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FINC 3331 Chapter 4 Practice Problem Set A

1. Mooneys Pictures has an equity multiplier of 1.8, and its assets are financed with some combination of long-term debt and common equity. What is its debt ratio? a. 55.6% b. 44.4% c. 18.0% d. 35.7% e. 125.0%

Consider the following financial data for Marys Computer Stores: Balance Sheet as of December 31, 2005
Cash Receivables Inventories Total current assets $ $ 90,500 278,000 217,000 585,500 Accounts payable Notes payable Accruals Total current liabilities Long-term debt Net fixed assets Total assets $ 280,500 866,000 Common equity Total liabilities & equity $ $ $ 87,500 174,500 50,000 312,000 286,000 268,000 866,000

Income Statement for the Year Ended December 31, 2005


Sales Cost of goods sold Gross profit Operating expenses Earnings before interest and taxes (EBIT) $ $ $ 1,610,000 995,500 614,500 341,500 273,000

Interest expense Earnings before taxes (EBT) Federal and state income taxes (45 percent) Net income $ $

207,000 66,000 29,700 36,300

(Problems are on the following page.)

2. Calculate Marys days sales outstanding (DSO). Assume there are 365 days per year. a. 49.2 days b. 50.4 days c. 63.0 days d. 39.4 days e. 0.17 days

3. Calculate Marys return on assets (ROA). a. 4.19% b. 13.54% c. 6.20% d. 5.91% e. 2.25%

4. Calculate Marys total asset turnover ratio. a. 7.4 b. 4.2% c. 4.4 d. 16.7% e. 1.9

5. Calculate Marys quick ratio. a. 1.88 b. 0.98 c. 2.05 d. 1.18 e. 0.99

6. Calculate Marys debt ratio. a. 33.0% b. 30.9% c. 36.0% d. 223.1% e. 69.1%

7. Raleigh Racers has $17 billion in total assets. Its balance sheet shows $2 billion in current liabilities, $5 billion in long-term debt, and $10 billion in common equity. It has 800 million shares of common stock outstanding, and its stock price is $25 per share. What is Raleighs market-to-book ratio? a. 2.00 b. 1.18 c. 1.47 d. 1.43 e. 2.50

8. Hansen's Auto Supply has $1,360,000 in current assets and $650,000 in current liabilities. Its initial inventory level is $490,000, and it will raise funds as additional notes payable and use them to increase inventory. How much can its short-term debt (notes payable) increase without pushing its current ratio below 1.9? a. $192,105 b. $65,789 c. $405,556 d. $125,000 e. $138,889

9. Singlewide Sellers has a return on assets (ROA) of 10 percent, a 3 percent profit margin, and a return on equity (ROE) of 15 percent. What is its equity multiplier? a. 4.50 b. 30.00 c. 5.00 d. 1.50 e. 3.33

10. Beckwith & Associates has a DSO of 40 days, and its annual sales are $4,600,000. What is its accounts receivable balance? Assume it uses a 365-day year. a. $309,555 b. $504,110 c. $115,000 d. $184,000,000 e. $315

11. Assume you are given the following relationships for the Warner Corporation: Sales / Total assets Return on assets (ROA) Return on equity (ROE) Calculate Warners profit margin. a. 9.79% b. 2.71% c. 1.41% d. 1.92% e. 6.94% 1.9 3.65% 5.15%

12. You are given the following information about a company: Shareholders equity (from balance sheet) Price / earnings ratio Common shares outstanding Market / book ratio Calculate the price of a share of the companys common stock. a. $70.46 b. $62.53 c. $244.55 $3,233,000 5.9 78,000 1.7

d. $143.85 e. $11.94

13. The Tropicana Corporation recently reported net income of $2,000,000. It has 200,000 shares of common stock, which currently trades at $35 a share. Tropicana continues to expand and expects that 1 year from now its net income will be $3,000,000. Over the next year it also anticipates issuing an additional 80,000 shares of stock, so that 1 year from now it will have 280,000 shares of common stock. Assuming its price/earnings ratio remains at its current level, what will be its stock price 1 year from now? a. $52.50 b. $35.00 c. $32.67 d. $25.00 e. $37.50

14. A firm has a profit margin of 1 percent and an equity multiplier of 2. Its sales are $105 million and it has total assets of $60 million. What is its return on equity (ROE)? a. 4.20% b. 1.14% c. 0.88% d. 3.50% e. 1.75%

3331 Ch04 Practice A Answer Section


MULTIPLE CHOICE 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: B C A E D E A E D B D A E D BNK: BNK: BNK: BNK: BNK: BNK: BNK: BNK: BNK: BNK: BNK: BNK: BNK: BNK: 3331 Ch04 Rec HW 3331 Ch04 Req HW 3331 Ch04 Req HW 3331 Ch04 Req HW 3331 Ch04 Req HW 3331 Ch04 Req HW 3331 Ch04 Req HW 3331 Ch04 Req HW 3331 Ch04 Req HW 3331 Ch04 Req HW 3331 Ch04 Req HW 3331 Ch04 Rec HW 3331 Ch04 Req HW 3331 Ch04 Rec HW

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