback ratio?
A)8.20 percent
B)27.33 percent
C)54.60 percent
D)60.00 percent
E)68.20 percent

Accepted Answer

Plowback ratio = 1 - 0.40 = 0.60

Question 16

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?
A)$841.35
B)$887.16
C)$904.10
D)$911.16
E)$927.46

Accepted Answer

Return on equity = 0.14 = (Net income/$9,315) × (1 + 0.55); Net income = $841.35

Question 17

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?
A)3.54
B)3.81
C)3.99
D)4.27
E)4.86

Accepted Answer

Book value per share = $13,892,300/2,500,000 = $5.55692; Market-to-book = $27/$5.55692 = 4.86

Question 18

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?
A)10.48 percent
B)11.29 percent
C)11.79 percent
D)12.08 percent
E)12.39 percent

Accepted Answer

Sustainable growth rate = {[$5,100/($11,300 + $54,900 - $23,800)] × [($5,100 - $800)/$5,100]}/{1 - {[$5,100/($11,300 + $54,900 - $23,800)] × [($5,100 - $800)/$5,100]}} = 11.29 percent

Question 19

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?
A)0.98
B)1.06
C)1.21
D)1.44
E)1.59

Accepted Answer

Internal growth rate = 0.045 = [0.075 × TAT × (1 - 0.60)]/{1 - [0.075 × TAT × (1 - 0.60)]}; TAT = 1.44

Question 20

Assume this is your first day on the job as the new chief financial officer of a midsize 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.

Accepted Answer

The answer of Assume this is your first day on...

Quiz 3: Working With Financial Statements

Last year,Teresa's Fashions earned net income of $68,400 and had 12,000 shares of stock outstanding.The dividends per share were $1.20.What is the dividend payout ratio?

Lawler's BBQ has sales of $311,800,a profit margin of 3.9 percent,and dividends of $4,500.What is the plowback ratio?

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?

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?

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?

Suppose Gallinger Corp.has the following characteristics:

Last year,a firm earned $31,200 in net income on sales of $217,600.The company paid $8,500 in dividends.What is the dividend payout ratio?

A firm has a return on equity of 16 percent,a return on assets of 11 percent,and a 30 percent dividend payout ratio.What is the sustainable growth rate?

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?

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?

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.

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?

Adell Furniture has a profit margin of 8.2 percent and a dividend payout ratio of 40 percent.What is the plowback ratio?

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?

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?

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?

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?

Assume this is your first day on the job as the new chief financial officer of a midsize 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.