Question 13. Clayton Industries is planning its

29 Jun Question 13. Clayton Industries is planning its

QuestionQuestion
13. Clayton Industries is planning its
13. Clayton Industries is planning its operations for next year, and the CEO wants you to forecast the firm’s additional funds needed (AFN). Data for use in your forecast are shown below. Based on the AFN equation, what is the AFN for the coming year? Dollars are in millions.

Last year’s sales = S0 $350 Last year’s accounts payable $40

Sales growth rate = g 30% Last year’s notes payable $50

Last year’s total assets = A*0 $500 Last year’s accruals $30

Last year’s profit margin = M 5% Target payout ratio 60%

a. $102.8

b. $108.2

c. $113.9

d. $119.9

e. $125.9

14. Which of the following would, generally, indicate an improvement in a company’s financial position, holding other things constant?

a. The TIE declines.

b. The DSO increases.

c. The quick ratio increases.

d. The current ratio declines.

e. The total assets turnover decreases.

15. Casey Communications recently issued new common stock and used the proceeds to pay off some of its short-term notes payable. This action had no effect on the company’s total assets or operating income. Which of the following effects would occur as a result of this action?

a. The company’s current ratio increased.

b. The company’s times interest earned ratio decreased.

c. The company’s basic earning power ratio increased.

d. The company’s equity multiplier increased.

e. The company’s debt ratio increased.

16. Ajax Corp’s sales last year were $435,000, its operating costs were $362,500, and its interest charges were $12,500. What was the firm’s times-interest-earned (TIE) ratio?

a. 4.72

b. 4.97

c. 5.23

d. 5.51

e. 5.80

17. Last year Harrington Inc. had sales of $325,000 and a net income of $19,000, and its year-end assets were $250,000. The firm’s total-debt-to-total-assets ratio was 45.0%. Based on the DuPont equation, what was the ROE?

a. 13.82%

b. 14.51%

c. 15.23%

d. 16.00%

e. 16.80%

18. Wie Corp’s sales last year were $315,000, and its year-end total assets were $355,000. The average firm in the industry has a total assets turnover ratio (TAT) of 2.4. The firm’s new CFO believes the firm has excess assets that can be sold so as to bring the TAT down to the industry average without affecting sales. By how much must the assets be reduced to bring the TAT to the industry average, holding sales constant?

a. $201,934

b. $212,563

c. $223,750

d. $234,938

e. $246,684

19. Towson, Inc. currently has $1,600,000 in accounts receivables and its days sales outstanding (DSO) is 20 days. If accounts receivable comprise 50% of the company’s current assets and Towson has $4,800,000 in net fixed assets, what is its total asset turnover ratio?

a. 2.651x

b. 3.650x

c. 3.520x

d. 2.921x

e. 3.920x

20. Which of the following is a primary market transaction?

a. You sell 200 shares of IBM stock on the NYSE through your broker.

b. You buy 200 shares of IBM stock from your brother. The trade is not made through a broker–you just give him cash and he gives you the stock.

c. IBM issues 2,000,000 shares of new stock and sells them to the public through an investment banker.

d. One financial institution buys 200,000 shares of IBM stock from another institution. An investment banker arranges the transaction.

e. IBM sells 2,000,000 shares of treasury stock to its employees when they exercise options that were granted in prior years.

21. What is the opportunity cost of Project A if it is expected to yield 10%, while the yields from other projects range from 6.5% to 11.5% with the mean 9% and 5% standard deviation?

a. 10%

b. 6.5%

c. 11.5%

d. 9%