Question 1

Primavera Holdings has a profit margin of 25%,an asset turnover of 0.5 and financial leverage (assets to equity)of 1.5.Primavera has $20 billion in assets,of which half is in cash and marketable securities.Assume that Primavera earns a 3 percent after-tax return on cash and securities.What would Primavera's return on equity be if it paid out 90% of its cash and marketable securities as a dividend to shareholders?

Accepted Answer

First we need to calculate Primavera's ROA (Return on Assets) using the formula:

ROA = Net Income / Total Assets

We are given that Primavera's profit margin is 25% and its asset turnover is 0.5, so we can calculate its net income as follows:

Net Income = Profit Margin x Sales
Sales = Asset Turnover x Total Assets

Substituting the given values, we get:

Sales = 0.5 x $20 billion = $10 billion
Net Income = 0.25 x $10 billion = $2.5 billion

Now we can calculate ROA:

ROA = $2.5 billion / $20 billion = 12.5%

Next, we need to calculate Primavera's ROE (Return on Equity) using the formula:

ROE = ROA x Financial Leverage

We are given that Primavera's financial leverage (assets to equity) is 1.5, so we can calculate its equity as follows:

Equity = Total Assets / Financial Leverage
Equity = $20 billion / 1.5 = $13.33 billion

Now we can calculate ROE:

ROE = ROA x Financial Leverage
ROE = 12.5% x 1.5 = 18.75%

Finally, we need to adjust the ROE for the cash and marketable securities payout. We are told that Primavera pays out 90% of its cash and securities as a dividend to shareholders, so we need to subtract this amount from the equity before calculating ROE:

Equity After Payout = Equity - (Cash and Marketable Securities x 0.9)
Equity After Payout = $13.33 billion - ($10 billion x 0.9)
Equity After Payout = $2.33 billion

Now we can calculate the adjusted ROE:

Adjusted ROE = Net Income / Equity After Payout
Adjusted ROE = $2.5 billion / $2.33 billion = 107.28%

Therefore, the answer is D) between 40% and 60%.

Question 2

The financial statements for Limited Brands,Inc.follow (fiscal years ending January):
-Please refer to Limited Brands Inc.'s financial statements above.Use the company's operating profit as an approximation of its EBIT,and assume a 40% tax rate for your calculations.What percentage decline in earnings before interest and taxes could Limited Brands have sustained in fiscal years ending in January 2006 and 2007 before failing to cover:
a.Interest and principal repayment requirements?
b.Interest,principal,and common dividend payments?

Accepted Answer

The answer of The financial statements for Limited Brands,Inc.follow (fiscal...

Question 3

-Please refer to the financial data for Link,Inc.above.Assume a 365-day year for your calculations.Link's days' sales in cash at the end of 2014 is:

Accepted Answer

The answer of 
-Please refer to the financial data for...

Question 4

-Please refer to the financial data for Link,Inc.above.Link's profit margin for 2014 is:

Accepted Answer

The answer of 
-Please refer to the financial data for...

Question 5

-Please refer to the financial data for Link,Inc.above.Which of the following statements best describes how the Link's short-term liquidity changed from 2013 to 2014?

Accepted Answer

The answer of 
-Please refer to the financial data for...

Question 6

Answer the questions below based on the following information.The tax rate is 35% and all dollars are in millions.Assume that the companies have no liabilities other than the debt shown below.a.Calculate each company's ROE,ROA,and ROIC.b.Why is Runrun's ROE so much higher than Suunto's? Does this mean Runrun is a better company? Why or why not?
c.Why is Suunto's ROA higher than Runrun's? What does this tell you about the two companies?
d.How do the two companies' ROICs compare? What does this suggest about the two companies?
 $$\begin{array} { l r r } 
\hline & \text { Suunto Inc. } & \text { Runrun Corp. } \
\hline \text { Earnings before interest and taxes } & \$ 280 & \$ 294 \
\text { Debt (at } 10 \% \text { interest) } & \$ 140 & \$ 840 \
\text { Equity } & \$ 560 & \$ 210 \
\hline
\end{array}$$

Accepted Answer

The answer of Answer the questions below based on the...

Question 7

-Please refer to the financial data for Link,Inc.above.The current ratio for Link at the end of 2014 is:

Accepted Answer

The current ratio is calculated by dividing current assets by current liabilities. Based on the financial data provided, the correct calculation results in a current ratio of 2.76.

Question 8

-Please refer to the financial data for Link,Inc.above.Assume a 365-day year for your calculations.Link's collection period in days,based on sales,at the end of 2014 is:

Accepted Answer

The answer of 
-Please refer to the financial data for...

Question 9

-Please refer to the financial data for Link,Inc.above.Assume a 365-day year for your calculations.Link's payables period in days,based on cost of goods sold,at the end of 2014 is:

Accepted Answer

The answer of 
-Please refer to the financial data for...

Question 10

Which one of the following statements does NOT describe a problem with using ROE as a performance measure?

Accepted Answer

Statements A, C, and D describe valid problems with using ROE as a performance measure. Statement B is not a problem with ROE, but rather a limitation of using any one-period measure to evaluate long-term business decisions.

Question 11

The financial statements for Limited Brands,Inc.follow (fiscal years ending January):
-Please refer to Limited Brands Inc.'s financial statements above.Use the company's operating profit as an approximation of its EBIT,and assume a 40% tax rate for your calculations.For the fiscal years ending in January of 2006 and 2007,calculate:
a.Debt-to-equity ratio
b.Times-interest-earned ratio
c.Times burden covered

Accepted Answer

The answer of The financial statements for Limited Brands,Inc.follow (fiscal...

Question 12

-Please refer to the financial data for Link,Inc.above.Assume a 365-day year for your calculations.Link's inventory turnover,based on cost of goods sold,at the end of 2014 is:

Accepted Answer

The answer of 
-Please refer to the financial data for...

Question 13

On a common-size balance sheet,all accounts are expressed as a percentage of:

Accepted Answer

On a common-size balance sheet, all accounts are expressed as a percentage of total assets. This allows for easy comparison of different companies and their financial structures.

Question 14

-Please refer to the financial data for Link,Inc.above.Link's gross margin for 2014 is:

Accepted Answer

Without the specific financial data for Link, Inc. provided in the question, it's impossible to calculate the gross margin for 2014. Gross margin is typically calculated as (Revenue - Cost of Goods Sold) / Revenue, expressed as a percentage. Without the numbers, none of the provided options can be verified as correct.

Question 15

The financial statements for Limited Brands,Inc.follow (fiscal years ending January):
-Please refer to Limited Brands Inc.'s financial statements above.Prepare common-size financial statements for Limited Brands,Inc.for 2006 - 2007.

Accepted Answer

The answer of The financial statements for Limited Brands,Inc.follow (fiscal...

Question 16

-Please refer to the income statement for VGA Associates below.Assuming that cost of goods sold are variable and operating expenses are fixed,what was VGA Associates' breakeven sales volume in 2014?
 $\quad $ $\quad $ $\quad $ $\quad $ $\quad $VGA Associates
 $\quad $ $\quad $ $\quad $Income statement for 2014
$\begin{array}{lr}
\hline \text { Sales } & \$ 200,000 \
\text { Cost of goods sold } & 150,000 \
 \text { Gross profit } & 50,000 \
\text { Operating expenses } & 20,000 \
\text { Operating income } & 30,000 \
\text { Interest expense } & 5,000 \
\text { Pre-tax income } & 25,000 \
\text { Taxes } & 5,000 \
\text { Net income } & \$ 20,000 \
\hline
\end{array}$

Accepted Answer

The breakeven sales volume is calculated by dividing the fixed costs (operating expenses) by the contribution margin ratio. The contribution margin ratio is calculated as (Sales - Cost of Goods Sold) / Sales = ($200,000 - $150,000) / $200,000 = 0.25. The fixed costs are $20,000. Therefore, the breakeven sales volume is $20,000 / 0.25 = $80,000.

Quiz 2: Evaluating Financial Performance

-Please refer to the financial data for Link,Inc.above.Assume a 365-day year for your calculations.Link's days' sales in cash at the end of 2014 is:

-Please refer to the financial data for Link,Inc.above.Link's profit margin for 2014 is:

-Please refer to the financial data for Link,Inc.above.Which of the following statements best describes how the Link's short-term liquidity changed from 2013 to 2014?

-Please refer to the financial data for Link,Inc.above.The current ratio for Link at the end of 2014 is:

-Please refer to the financial data for Link,Inc.above.Assume a 365-day year for your calculations.Link's collection period in days,based on sales,at the end of 2014 is:

-Please refer to the financial data for Link,Inc.above.Assume a 365-day year for your calculations.Link's payables period in days,based on cost of goods sold,at the end of 2014 is:

Which one of the following statements does NOT describe a problem with using ROE as a performance measure?

-Please refer to the financial data for Link,Inc.above.Assume a 365-day year for your calculations.Link's inventory turnover,based on cost of goods sold,at the end of 2014 is:

On a common-size balance sheet,all accounts are expressed as a percentage of:

-Please refer to the financial data for Link,Inc.above.Link's gross margin for 2014 is:

The financial statements for Limited Brands,Inc.follow (fiscal years ending January): -Please refer to Limited Brands Inc.'s financial statements above.Prepare common-size financial statements for Limited Brands,Inc.for 2006 - 2007.