mba 621 exam Questions & Answers
Verified 100% Correct
A small company has current assets of $112,000 and current liabilities of $117,000. Which
of the following statements about that company is most likely to be true?
A. Since net working capital is negative, the company will not have enough funds to meet
its obligations
B. Since net working capital is high, the company will likely have little difficulty meeting its
obligations
C. Since net working capital is very high, the company will have ample money to invest after it
meets its obligations
D. Since net working capital is nearly zero, the company is well-run and will have little
difficulty attracting investors
A. Since net working capital is negative, the company will not have enough funds to meet its
obligations
Net Working Capital = 112,000 - 117,000 = -5,000
Current Assets = $89
Current Liabilities = $44
What is the NWC?
$89-$44 = $45
Long-Term Assets
Net property, plant, and equipment - 121
How would the balance sheet change if the company's long-term assets were judged to
depreciate at an extra $5 million per year?
, Net property, plant, and equipment would fall to $116 million, and total assets
and stockholders' equity would be adjusted accordingly
Market Value of Equity
=Share Price x Outstanding Shares
If the company has 5 million shares outstanding, and these shares are trading at a price of
$6.39 per share, and the book value of equity is 32 million. What does this tell you about
how investors view this firm's book value?
Investors consider that the firm's market value and its book value are roughly equivalent.
5 x 6.39 = 31.95
31.95 is roughly equivalent to book value of 32
Market to Book Ratio Formula
Market Value of Equity / Book Value of Equity
If in 2016 Luther has 10.2 million shares outstanding and these shares are trading at $16 per
share, and the book value is 126.7. Then Luther's market-to-book ratio would be closest to
1.29
10.2 x .7
Enterprise Value Formula
Market Value of Equity + Debt - Cash
Cash = 56.1
Short-Term Debt = 10.9
Current Long-Term Debt = 40.7
Long-Term Debt = 227
Verified 100% Correct
A small company has current assets of $112,000 and current liabilities of $117,000. Which
of the following statements about that company is most likely to be true?
A. Since net working capital is negative, the company will not have enough funds to meet
its obligations
B. Since net working capital is high, the company will likely have little difficulty meeting its
obligations
C. Since net working capital is very high, the company will have ample money to invest after it
meets its obligations
D. Since net working capital is nearly zero, the company is well-run and will have little
difficulty attracting investors
A. Since net working capital is negative, the company will not have enough funds to meet its
obligations
Net Working Capital = 112,000 - 117,000 = -5,000
Current Assets = $89
Current Liabilities = $44
What is the NWC?
$89-$44 = $45
Long-Term Assets
Net property, plant, and equipment - 121
How would the balance sheet change if the company's long-term assets were judged to
depreciate at an extra $5 million per year?
, Net property, plant, and equipment would fall to $116 million, and total assets
and stockholders' equity would be adjusted accordingly
Market Value of Equity
=Share Price x Outstanding Shares
If the company has 5 million shares outstanding, and these shares are trading at a price of
$6.39 per share, and the book value of equity is 32 million. What does this tell you about
how investors view this firm's book value?
Investors consider that the firm's market value and its book value are roughly equivalent.
5 x 6.39 = 31.95
31.95 is roughly equivalent to book value of 32
Market to Book Ratio Formula
Market Value of Equity / Book Value of Equity
If in 2016 Luther has 10.2 million shares outstanding and these shares are trading at $16 per
share, and the book value is 126.7. Then Luther's market-to-book ratio would be closest to
1.29
10.2 x .7
Enterprise Value Formula
Market Value of Equity + Debt - Cash
Cash = 56.1
Short-Term Debt = 10.9
Current Long-Term Debt = 40.7
Long-Term Debt = 227
