1.

Which of the following would indicate an improvement in a company's financial position, holding
other things constant?
a. The current and quick ratios both increase.
b. The inventory and total assets turnover ratios both decline.
c. The debt ratio increases.
d. The profit margin declines.
e. The EBITDA coverage ratio declines.

2. Arshadi Corp.'s sales last year were $52,000, and its total assets were $22,000. What was its total assets
turnover ratio (TATO)?
a. 2.03
b. 2.13
c. 2.25
d. 2.36
e. 2.48

3. Orono Corp.'s sales last year were $435,000, its operating costs were $362,500, and its interest charges
were $12,500. What was the firm's times interest earned (TIE) ratio?
a. 4.72
b. 4.97
c. 5.23
d. 5.51
e. 5.80

4. Northwest Lumber had a profit margin of 5.25%, a total assets turnover of 1.5, and an equity multiplier
of 1.8. What was the firm's ROE?
a. 12.79%
b. 13.47%
c. 14.18%
d. 14.88%
e. 15.63%

5. Branch Corp.'s total assets at the end of last year were $315,000 and its net income after taxes was
$22,750. What was its return on total assets?
a. 7.22%
b. 7.58%
c. 7.96%
d. 8.36%
e. 8.78%

6. An investor is considering starting a new business. The company would require $475,000 of assets, and
it would be financed entirely with common stock. The investor will go forward only if she thinks the firm
can provide a 13.5% return on the invested capital, which means that the firm must have an ROE of
13.5%. How much net income must be expected to warrant starting the business?
a. $52,230
b. $54,979
c. $57,873
d. $60,919
e. $64,125

7. Bonner Corp.'s sales last year were $415,000, and its year-end total assets were $355,000. The average
firm in the industry has a total assets turnover ratio (TATO) of 2.4. Bonner's new CFO believes the firm
has excess assets that can be sold so as to bring the TATO down to the industry average without affecting
sales. By how much must the assets be reduced to bring the TATO to the industry average, holding sales
constant?
a. $164,330
b. $172,979
c. $182,083
d. $191,188
e. $200,747

8. The balance for a firm is shown below.

Balance Sheet (Millions of $)

Assets 2012
Cash and securities $ 1,554.0
Accounts receivable 9,660.0
Inventories 13,440.0
Total current assets $24,654.0
Net plant and equipment 17,346.0
Total assets $42,000.0
Liabilities and Equity
Accounts payable $ 7,980.0
Notes payable 5,880.0
Accruals 4,620.0
Total current liabilities $18,480.0
Long-term bonds 10,920.0
Total debt $29,400.0
Common stock 3,360.0
Retained earnings 9,240.0
Total common equity $12,600.0
Total liabilities and equity $42,000.0

What is the firm's equity multiplier?

a. 3.33
b. 3.50
c. 3.68
d. 3.86
e. 4.05