1 out of 1 points

Which of the following statements is CORRECT? Answer Selected Answer:

Suppose a firm's total assets turnover ratio falls from 1.0 to 0.9, but at the same time its profit margin rises from 9% to 10% and its debt increases from 40% of total assets to 60%. Under these conditions, the ROE will increase.

Correct Answer:

Suppose a firm's total assets turnover ratio falls from 1.0 to 0.9, but at the same time its profit margin rises from 9% to 10% and its debt increases from 40% of total assets to 60%. Under these conditions, the ROE will increase.

Question 2 1 out of 1 points

The balance sheet and income statement shown below are for Pettijohn Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over.

Balance Sheet (Millions of $) Assets Cash and securities Accounts receivable Inventories Total current assets 2010 $1,554.0 9,660.0 13,440.0 $24,654.0

0 10.0 $610.360.0 $42.880.0 $1.00 $509.600.00 $54.0 Income Statement (Millions of $) Net sales Operating costs except depr’n Depreciation Earnings bef int and taxes (EBIT) Less interest Earnings before taxes (EBT) Taxes Net income Other data: Shares outstanding (millions) Common dividends Int rate on notes payable & L-T bonds 2010 $58.050.1 $1.0 $2.0 $1.0 5.25% .0 $7.000.0 4.920.000.743.0 $18.620.793.240.Net plant and equipment Total assets Liabilities and Equity Accounts payable Notes payable Accruals Total current liabilities Long-term bonds Total debt Common stock Retained earnings Total common equity Total liabilities and equity 17.029.83 6.346.0 $42.480.400.133.0 1.0 175.980.800.0 3.0 $29.0 $12.0 9.978.

but Company E's stock trades at a higher price.4 0 Question 3 1 out of 1 points Companies E and P each reported the same earnings per share (EPS). Correct Answer: Company E trades at a higher P/E ratio.300 of operating costs for the first . Which of the following statements is CORRECT? Answer Selected Answer: Company E trades at a higher P/E ratio. Question 4 1 out of 1 points A new firm is developing its business plan.800 of sales and $354.000 of assets. and it projects $452.4 0 Correct Answer: 1. It will require $565.Federal plus state income tax rate Year-end stock price What is the firm's total assets turnover? Answer Selected Answer: 35% $77.69 1.

660.5%. It can borrow at a rate of 7.0 $24. and if the TIE falls below this level the bank will call in the loan and the firm will go bankrupt.654.0.11 % Question 5 0 out of 1 points The balance sheet and income statement shown below are for Pettijohn Inc. then the debt that produces that interest.) Answer Selected Answer: 58.0 9. What is the maximum debt ratio the firm can use? (Hint: Find the maximum dollars of interest. none of its debt must be retired during the next 5 years.0 . and the notes payable will be rolled over. Management is quite sure of these numbers because of contracts with its customers and suppliers.346. Note that the firm has no amortization charges. but the bank requires it to have a TIE of at least 4.0 17. Balance Sheet (Millions of $) Assets Cash and securities Accounts receivable Inventories Total current assets Net plant and equipment 2010 $1.440.11 % Correct Answer: 58.554. it does not lease any assets.year. and then the related debt ratio.0 13.

400.0 9.69 .0 $29.0 $1.00 $54.0 1.360.0 $42.0 $18.978.0 Income Statement (Millions of $) Net sales Operating costs except depr’n Depreciation Earnings bef int and taxes (EBIT) Less interest Earnings before taxes (EBT) Taxes Net income Other data: Shares outstanding (millions) Common dividends Int rate on notes payable & L-T bonds Federal plus state income tax rate Year-end stock price 2010 $58.600.0 $7.1 $1.00 $509.620.83 6.0 $2.480.0 10.880.980.0 175.029.050.25% 35% $77.Total assets Liabilities and Equity Accounts payable Notes payable Accruals Total current liabilities Long-term bonds Total debt Common stock Retained earnings Total common equity Total liabilities and equity $42.000.0 $1.793.743.000.0 5.240.0 $610.0 3.0 $12.0 4.800.920.133.

had $197.000. The new CFO believes a new computer program will enable it to reduce costs and thus raise net income to $33.88 % Question 7 1 out of 1 points Bonner Corp.500 of assets. The average firm in the industry has a total assets turnover ratio (TATO) of 2.5%. $19. and the debt ratio would not be affected. By how much would the cost reduction improve the ROE? Answer Selected Answer: 11. sales.500 of sales.'s sales last year were $415. 35 Question 6 0 out of 1 points Last year Urbana Corp.4.42 % Correct Answer: 10. and its year-end total assets were $355.000. 06 Correct Answer: $12. and a debt-to-total-assets ratio of 37. Assets. $307.What is the firm's cash flow per share? Answer Selected Answer: $10. Bonner's new CFO believes the firm has excess assets that .575 of net income.000.

can be sold so as to bring the TATO down to the industry average without affecting sales. and equity $ 42.000 $420. 2.000 210. holding sales constant? Answer Selected Answer: $182. Assuming that inventories are sold off and not replaced to get the current ratio to the target level.000 70.000 $ 21.000 $ 70.0 83 Correct Answer: $182.000 70.000 126.000 $294.000 280. by how much would the ROE change? Answer . and that the funds generated are used to buy back common stock at book value.0 83 Question 8 1 out of 1 points Muscarella Inc. has the following balance sheet and income statement data: Cash Receivables Inventories Total CA Net fixed assets Total assets Sales Net income $ 14. By how much must the assets be reduced to bring the TATO to the industry average.000 28.000 Accounts payable Other current liabilities Total CL Long-term debt Common equity Total liab. without affecting either sales or net income.000 $280.000 $420.000 The new CFO thinks that inventories are excessive and could be lowered sufficiently to cause the current ratio to equal the industry average.70.

and the notes payable will be rolled over. $303.19 % Question 10 1 out of 1 points The balance sheet and income statement shown below are for Pettijohn Inc.500.50 % Correct Answer: 4.50 % Question 9 1 out of 1 points Last year Altman Corp.250 of net income. none of its debt must be retired during the next 5 years. .500 of sales. had $205. Note that the firm has no amortization charges.000 of assets. costs.19 % Correct Answer: 5. By how much would the reduction in assets improve the ROE? Answer Selected Answer: 5. and the firm would maintain the 41% debt ratio. Sales. $18. it does not lease any assets. The new CFO believes the firm has excessive fixed assets and inventory that could be sold. enabling it to reduce its total assets to $152.Selected Answer: 4. and net income would not be affected. and a debt-to-total-assets ratio of 41%.

980.0 9.000.0 1.880.346.240.0 .0 $12.0 $29.0 $1.654.00 $54.600.0 10.0 4.0 9.0 $2.029.793.000.360.0 3.0 17.0 Income Statement (Millions of $) Net sales Operating costs except depr’n Depreciation Earnings bef int and taxes (EBIT) Less interest 2010 $58.0 $18.0 5.0 $42.800.660.0 13.Balance Sheet (Millions of $) Assets Cash and securities Accounts receivable Inventories Total current assets Net plant and equipment Total assets Liabilities and Equity Accounts payable Notes payable Accruals Total current liabilities Long-term bonds Total debt Common stock Retained earnings Total common equity Total liabilities and equity $7.440.0 $42.400.978.554.0 $24.480.620.050.920.0 2010 $1.

Earnings before taxes (EBT) Taxes Net income Other data: Shares outstanding (millions) Common dividends Int rate on notes payable & L-T bonds Federal plus state income tax rate Year-end stock price What is the firm's P/E ratio? Answer Selected Answer: $1.133.0 $610. 2012 3:18:54 PM EDT OK .1 $1.0 175. May 21. 0 Monday.83 6.743.69 12.00 $509. 0 Correct Answer: 12.25% 35% $77.

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