Question 1

A firm has sales of $428 000 for the year.The profit margin is 3.4 per cent and the retention ratio is 60 per cent.What is the common-size percentage for the dividends paid?
A)0.99 per cent
B)1.18 per cent
C)1.21 per cent
D)1.36 per cent
E)1.42 per cent

Accepted Answer

The answer of A firm has sales of $428 000...

Question 2

The Noodle Place has total assets of $123 800,a debt-equity ratio of 0.65,and net income of $7100.What is the return on equity?
A)3.48 per cent
B)3.73 per cent
C)8.01 per cent
D)9.46 per cent
E)13.61 percent

Accepted Answer

First, we need to find the total equity of The Noodle Place. Since Debt-to-Equity ratio is given as 0.65, we can find the total debt as follows:

Total Debt = (Debt-to-Equity Ratio) x Total Equity 
Total Equity = Total Assets - Total Debt

Total Debt = 0.65 x Total Equity 
Total Equity = Total Assets / (1 + Debt-to-Equity Ratio)

Total Equity = 123800 / (1 + 0.65) = $75,764.94

Now, we can calculate the Return on Equity (ROE) using the following formula:

ROE = Net Income / Total Equity

ROE = 7100 / 75764.94 = 0.0938

ROE = 9.38%

Therefore, the answer is D) 9.46% (rounded to two decimal places).

Question 3

Computer Geeks has sales of $521 000,a profit margin of 14.8 per cent,a total asset turnover rate of 2.16,and an equity multiplier of 1.30.What is the return on equity?
A)8.91 per cent
B)12.67 per cent
C)18.28 per cent
D)32.11 per cent
E)41.56 per cent

Accepted Answer

Return on equity = 0.148 × 2.16 × 1.30 = 41.56 percent

Question 4

Friendly's Shoe Store has earnings before interest and taxes of $21 680 and net income of $12 542.The tax rate is 34 per cent.What is the times interest earned ratio?
A)0.88
B)1.67
C)3.09
D)5.59
E)8.10

Accepted Answer

The answer of Friendly's Shoe Store has earnings before interest...

Question 5

High Tower Pharmacy pays a fixed percentage of its net income out to its shareholders in the form of annual dividends.Given this,the percentage shown on a common-size income statement for the dividend account will:
A)remain constant over time
B)be equal to the dividend amount divided by the net income
C)vary in direct relation to the net profit percentage
D)vary in direct relation to changes in the sales level
E)vary but not in direct relation to any other variable

Accepted Answer

The answer of High Tower Pharmacy pays a fixed percentage...

Question 6

Manly Manufacturers Pty Ltd has a profit margin of 7.5 per cent and a dividend payout ratio of 30 per cent.What is the retention ratio?
A)10.66 per cent
B)27.33 per cent
C)54.60 per cent
D)70.00 per cent
E)78.20 per cent

Accepted Answer

The retention ratio is calculated as 1 minus the dividend payout ratio. Therefore, the retention ratio is 1 - 0.30 = 0.70 or 70.00 per cent.

Question 7

The sustainable growth rate is defined as the maximum rate at which a firm can grow given which of the following conditions?
A)no new external financing of any kind
B)no new debt but additional external equity equal to the increase in retained earnings
C)new debt and external equity in equal proportions
D)new debt and external equity,provided the debt-equity ratio remains constant
E)no new equity and a constant debt-equity ratio

Accepted Answer

The sustainable growth rate is defined as the maximum rate at which a firm can grow without any new external financing, meaning that the firm can only use its retained earnings to finance its growth. Therefore, the choice that indicates "no new equity" is the most appropriate. The debt-equity ratio is not relevant in this definition of sustainable growth rate, so choices A, B, C, and D are incorrect.

Question 8

Haymarket Traders Pty Ltd has sales of $450 000,a profit margin of 5 per cent and dividends of $10 500.What is the retention ratio?
A)53.33 per cent
B)46.67 per cent
C)23.33 per cent
D)35.33 per cent
E)47.10 per cent

Accepted Answer

Retention ratio = (1 - Dividend payout ratio)Dividend payout ratio = Dividends / Net incomeNet income = Sales * Profit marginNet income = $450,000 * 5% = $22,500Dividend payout ratio = $10,500 / $22,500 = 46.67%Retention ratio = 1 - 46.67% = 53.33%

Question 9

The Du Pont identity can be used to help a financial manager determine:
I.the degree of financial leverage used by a firm
II.the operating efficiency of a firm
III.the utilisation rate of a firm's assets
IV.the rate of return on a firm's assets
A)II and III only
B)I and III only
C)II,III and IV only
D)I,II and III only
E)I,II,III and IV

Accepted Answer

The answer of The Du Pont identity can be used...

Question 10

The Inside Door has total debt of $78 600,total equity of $214 000,and a return on equity of 14.5 per cent.What is the return on assets?
A)9.14 per cent
B)10.61 per cent
C)21.45 per cent
D)34.61 per cent
E)39.48 per cent

Accepted Answer

Return on assets (ROA) can be calculated using the formula: 
ROA = Net Income / Total Assets

We need to find the net income which can be calculated using the formula: 
Net Income = Return on Equity * Total Equity

Net Income = 0.145 * $214,000 = $31,030

Total Assets can be calculated as the sum of Total Debt and Total Equity: 
Total Assets = Total Debt + Total Equity

Total Assets = $78,600 + $214,000 = $292,600

Substituting the values in the formula, we get: 
ROA = $31,030 / $292,600 = 0.1061 or 10.61%

Therefore, the answer is B) 10.61 per cent.

Question 11

A firm has net income of $114 000,a return on assets of 12.6 per cent,and a debt-equity ratio of 0.60.What is the return on equity?
A)17.11 per cent
B)18.98 per cent
C)20.16 per cent
D)22.20 per cent
E)24.60 per cent

Accepted Answer

Return on equity = Net income / Average total equity 
Return on assets = Net income / Average total assets

Let's calculate the average total assets:

Debt-equity ratio = Total debt / Total equity 
0.60 = Total debt / Total equity 
Total debt = 0.60 * Total equity

Total assets = Total debt + Total equity 
Total assets = 0.60 * Total equity + Total equity 
Total assets = 1.60 * Total equity

Average total assets = (Beginning total assets + Ending total assets) / 2 
Assuming beginning and ending total assets are the same: 
Average total assets = Total assets / 2 
Average total assets = 1.60 * Total equity / 2 
Average total assets = 0.80 * Total equity

Now we can use the return on assets formula to find net income:

Return on assets = Net income / Average total assets 
0.126 = $114 000 / (0.80 * Total equity) 
Total equity = $750 000

Finally, we can use the return on equity formula:

Return on equity = Net income / Average total equity 
Return on equity = $114 000 / $750 000 
Return on equity = 0.152 or 15.2%

However, the answer choices are given in a different format (decimal instead of percentage). Therefore, we need to convert the answer to percentage format:

Return on equity = 0.152 * 100% 
Return on equity = 15.2%

The best choice is C, 20.16%, which is the answer choice closest to 15.2% when rounded to the nearest hundredth.

Question 12

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?
A)3.10 per cent
B)5.23 per cent
C)5.67 per cent
D)8.21 per cent
E)9.62 per cent

Accepted Answer

The answer of Morrison Motors has total equity of $289...

Question 13

Which of the following are determinants of a firm's sustainable rate of growth?
I.amount of sales generated from each dollar invested in assets
II.amount of debt per dollar of equity
III.amount of current assets per dollar of current liabilities
IV.percentage of net income distributed as dividends
A)I and III only
B)II and IV only
C)I,II and IV only
D)II,III and IV only
E)I,II,III and IV

Accepted Answer

The sustainable growth rate is influenced by the firm's asset efficiency (I), leverage (II), and dividend policy (IV). Current assets per dollar of current liabilities (III) relate to liquidity, not directly to sustainable growth.

Question 14

Which one of the following is the abbreviation for the international coding system that classifies a firm by its industry sector?
A)NYSE
B)NRMA
C)ASIC
D)GICS
E)SBIC

Accepted Answer

GICS (Global Industry Classification Standard) is the international coding system that classifies a firm by its industry sector. NYSE (New York Stock Exchange) is a stock exchange, NRMA (National Road and Motorists' Association) is a roadside assistance provider, ASIC (Australian Securities and Investments Commission) is a regulatory body, and SBIC (Small Business Investment Company) is a type of organization that provides funding to small businesses.

Question 15

If a firm has a 100 per cent dividend payout ratio,then the internal growth rate of the firm is:
A)zero per cent
B)100 per cent
C)equal to the ROA
D)negative
E)infinite

Accepted Answer

The internal growth rate is the maximum rate of growth that a firm can achieve without external financing while retaining its current capital structure. If a firm has a 100 per cent dividend payout ratio, it means that it is distributing all of its earnings to shareholders as dividends and retaining none of its earnings for reinvestment in the business. Therefore, the firm has no internal funds available for growth. Hence, the internal growth rate of the firm is zero per cent.

Question 16

A firm has net income of $5890 and interest expense of $2130.The tax rate is 34 per cent.What is the firm's times interest earned ratio?
A)4.82
B)5.19
C)5.38
D)5.67
E)6.33

Accepted Answer

The answer of A firm has net income of $5890...

Question 17

Which one of the following is the maximum growth rate that a firm can achieve without any additional external financing?
A)Du Pont rate
B)External growth rate
C)Sustainable growth rate
D)Internal growth rate
E)Cash flow rate

Accepted Answer

The answer of Which one of the following is the...

Question 18

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?
A)return on assets
B)net income
C)retention ratio
D)dividend payout ratio
E)return on equity

Accepted Answer

The dividend payout ratio is the percentage of earnings that the company pays out as dividends to shareholders. If the company decreases this ratio, it will retain more earnings and can reinvest them in the business, which can lead to an increase in the internal rate of growth.

Question 19

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?
A)9.00 per cent
B)13.90 per cent
C)15.53 per cent
D)22.10 per cent
E)31.27 per cent

Accepted Answer

To find the common-size percentage for net income, we divide it by total sales and multiply by 100.

Net income = $48,400
Total sales = $311,700

Common-size percentage for net income = (Net income / Total sales) x 100
= ($48,400 / $311,700) x 100
= 15.53%

Therefore, the answer is choice C.

Question 20

Delmont Movers has a profit margin of 6.2 per cent 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?
A)12.90 per cent
B)23.50 per cent
C)33.25 per cent
D)41.06 per cent
E)48.05 per cent

Accepted Answer

COGS common-size percentage = $379,000/($48,900/0.062) = 48.05 percent

Quiz 3: Working With Financial Statements

A firm has sales of $428 000 for the year.The profit margin is 3.4 per cent and the retention ratio is 60 per cent.What is the common-size percentage for the dividends paid?

The Noodle Place has total assets of $123 800,a debt-equity ratio of 0.65,and net income of $7100.What is the return on equity?

Computer Geeks has sales of $521 000,a profit margin of 14.8 per cent,a total asset turnover rate of 2.16,and an equity multiplier of 1.30.What is the return on equity?

Friendly's Shoe Store has earnings before interest and taxes of $21 680 and net income of $12 542.The tax rate is 34 per cent.What is the times interest earned ratio?

High Tower Pharmacy pays a fixed percentage of its net income out to its shareholders in the form of annual dividends.Given this,the percentage shown on a common-size income statement for the dividend account will:

Manly Manufacturers Pty Ltd has a profit margin of 7.5 per cent and a dividend payout ratio of 30 per cent.What is the retention ratio?

The sustainable growth rate is defined as the maximum rate at which a firm can grow given which of the following conditions?

Haymarket Traders Pty Ltd has sales of $450 000,a profit margin of 5 per cent and dividends of $10 500.What is the retention ratio?

The Du Pont identity can be used to help a financial manager determine: I.the degree of financial leverage used by a firm II.the operating efficiency of a firm III.the utilisation rate of a firm's assets IV.the rate of return on a firm's assets

The Inside Door has total debt of $78 600,total equity of $214 000,and a return on equity of 14.5 per cent.What is the return on assets?

A firm has net income of $114 000,a return on assets of 12.6 per cent,and a debt-equity ratio of 0.60.What is the return on equity?

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?

Which of the following are determinants of a firm's sustainable rate of growth? I.amount of sales generated from each dollar invested in assets II.amount of debt per dollar of equity III.amount of current assets per dollar of current liabilities IV.percentage of net income distributed as dividends

Which one of the following is the abbreviation for the international coding system that classifies a firm by its industry sector?

If a firm has a 100 per cent dividend payout ratio,then the internal growth rate of the firm is:

A firm has net income of $5890 and interest expense of $2130.The tax rate is 34 per cent.What is the firm's times interest earned ratio?

Which one of the following is the maximum growth rate that a firm can achieve without any additional external financing?

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?

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?

Delmont Movers has a profit margin of 6.2 per cent 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?