Question 41. Tapley Dental Supply Company has the following data: Net income: $240 Sales: $10,000 Total assets: $6,000

41. Tapley Dental Supply Company has the following data:
Net income: $240 Sales: $10,000 Total assets: $6,000
Debt ratio: 75% TIE ratio: 2.0 Current ratio: 1.2
BEP ratio: 13.33%
If Tapley could streamline operations, cut operating costs, and raise
net income to $300, without affecting sales or the balance sheet (the
additional profits will be paid out as dividends), by how much would
its ROE increase?
a. 3.00%
b. 3.50%
c. 4.00%
d. 4.25%
e. 5.50%
42. Your company had the following balance sheet and income statement
information for 2003:
Balance sheet:
Cash $ 20
A/R 1,000
Inventories 5,000
Total C.A. $ 6,020 Debt $ 4,000
Net F.A. 2,980 Equity 5,000
Total Assets $ 9,000 Total claims $ 9,000
Income statement:
Sales $10,000
Cost of goods sold 9,200
EBIT $ 800
Interest (10%) 400
EBT $ 400
Taxes (40%) 160
Net Income $ 240
The industry average inventory turnover is 5. You think you can change
your inventory control system so as to cause your turnover to equal
the industry average, and this change is expected to have no effect on
either sales or cost of goods sold. The cash generated from reducing
inventories will be used to buy tax-exempt securities which have a 7
percent rate of return. What will your profit margin be after the
change in inventories is reflected in the income statement?
a. 2.1%
b. 2.4%
c. 4.5%
d. 5.3%
e. 6.7%
Medium:
43. Ruth Company currently has $1,000,000 in accounts receivable. Its days
sales outstanding (DSO) is 50 days (based on a 365-day year). Assume a
365-day year. The company wants to reduce its DSO to the industry
average of 32 days by pressuring more of its customers to pay their
bills on time. The company’s CFO estimates that if this policy is
adopted the company’s average sales will fall by 10 percent. Assuming
that the company adopts this change and succeeds in reducing its DSO to
32 days and does lose 10 percent of its sales, what will be the level
of accounts receivable following the change?
a. $576,000
b. $676,667
c. $776,000
d. $900,000
e. $976,667

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