Chapter 4 - BUS 361 Sample Test
1. Robert Corporation's sales last year were $300,000 and its net income after taxes (NIAT) was $25,000. What was its profit margin on sales?
2. An investor is considering starting a new business. The company would require $500,000 of assets, and it would be financed entirely with common stock. The investor will only go forward if she thinks the firm can provide a 15% return on the invested capital, which means that the firm must have an ROE of 15%. How much net income must be expected to warrant starting the business?
Use the following information for the next four questions (3 - 6). Rutland's stock price at the end of last year was $30.25, it earned $1,225,000 in profits (NIAT), it has 500,000 shares of stock outstanding, total assets (TA) of $15m and a Debt/TA ratio of 40%.
3. Rutland's ROA would be:
4. Rutland's ROE would be:
5. Rutland's EPS (earning per share) would be:
6. Rutland's P/E ratio would be:
7. Collins Inc's latest net income was $1 million, and it had 200,000 shares outstanding. The company wants to pay out 40% of its income. What dividend per share should the company declare?
8. Debt management ratios:
a. measure the amount of debt
the firm uses.
b. measure how effectively a firm is managing its assets.
c. show the relationship of a firmís cash and other current assets to its current liabilities.
d. show the combined effects of all areas of the firm on operating results.
9. Days sales outstanding:
a. measures how much in sales
a firm generates relative to its inventory
b. measures how much in net income a firm generates relative to its total assets
c. measures how quickly a firm converts credit sales into cash
10. Which of the following are key qualitative factors that should be considered when evaluating a company?
a. to what extent is company
performance tied to a key customer, a key product, or a single supplier
b. what percentage of the companyís business is generated overseas
c. what is the company competition and legal and regulatory environments
d. what are the companyís future prospects
e. all of the above are important qualitative factors
11. The Wilson Corporation has the following relationships: Total Assets = $100m; Sales/Total assets = 6; Return on assets (ROA) = 10%; Return on equity (ROE) 21%. What is Wilsonís profit margin?
12. Other things held constant, which of the following will not affect the quick ratio? (Assume that current assets equal current liabilities and inventory has a positive balance.)
a. fixed assets are sold for
b. cash is used to purchase inventories
c. accounts receivable are collected
d. long-term debt is issued to pay off a short-term loan
13. All else being equal, which of the following will increase a companyís current ratio?
a. an increase in accounts
b. an increase in accounts payable
c. an increase in net fixed assets
d. a and b are correct
e. all of the above statements are correct
14. The examination of ratios over time is called:
a. cash flow estimation
b. trend analysis
c. capital expenditure
d. flotation cost
15. UKNO, Inc. uses only debt and common equity funds to finance its assets, which are worth $100m. This past year the firm's return on total assets was 13%. The firm financed 42% percent of its assets using debt. What was the firm's return on common equity (ROE)?