FInance CH 3
A firm has taxes of $2,000, interest expense of $1,000, EBIT of $7,500, common stock
dividends of $1,500, and preferred dividends of $1,200. What is the profit margin if sales
are $22,000? - ✔✔ANSW✔✔..15.00 percent
ABE Co. has a times interest earned ratio of 3.2. How is this value interpreted? -
✔✔ANSW✔✔..The earnings before interest and taxes is 3.2 times greater than the
firm's interest expense for the period.
Abel's has a total asset turnover rate of 2.2 as compared to its industry average of 1.8.
Which one of these might be the cause of Abel's higher rate? - ✔✔ANSW✔✔..Inventory
stockouts
Assume you are given the values for sales, taxable income, preferred and common
stock dividends, interest, and the tax rate. How would you calculate the profit margin? -
✔✔ANSW✔✔..Profit margin =
{(Taxableincome×(1−Taxrate))−Preferreddividends}/sales
Buster's has a debt-to-equity ratio of 1.2. What does this imply? - ✔✔ANSW✔✔..A debt
ratio of 1.2 means a firm uses 20 percent more debt financing than equity financing.
Debt management ratios are used to do which of the following? Select all that apply. -
✔✔ANSW✔✔..- Debt management ratios determine the amount of financial leverage
used by a firm.
-Debt management ratios measure the capital structure of a firm.
-Debt management ratios determine whether or not a firm can meet its debt obligations.
How is a debt ratio of 0.45 interpreted? - ✔✔ANSW✔✔..A debt ratio of 0.45 means that
for every dollar of assets, a firm has $0.45 of debt.
How is inventory turnover related to days' sales in inventory? Select all that apply. -
✔✔ANSW✔✔..- The shorter the inventory period, the higher the turnover rate.
- The lower the turnover rate, the more days' sales that are held in inventory
Kelso's has an average collection period of 49 days. How do you interpret this? -
✔✔ANSW✔✔..On average, Kelso's receives cash for a sale 49 days after a credit sale
occurs.
Last year, Delta's times interest earned ratio was 1.8. This year the ratio is 0.8. How
should this change in value be interpreted? - ✔✔ANSW✔✔..The decrease in the ratio to
a value less than 1 indicates the firm's debt load may have become too large for the
firm.
A firm has taxes of $2,000, interest expense of $1,000, EBIT of $7,500, common stock
dividends of $1,500, and preferred dividends of $1,200. What is the profit margin if sales
are $22,000? - ✔✔ANSW✔✔..15.00 percent
ABE Co. has a times interest earned ratio of 3.2. How is this value interpreted? -
✔✔ANSW✔✔..The earnings before interest and taxes is 3.2 times greater than the
firm's interest expense for the period.
Abel's has a total asset turnover rate of 2.2 as compared to its industry average of 1.8.
Which one of these might be the cause of Abel's higher rate? - ✔✔ANSW✔✔..Inventory
stockouts
Assume you are given the values for sales, taxable income, preferred and common
stock dividends, interest, and the tax rate. How would you calculate the profit margin? -
✔✔ANSW✔✔..Profit margin =
{(Taxableincome×(1−Taxrate))−Preferreddividends}/sales
Buster's has a debt-to-equity ratio of 1.2. What does this imply? - ✔✔ANSW✔✔..A debt
ratio of 1.2 means a firm uses 20 percent more debt financing than equity financing.
Debt management ratios are used to do which of the following? Select all that apply. -
✔✔ANSW✔✔..- Debt management ratios determine the amount of financial leverage
used by a firm.
-Debt management ratios measure the capital structure of a firm.
-Debt management ratios determine whether or not a firm can meet its debt obligations.
How is a debt ratio of 0.45 interpreted? - ✔✔ANSW✔✔..A debt ratio of 0.45 means that
for every dollar of assets, a firm has $0.45 of debt.
How is inventory turnover related to days' sales in inventory? Select all that apply. -
✔✔ANSW✔✔..- The shorter the inventory period, the higher the turnover rate.
- The lower the turnover rate, the more days' sales that are held in inventory
Kelso's has an average collection period of 49 days. How do you interpret this? -
✔✔ANSW✔✔..On average, Kelso's receives cash for a sale 49 days after a credit sale
occurs.
Last year, Delta's times interest earned ratio was 1.8. This year the ratio is 0.8. How
should this change in value be interpreted? - ✔✔ANSW✔✔..The decrease in the ratio to
a value less than 1 indicates the firm's debt load may have become too large for the
firm.
