Lakeview Industries had sales of $40 million and net income of $2 million in 2012. Lakeview paid a dividend of $1.5 million. Assuming that their beginning balance for retained earnings was $4 million, calculate their ending balance for retained earnings. A) $4.5 million B) $2.5 million C) $3 million D) $4 million ANSWER […]
Modern Comics Inc., has sales of $2,500,000, net income of $50,000, assets worth $1,700,000, and total common stockholder equity of $1,500,000. The ROE for the firm is: A) 68.00%. B) 60.00%. C) 2.94%. D) 3.33%. ANSWER D Explanation: D) ROE = NI/Equity = $50,000/$1,500,000 =3.33%
What is Regency’s net working capital in 2012 and 2011? A) $27 million; $12 million B) $315 million; $276 million C) $39 million; $27 million D) None of the above ANSWER A Explanation: A) NWC = C/A – C/L: 2012 = $171,000,000 – $144,000,000 = $27,000,00. 2011: = $144,000,000 – $132,000,000 = $12,000,000.
The DuPont method decomposes the ROE into the product of three other ratios. those ratios are: A) profit margin, asset turnover, and financial leverage. B) profit margin, inventory turnover, and financial leverage. C) current ratio, asset turnover, and profit margin. D) quick ratio, inventory turnover, and return on assets. ANSWER A
The clientele effect refers to ________. A) the relevance of dividend policy on a firm’s share value B) a firm’s ability to attract stockholders whose dividend preferences are similar to the firm’s dividend policy C) the informational content of dividends that helps in predicting the future earnings and growth of a firm D) the “bird-in-the-hand” […]
All of the following statements are true EXCEPT: A) deferred income taxes can be thought of as a liability. B) deferred income taxes arise because firms are allowed to keep two sets of financial statements; one for shareholders and one for the IRS. C) deferred income taxes arise because firms are allowed to keep two […]
Total equity on the balance sheet increases as the amount of dividends paid increases. Indicate whether the statement is true or false ANSWER FALSE
In chapter four we focus on the Financial Management Framework and examine the three key decision-making areas of: A) investing, dividends, and operations. B) financing, investing, and dividends. C) operating, investing, and financing. D) dividends, operations, and investing. ANSWER C
A few of the ratios for Quality Construction Inc., are presented here. Use this information to calculate the firm’s ROE. Leverage ratio = 1.50, ROA is 12.00%, profitability ratio is 8.00%. A) 1.44% B) 12.00% C) 18.00% D) 8.00% ANSWER C Explanation: C) ROE = ROA * Leverage Ratio = 12% * 1.50 […]
Performance measures (i.e., ratio analysis) allow for: A) internal assessment of a firm. B) external assessment of a firm. C) comparison with other firms in the industry. D) all of the above. ANSWER D
