Investment Analysis (FIN 383) Spring Homework 9

Transcription

1 Investment Analysis (FIN 383) Spring 2009 Homework 9 Instructions: please read carefully You should show your work how to get the answer for each calculation question to get full credit The due date is Tue May 12, Late homework will not be graded. Name(s): Student ID

2 1. A firm its ROE by using more debt in its capital structure. a. can increase b. can decrease c. cannot change d. More information is required. 2. A company in a 30% tax bracket will have a margin of if its ROA is 16% and asset turnover is 2. a. 8% b. 10% c. 16% d. 30% 3. What is a company's debt to equity ratio if its asset to equity ratio is 2? a. 0.5 b. 1 c. 2 d National Furniture Company has an ROE of 11.9%, a debt/equity ratio of 2/3, a tax rate of 30%, and an interest rate on its debt of 12%. Its ROA is a. 12% b. 15% c. 20% d. 24% 5. The Asset Turnover of a company can be improved by. a. cutting operating expenses b. investing more efficiently with its assets c. borrowing more debt d. cutting operating and interest expenses 6. What is the most correct relationship between a company's ROE and ROA when the company does not borrow any debt? a. ROE > ROA b. ROE = ROA c. ROE < ROA d. ROE = (1 + T)ROA 7. The capital structure of a company can be determined by using information from. a. the income statement b. the cash flow statement c. the balance sheet d. None of the above.

3 8. Which of the following balance sheet items is not considered an asset? A) inventory B) accounts receivable C) accrued taxes D) All of the above are assets 9. A firm has a ROE of 20% and a market-to-book ratio of Its P/E ratio is. A) 8.40 B) C) D) Use the following to answer questions 11-14: The financial statements of Shuswap Lake Manufacturing Company are given below. Note: The common shares are trading in the stock market for $160 each.

4 10. The firm's current ratio for 2005 is. A) 0.90 B) 1.44 C) 1.89 D) The firm's leverage ratio for 2004 is. A) 0.90 B) 1.56 C) 1.89 D) The firm's fixed asset turnover ratio for 2005 is. Please keep in mind that when a ratio involves both income statement and balance sheet numbers, the balance sheet numbers for the beginning and end of the year must be averaged. A) 3.39 B) 3.60 C) 6.00 D) The firm's asset turnover ratio for 2005 is. Please keep in mind that when a ratio involves both income statement and balance sheet numbers, the balance sheet numbers for the beginning and end of the year must be averaged. A) 0.90 B) 1.56 C) 1.92 D) The net income of the company is $970. Taxes payable decrease by $120, depreciation is $85, and fixed assets are sold for $90. If the firm's inventories also decline by $65, what is the total change in cash for the firm for all activities? A) Increase of $970 B) Increase of $1090 C) Decrease of $970 D) Decrease of $ Yesterday, Bicksler Corporation purchased (and received) raw materials on credit from its supplier. All else equal, if Bicksler s current ratio was 2.0 before the purchase, what effect did this transaction have on Bicksler s current ratio? a. increased b. decreased c. stayed the same d. There is not enough information to answer this question. e. None of the above is a correct answer.

5 16. The Crusty Pie Co., which specializes in apple turnovers, has a return on sales higher than the industry average, yet its ROA is the same as the industry average. How can you explain this? 17. The ABC Corporation has a profit margin on sales below the industry average, yet its ROA is above the industry average. What does this imply about its asset turnover? 18. Jones Group has been generating stable after-tax return on equity (ROE) despite declining operating income. Explain how it might be able to maintain its stable after-tax ROE. 19. A company s current ratio is 2.0. If the company uses cash to retire notes payable due within one year, would this transaction increase or decrease the current ratio? What about the asset turnover ratio?

6 20. The financial statements for Chicago Refrigerator Inc. are to be used to compute the ratios a through h for 2005.

7 a. Quick ratio. b. Return on assets. c. Return on common shareholders equity. d. Earnings per share of common stock. e. Profit margin.

8 f. Times interest earned. g. Inventory turnover. h. Leverage ratio.