FIN 300 CHAPTER 3 EXAM
QUESTIONS WITH CORRECT
ANSWERS
The Wood Shop generates $.97 in sales for every $1 invested in total assets. Which
one of the following ratios would reflect this relationship?
Receivables turnover
Equity multiplier
Profit margin
Return on assets
Total asset turnover - Answer- Total asset turnover
Outdoor Gear reduced its general and administrative costs this year. This cost
improvement will increase which of the following ratios?
I. Profit margin
II. Return on assets
III. Total asset turnover
IV. Return on equity
I and II only
I and III only
II, III, and IV only
I, II, and IV only
I, II, III, and IV - Answer- I, II, and IV only
A firm has net working capital of $6,800 and current assets of $21,800. What is the
current ratio?
.69
.60
1.45
1.67
.92 - Answer- c. 1.45
Current ratio = $21,800 / ($21,800 - 6,800) = 1.45
, A firm has total assets of $638,727, current assets of $203,015, current liabilities of
$122,008, and total debt of $348,092. What is the debt-equity ratio?
1.03
1.20
1.31
1.43
.87 - Answer- Debt-equity ratio = $348,092 / ($638,727 - 348,092) = 1.20
Section: 3.2 Ratio Analysis
Health Centers, Inc., has total equity of $948,300, sales of $1.523 million, and a profit
margin of 4.4 percent. What is the return on equity?
4.21 percent
6.49 percent
7.18 percent
8.68 percent
7.07 percent - Answer- Return on equity = (.044 ×$1,523,000)/$948,300 = .0707, or
7.07 percent
(profit margin X total Sales)/ Total equity
Tessler Farms has a return on equity of 11.28 percent, a debt-equity ratio of 1.03, and a
total asset turnover of .87. What is the return on assets?
5.56 percent
8.06 percent
13.67 percent
15.24 percent
17.41 percent - Answer- Return on assets = .1128 /(1 + 1.03) = .0556, or 5.56 percent.
Section: 3.3 The DuPont Identity
Good Foods has net income of $82,490, total equity of $518,700, and total assets of
$1,089,500. The dividend payout ratio is .30. What is the internal growth rate?
2.32 percent
3.57 percent
5.60 percent
2.87 percent
4.94 percent - Answer- C. 5.60 percent
Internal growth rate = [($82,490/$1,089,500) ×(1 -.30)]/{1 - [($82,490/$1,089,500) ×(1 -
.30)]} = .0560, or 5.60 percent
Motor Works has total assets of $919,200, long-term debt of $264,500, total equity of
$466,900, net fixed assets of $682,800, and sales of $1,021,500. The profit margin is
6.2 percent. What is the current ratio?
.79
QUESTIONS WITH CORRECT
ANSWERS
The Wood Shop generates $.97 in sales for every $1 invested in total assets. Which
one of the following ratios would reflect this relationship?
Receivables turnover
Equity multiplier
Profit margin
Return on assets
Total asset turnover - Answer- Total asset turnover
Outdoor Gear reduced its general and administrative costs this year. This cost
improvement will increase which of the following ratios?
I. Profit margin
II. Return on assets
III. Total asset turnover
IV. Return on equity
I and II only
I and III only
II, III, and IV only
I, II, and IV only
I, II, III, and IV - Answer- I, II, and IV only
A firm has net working capital of $6,800 and current assets of $21,800. What is the
current ratio?
.69
.60
1.45
1.67
.92 - Answer- c. 1.45
Current ratio = $21,800 / ($21,800 - 6,800) = 1.45
, A firm has total assets of $638,727, current assets of $203,015, current liabilities of
$122,008, and total debt of $348,092. What is the debt-equity ratio?
1.03
1.20
1.31
1.43
.87 - Answer- Debt-equity ratio = $348,092 / ($638,727 - 348,092) = 1.20
Section: 3.2 Ratio Analysis
Health Centers, Inc., has total equity of $948,300, sales of $1.523 million, and a profit
margin of 4.4 percent. What is the return on equity?
4.21 percent
6.49 percent
7.18 percent
8.68 percent
7.07 percent - Answer- Return on equity = (.044 ×$1,523,000)/$948,300 = .0707, or
7.07 percent
(profit margin X total Sales)/ Total equity
Tessler Farms has a return on equity of 11.28 percent, a debt-equity ratio of 1.03, and a
total asset turnover of .87. What is the return on assets?
5.56 percent
8.06 percent
13.67 percent
15.24 percent
17.41 percent - Answer- Return on assets = .1128 /(1 + 1.03) = .0556, or 5.56 percent.
Section: 3.3 The DuPont Identity
Good Foods has net income of $82,490, total equity of $518,700, and total assets of
$1,089,500. The dividend payout ratio is .30. What is the internal growth rate?
2.32 percent
3.57 percent
5.60 percent
2.87 percent
4.94 percent - Answer- C. 5.60 percent
Internal growth rate = [($82,490/$1,089,500) ×(1 -.30)]/{1 - [($82,490/$1,089,500) ×(1 -
.30)]} = .0560, or 5.60 percent
Motor Works has total assets of $919,200, long-term debt of $264,500, total equity of
$466,900, net fixed assets of $682,800, and sales of $1,021,500. The profit margin is
6.2 percent. What is the current ratio?
.79
