QUIZ 01

question 01

Bethesda Co. had additions to retained earnings for the year just ended of 275,000. The firm paid out 150,000 in cash dividends, and it has ending total equity of 6 mil. Bethesda currently has 125,000 shares of common stock outstanding and the stock currently sells for $95 per share. What is the market to book ratio and price to earnings ratio?

market-to-book ratio

market value of equity = shares outstanding x market price per share.

market value of equity = 125,000 × 95 = 11,875,000

market-to-book ratio = market value of equity / book value of equity

market-to-book ratio = 11,875,000 / 6,000,000 = 1.98

price-to-earnings ratio

net income = additions to retained earnings + dividends paid

net income = 275,000 + 150,000 = 425,000

earnings per share = net income / shares outstanding

earnings per share = 425,000 / 125,000 = 3.4

P/E ratio = market price per share / earnings per share

P/E ratio = 95 / 3.4 = 27.94

question 02

Last year, ABC and XYZ both had the same level of costs of goods sold, but ABC turned its inventory over 8 times during the year while XYZ turned its inventory over every 55 days. If the objective is to keep inventory as low as possible on average, which of the following is true?

ABC did a better job since its inventory turnover was higher.

days sales of inventory

day sales of inventory = 365 / inventory turnover

DSI for ABC = 365 / 8 = 45.625 days

inventory turnover

inventory turnover = 365/DSI

DSI = 55

inventory turnover for XYZ = 365 / 55 = 6.64

question 03

If profit margin increases by 7%, asset turnover by 4%, and the equity multiplier increases by 9%, by how much, approximately, will the ROE change?

! increase = add by 1, decrease = subtract one

ROE = profit margin x asset turnover x equity multiplier

(1+7%) x (1-4%) x (1+9%) = (1.07) x (0.96) x (1.09) = 1.12

1.12 - 1 = 0.12 or 12% increase

question 04

what is the book value per share for a firm with 2 million shares outstanding at a price of $50, a market book ratio of .75, and a dividend payout ratio of 50%

book value per share = market price per share / market-to-book ratio

market price per share = $50

market-to-book ratio = 0.75

book value per share = 50 / 0.75 = 66.67

question 05

what are the annual sales for a firm with $400,000 in debt, a total debt ratio of 0.4, and an asset turnover of 3.0?

total assets

total assets = total debt / total debt ratio

total assets = 400,000 / 0.4 = 1,000,000

asset turnover

asset turnover = sales / total assets

rearrange to sales = asset turnover x total assets

sales = 3.0 × 1,000,0000 = 3,000,000

question 06

a company reports the following: tax rate = 35%; SG&A = $400; revenue = $1,600; COGS = $750; interest expense = $50, net income = $162.50. What is the depreciation expense?

net income

net income = EBT [taxable income] x (1 - tax rate)

162.50 = EBT x (1 - 0.35)

162.50 = EBT x 0.65

EBT = 162.50 / 0.65 = 250

EBIT

EBIT = EBT + interest expense

EBIT = 250 + 50 = 300

depreciation

sales - COGS - SG&A - depreciation = EBIT

1,600 - 750 - 400 - depreciation = 300

depreciation = 1,600 - 750 - 400 - 300 = 150

question 07

Your firm has $4,000,000 of retained earnings on its balance sheet at the end of 2001. One year later, at the end of 2002, the firm had $5,250,000 of retained earnings on its balance sheet. The firm has 750,000 shares of common stock outstanding, and it paid a dividend of $0.45 per share in 2002. what were the firm’s approximate earnings per share in 2002?

net income

total dividend = (750,000)(0.45) = 337,500

change in retained earnings = $5,250,000 - $4,000,000 = 1,250,000

net income = dividends + change in retained earnings

net income = 337,500 + 1,250,000 = 1,587,500

earnings per share

EPS = net income / shares outstanding

EPS = 1,587,500 / 750,000 = 2.12

question 08

Find the debt ratio of a firm with total debt equal to $800,000 and total shareholders equity of $2,400,000

total assets

total assets = total debt + total shareholders equity

total assets = 800,000 + 2,400,000 = 3,200,000

debt ratio

debt ratio = total debt / total assets

debt ratio = 800,000 / 3,200,000 = 0.25

question 09

Calculate the EBIT for a firm with 4 million total revenues, $3.5 million costs of goods sold, $500,000 depreciation expense, and $120,000 interest expense.

EBIT = total revenue - COGS - depreciation expense - operating expense

EBIT = 4,000,000 - 3,500,000 - 500,000 = 0

question 10

What is the current price of a share of stock for a firm with 5 million in balance-sheet equity, 500,000 shares of stock outstanding, and a price/book value ratio of 4?

book value per share

book value per share = total equity / shares outstanding

book value per share = 5,000,000 / 500,000 = 10

market price per share

market price per share = p/b ratio x book value per share

market price per share = 4 × 10 = 40

question 11

Music Row, Inc. has sales of $32 million, total assets of $43 million, and total debt of $9 million. If the profit margin is 7%, what is net income? What is ROA? What is ROE?

net income

profit margin = net income / sales

rearrange to net income = profit margin x sales

net income = 0.07 × 32,000,000 = 2,240,000

ROA

ROA = net income / total assets

ROA = 2,240,000 / 43,000,000 = 5.22%

ROE

ROE = net income / shareholders equity

shareholders equity calculated through total assets = total debt + equity

rearrange to find equity, equity = total assets - total debt

equity = 43,000,000 - 9,000,0000 = 34,000,000

ROE = 2,240,000 / 34,000,000 = 6.59%

question 12

SDJ, Inc., has net working capital of $1,050, current liabilities of $4,300, and inventory of $1,300. What is the current ratio? What is the quick ratio?

current ratio

current ratio = current assets / current liability

to find current assets use net working capital

net working capital = current assets - current liabilities

current assets = 1,050 + 4,300 = 5,350

current ratio = 5,350 / 4,300 = 1.24

quick ratio

quick ratio = (current assets - inventory) / current liabilities

quick ratio = (5,350 - 1,300) / 4,300 = 0.94

question 13

Cash and equivalents are $1561; short-term investments are $1052; accounts receivable are $3616; accounts payable are $5173; short-term debt (due in six months) is $288; inventories are $1816; other current liabilities are $1401; and other current assets are $707. What is the amount of total current liabilities?

total current liabilities = accounts payable + short-term debts + other current liabilities

total current liabilities = 5,173 + 288 + 1,401 = 6,862

question 14

The December 31, 2001, balance sheet of Venus’s Tennis Shop, Inc., showed current assets of $1,200 and current liabilities of $720. The December 31, 2002, balance sheet showed current assets of $1,440 and current liabilities of $525. What was the company’s 2002 change in net working capital, or NWC?

net working capital 2001

NWC = current assets - current liabilities

NWC = 1,200 - 720 = 480

net working capital 2002

NWC = current assets - current liabilities

1,440 - 525 = 915

change in net working capital

change in nwc = 915 - 480 = 435

question 15

Given the following info the Soprano Pizza Co., calculate the depreciation expense: sales = $21,000; costs = $10,000; addition to retained earnings = $4,000; dividends paid = $800; interest expense = $1,200; tax rate = 35%

net income

net income = change in retained earnings + dividends

net income = 4,000 + 800 = 4,800

EBT

net income = EBT x (1 - tax rate)

EBT = net income / (1 - tax rate)

EBT = 4,800 / (1 - 0.35) = 7,384.62

EBIT

EBIT = EBT + interest expense

EBIT = 7,384.62 + 1,200 = 8,584.62

depreciation

EBIT = sales - costs - depreciation

depreciation = sales - costs - EBIT

depreciation = 21,000 - 10,000 - 8,584.62 = 2,415

question 16

Chuck enterprises has current assets of $300,000, and total assets of $750,000. it also has current liabilities of $125,000, common equity of $250,000, and retained earnings of $85,000. How much long-term debt does the firm have?

total assets = current liabilities + long-term debt + common equity + retained earnings

750,000 = 125,000 + long-term debt + 250,000 + 85,000

long-term debt = 750,000 + 125,000 + 250,000 + 85,000 = 290,000

question 17

How much cash is provided by, or used by financing activities, given the following: $200 is raised in long-term debt. A $100 cash dividend is paid. $300 worth of shares are sold. $50 in stock is repurchased.

200 - 100 + 300 - 50 = 350

question 18

Elgin Battery Manufacturers had sales of $1,000,000 in 2025 and its cost of goods sold is $700,000. Selling and administrations expenses were $100,000. Depreciation expense was $80,000 and interest expense for the year was $ 10,000. The firm’s tax rate is 30 percent. What is the dollar amount of taxes paid in 2025?

EBIT = sales - costs - depreciation

1,000,000 - 700,000 -100,000 - 80,000 = 120,000

EBT = EBIT - interest expense

120,000 - 10,000 = 110,000

tax = EBIT * tax rate

110,000 × 30% = 33,000