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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

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

17,346.0 $42,000.0

$7,980.0 5,880.0 4,620.0 $18,480.0 10,920.0 $29,400.0 3,360.0 9,240.0 $12,600.0 $42,000.0

Income Statement (Millions of $) Net sales Operating costs except deprn 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 $58,800.00 $54,978.0 $1,029.0 $2,793.0 1,050.0 $1,743.0 $610.1 $1,133.0

175.00 $509.83 6.25%

Federal plus state income tax rate Year-end stock price What is the firm's total assets turnover? Answer Selected Answer:

35% $77.69

1.4 0

Correct Answer:

1.4 0

Question 3 1 out of 1 points

Companies E and P each reported the same earnings per share (EPS), but Company E's stock trades at a higher price. Which of the following statements is CORRECT? Answer Selected Answer:

Company E trades at a higher P/E ratio.

Correct 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. It will require $565,000 of assets, and it projects $452,800 of sales and $354,300 of operating costs for the first

year. Management is quite sure of these numbers because of contracts with its customers and suppliers. It can borrow at a rate of 7.5%, but the bank requires it to have a TIE of at least 4.0, and if the TIE falls below this level the bank will call in the loan and the firm will go bankrupt. What is the maximum debt ratio the firm can use? (Hint: Find the maximum dollars of interest, then the debt that produces that interest, and then the related debt ratio.) Answer Selected Answer:

58.11 %

Correct Answer:

58.11 %

Question 5 0 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 Net plant and equipment 2010 $1,554.0 9,660.0 13,440.0 $24,654.0 17,346.0

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

$7,980.0 5,880.0 4,620.0 $18,480.0 10,920.0 $29,400.0 3,360.0 9,240.0 $12,600.0 $42,000.0

Income Statement (Millions of $) Net sales Operating costs except deprn 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 $58,800.00 $54,978.0 $1,029.0 $2,793.0 1,050.0 $1,743.0 $610.1 $1,133.0

175.00 $509.83 6.25% 35% $77.69

What is the firm's cash flow per share? Answer Selected Answer:

$10. 06

Correct Answer:

$12. 35

Question 6 0 out of 1 points

Last year Urbana Corp. had $197,500 of assets, $307,500 of sales, $19,575 of net income, and a debt-to-total-assets ratio of 37.5%. The new CFO believes a new computer program will enable it to reduce costs and thus raise net income to $33,000. Assets, sales, and the debt ratio would not be affected. By how much would the cost reduction improve the ROE? Answer Selected Answer:

11.42 %

Correct Answer:

10.88 %

Question 7 1 out of 1 points

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? Answer Selected Answer:

$182,0 83

Correct Answer:

$182,0 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 $ 14,000 70,000 210,000 $294,000 126,000 $420,000 $280,000 $ 21,000 Accounts payable Other current liabilities Total CL Long-term debt Common equity Total liab. and equity $ 42,000 28,000 $ 70,000 70,000 280,000 $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, 2.70, without affecting either sales or net income. Assuming that inventories are sold off and not replaced to get the current ratio to the target level, and that the funds generated are used to buy back common stock at book value, by how much would the ROE change? Answer

Selected Answer:

4.50 %

Correct Answer:

4.50 %

Question 9 1 out of 1 points

Last year Altman Corp. had $205,000 of assets, $303,500 of sales, $18,250 of net income, and a debt-to-total-assets ratio of 41%. The new CFO believes the firm has excessive fixed assets and inventory that could be sold, enabling it to reduce its total assets to $152,500. Sales, costs, and net income would not be affected, and the firm would maintain the 41% debt ratio. By how much would the reduction in assets improve the ROE? Answer Selected Answer:

5.19 %

Correct Answer:

5.19 %

Question 10 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 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 $7,980.0 5,880.0 4,620.0 $18,480.0 10,920.0 $29,400.0 3,360.0 9,240.0 $12,600.0 $42,000.0 2010 $1,554.0 9,660.0 13,440.0 $24,654.0 17,346.0 $42,000.0

Income Statement (Millions of $) Net sales Operating costs except deprn Depreciation Earnings bef int and taxes (EBIT) Less interest

2010 $58,800.00 $54,978.0 $1,029.0 $2,793.0 1,050.0

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:

$1,743.0 $610.1 $1,133.0

175.00 $509.83 6.25% 35% $77.69

12. 0

Correct Answer:

12. 0

Monday, May 21, 2012 3:18:54 PM EDT OK