Q&A Hero

Q: A U.S. Treasury bond will pay a lump sum of $1,000 exactly 3 years from today. The nominal interest rate is 6%, semiannual compounding. Which of the following statements is CORRECT? a. The PV of the $1,000 lump sum has a smaller present value than the PV of a 3-year, $333.33 ordinary annuity. b. The periodic interest rate is greater than 3%. c. The periodic rate is less than 3%. d. The present value would be greater if the lump sum were discounted back for more periods. e. The present value of the $1,000 would be larger if interest were compounded monthly rather than semiannually.

Q: A U.S. Treasury bond will pay a lump sum of $1,000 exactly 3 years from today. The nominal interest rate is 6%, semiannual compounding. Which of the following statements is CORRECT? a. The PV of the $1,000 lump sum has a higher present value than the PV of a 3-year, $333.33 ordinary annuity. b. The periodic interest rate is greater than 3%. c. The periodic rate is less than 3%. d. The present value would be greater if the lump sum were discounted back for more periods. e. The present value of the $1,000 would be smaller if interest were compounded monthly rather than semiannually.

Q: Of the following investments, which would have the lowest present value? Assume that the effective annual rate for all investments is the same and is greater than zero.a. Investment A pays $250 at the end of every year for the next 10 years (a total of 10 payments).b. Investment B pays $125 at the end of every 6-month period for the next 10 years (a total of 20 payments).c. Investment C pays $125 at the beginning of every 6-month period for the next 10 years (a total of 20 payments).d. Investment D pays $2,500 at the end of 10 years (just one payment).e. Investment E pays $250 at the beginning of every year for the next 10 years (a total of 10 payments).

Q: At the end of 10 years, which of the following investments would have the highest future value? Assume that the effective annual rate for all investments is the same and is greater than zero.a. Investment A pays $250 at the beginning of every year for the next 10 years (a total of 10 payments).b. Investment B pays $125 at the end of every 6-month period for the next 10 years (a total of 20 payments).c. Investment C pays $125 at the beginning of every 6-month period for the next 10 years (a total of 20 payments).d. Investment D pays $2,500 at the end of 10 years (just one payment).e. Investment E pays $250 at the end of every year for the next 10 years (a total of 10 payments).

Q: Which of the following statements regarding a 20-year monthly payment amortized mortgage with a nominal interest rate of 10% is CORRECT?a. Exactly 10% of the first monthly payment represents interest.b. The monthly payments will increase over time.c. A larger proportion of the first monthly payment will be interest, and a smaller proportion will be principal, than for the last monthly payment.d. The total dollar amount of interest being paid off each month gets larger as the loan approaches maturity.e. The amount representing interest in the first payment would be higher if the nominal interest rate were 7% rather than 10%.

Q: Which of the following statements regarding a 30-year monthly payment amortized mortgage with a nominal interest rate of 8% is CORRECT?a. Exactly 8% of the first monthly payment represents interest.b. The monthly payments will decline over time.c. A smaller proportion of the last monthly payment will be interest, and a larger proportion will be principal, than for the first monthly payment.d. The total dollar amount of principal being paid off each month gets smaller as the loan approaches maturity.e. The amount representing interest in the first payment would be higher if the nominal interest rate were 6% rather than 8%.

Q: Which of the following statements regarding a 15-year (180-month) $225,000, fixed-rate mortgage is CORRECT? (Ignore taxes and transactions costs.) a. The outstanding balance declines at a faster rate in the later years of the loan's life. b. The remaining balance after three years will be $125,000 less one third of the interest paid during the first three years. c. Because the outstanding balance declines over time, the monthly payments will also decline over time. d. Interest payments on the mortgage will increase steadily over time, but the total amount of each payment will remain constant. e. The proportion of the monthly payment that goes towards repayment of principal will be lower 10 years from now than it will be the first year.

Q: Which of the following statements regarding a 20-year (240-month) $225,000, fixed-rate mortgage is CORRECT? (Ignore taxes and transactions costs.) a. The outstanding balance declines at a slower rate in the later years of the loan's life. b. The remaining balance after three years will be $225,000 less one third of the interest paid during the first three years. c. Because it is a fixed-rate mortgage, the monthly loan payments (which include both interest and principal payments) are constant. d. Interest payments on the mortgage will increase steadily over time, but the total amount of each payment will remain constant. e. The proportion of the monthly payment that goes towards repayment of principal will be lower 10 years from now than it will be the first year.

Q: A $150,000 loan is to be amortized over 6 years, with annual end-of-year payments. Which of these statements is CORRECT? a. The proportion of interest versus principal repayment would be the same for each of the 7 payments. b. The annual payments would be larger if the interest rate were lower. c. If the loan were amortized over 10 years rather than 6 years, and if the interest rate were the same in either case, the first payment would include more dollars of interest under the 6-year amortization plan. d. The proportion of each payment that represents interest as opposed to repayment of principal would be higher if the interest rate were lower. e. The proportion of each payment that represents interest versus repayment of principal would be higher if the interest rate were higher.

Q: A $250,000 loan is to be amortized over 8 years, with annual end-of-year payments. Which of these statements is CORRECT? a. The proportion of interest versus principal repayment would be the same for each of the 8 payments. b. The annual payments would be larger if the interest rate were lower. c. If the loan were amortized over 10 years rather than 8 years, and if the interest rate were the same in either case, the first payment would include more dollars of interest under the 8-year amortization plan. d. The proportion of each payment that represents interest as opposed to repayment of principal would be lower if the interest rate were lower. e. The last payment would have a higher proportion of interest than the first payment.

Q: Your bank account pays an 8% nominal rate of interest. The interest is compounded quarterly. Which of the following statements is CORRECT? a. The periodic rate of interest is 8% and the effective rate of interest is also 8%. b. The periodic rate of interest is 2% and the effective rate of interest is 4%. c. The periodic rate of interest is 8% and the effective rate of interest is greater than 8%. d. The periodic rate of interest is 4% and the effective rate of interest is less than 8%. e. The periodic rate of interest is 2% and the effective rate of interest is greater than 8%.

Q: Your bank account pays a 5% nominal rate of interest. The interest is compounded quarterly. Which of the following statements is CORRECT? a. The periodic rate of interest is 5% and the effective rate of interest is also 5%. b. The periodic rate of interest is 1.25% and the effective rate of interest is 2.5%. c. The periodic rate of interest is 5% and the effective rate of interest is greater than 5%. d. The periodic rate of interest is 1.25% and the effective rate of interest is greater than 5%. e. The periodic rate of interest is 2.5% and the effective rate of interest is 5%.

Q: Which of the following statements is CORRECT? a. If some cash flows occur at the beginning of the periods while others occur at the ends, then we have what the textbook defines as a variable annuity. b. The cash flows for an ordinary (or deferred) annuity all occur at the beginning of the periods. c. If a series of unequal cash flows occurs at regular intervals, such as once a year, then the series is by definition an annuity. d. The cash flows for an annuity due must all occur at the beginning of the periods. e. The cash flows for an annuity may vary from period to period, but they must occur at regular intervals, such as once a year or once a month.

Q: Which of the following statements is CORRECT? a. If some cash flows occur at the beginning of the periods while others occur at the ends, then we have what the textbook defines as a variable annuity. b. The cash flows for an ordinary (or deferred) annuity all occur at the beginning of the periods. c. If a series of unequal cash flows occurs at regular intervals, such as once a year, then the series is by definition an annuity. d. The cash flows for an annuity due must all occur at the ends of the periods. e. The cash flows for an annuity must all be equal, and they must occur at regular intervals, such as once a year or once a month.

Q: You plan to analyze the value of a potential investment by calculating the sum of the present values of its expected cash flows. Which of the following would increase the calculated value of the investment? a. The discount rate increases. b. The cash flows are in the form of a deferred annuity, and they total to $100,000. You learn that the annuity lasts for 10 years rather than 5 years, hence that each payment is for $10,000 rather than for $20,000. c. The discount rate decreases. d. The riskiness of the investment's cash flows increases. e. The total amount of cash flows remains the same, but more of the cash flows are received in the later years and less are received in the earlier years.

Q: You plan to analyze the value of a potential investment by calculating the sum of the present values of its expected cash flows. Which of the following would lower the calculated value of the investment? a. The discount rate decreases. b. The cash flows are in the form of a deferred annuity, and they total to $100,000. You learn that the annuity lasts for only 5 rather than 10 years, hence that each payment is for $20,000 rather than for $10,000. c. The discount rate increases. d. The riskiness of the investment's cash flows decreases. e. The total amount of cash flows remains the same, but more of the cash flows are received in the earlier years and less are received in the later years.

Q: Which of the following statements is CORRECT? a. A time line is not meaningful unless all cash flows occur annually. b. Time lines are not useful for visualizing complex problems prior to doing actual calculations. c. Time lines cannot be constructed to deal with situations where some of the cash flows occur annually but others occur quarterly. d. Time lines can only be constructed for annuities where the payments occur at the end of the periods, i.e., for ordinary annuities. e. Time lines can be constructed where some of the payments constitute an annuity but others are unequal and thus are not part of the annuity.

Q: Which of the following statements is CORRECT? a. Time lines cannot be constructed where some of the payments constitute an annuity but others are unequal and thus are not part of the annuity. b. A time line is not meaningful unless all cash flows occur annually. c. Time lines are not useful for visualizing complex problems prior to doing actual calculations. d. Time lines can be constructed to deal with situations where some of the cash flows occur annually but others occur quarterly. e. Time lines can only be constructed for annuities where the payments occur at the end of the periods, i.e., for ordinary annuities.

Q: Which of the following statements is CORRECT? a. Some of the cash flows shown on a time line can be in the form of annuity payments, but none can be uneven amounts. b. A time line is not meaningful unless all cash flows occur annually. c. Time lines are not useful for visualizing complex problems prior to doing actual calculations. d. Time lines cannot be constructed in situations where some of the cash flows occur annually but others occur quarterly. e. Time lines can be constructed for annuities where the payments occur at either the beginning or the end of the periods.

Q: Which of the following statements is CORRECT? a. Some of the cash flows shown on a time line can be in the form of annuity payments, but none can be uneven amounts. b. A time line is not meaningful unless all cash flows occur annually. c. Time lines are useful for visualizing complex problems prior to doing actual calculations. d. Time lines cannot be constructed in situations where some of the cash flows occur annually but others occur quarterly. e. Time lines cannot be constructed for annuities where the payments occur at the beginning of the periods.

Q: Midway through the life of an amortized loan, the percentage of the payment that represents interest could be equal to, less than, or greater than to the percentage that represents repayment of principal. The proportions depend on the original life of the loan and the interest rate.a. Trueb. False

Q: Midway through the life of an amortized loan, the percentage of the payment that represents interest must be equal to the percentage that represents repayment of principal. This is true regardless of the original life of the loan or the interest rate on the loan.a. Trueb. False

Q: The payment made each period on an amortized loan is constant, and it consists of some interest and some principal. The closer we are to the end of the loan's life, the smaller the percentage of the payment that will be a repayment of principal. a. True b. False

Q: The payment made each period on an amortized loan is constant, and it consists of some interest and some principal. The closer we are to the end of the loan's life, the greater the percentage of the payment that will be a repayment of principal. a. True b. False

Q: When a loan is amortized, a relatively low percentage of the payment goes to reduce the outstanding principal in the early years, and the principal repayment's percentage increases in the loan's later years. a. True b. False

Q: Pettijohn Inc.The balance sheet and income statement shown below are for Pettijohn Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over.Balance Sheet (Millions of $) Assets 2016Cash and securities $ 1,554.0Accounts receivable 9,660.0Inventories 13,440.0Total current assets $24,654.0Net plant and equipment 17,346.0Total assets $42,000.0Liabilities and Equity Accounts payable $ 7,980.0Notes payable 5,880.0Accruals 4,620.0Total current liabilities $18,480.0Long-term bonds 10,920.0Total debt $29,400.0Common stock 3,360.0Retained earnings 9,240.0Total common equity $12,600.0Total liabilities and equity $42,000.0 Income Statement (Millions of $) 2016Net sales $58,800.0Operating costs except depr'n $54,978.0Depreciation $ 1,029.0Earnings bef int and taxes (EBIT) $ 2,793.0Less interest 1,050.0Earnings before taxes (EBT) $ 1,743.0Taxes $ 610.1Net income $ 1,133.0Other data: Shares outstanding (millions) 175.00Common dividends $ 509.83Int rate on notes payable & L-T bonds 6.25%Federal plus state income tax rate 35%Year-end stock price $77.69Refer to the data for Pettijohn Inc.What is the firm's equity multiplier?a. 3.33b. 3.50c. 3.68d. 3.86e. 4.05

Q: Last year Rosenberg Corp. had $195,000 of assets, $18,775 of net income, and a debt-to-total-assets ratio of 32%. Now suppose the new CFO convinces the president to increase the debt ratio to 48%. Sales and total assets will not be affected, but interest expenses would increase. However, the CFO believes that better cost controls would be sufficient to offset the higher interest expense and thus keep net income unchanged. By how much would the change in the capital structure improve the ROE?a. 4.36%b. 4.57%c. 4.80%d. 5.04%e. 5.30%

Q: Last year Mason Inc. had a total assets turnover of 1.33 and an equity multiplier of 1.75. Its sales were $195,000 and its net income was $10,549. The CFO believes that the company could have operated more efficiently, lowered its costs, and increased its net income by $5,250 without changing its sales, assets, or capital structure. Had it cut costs and increased its net income in this amount, by how much would the ROE have changed?a. 5.66%b. 5.95%c. 6.27%d. 6.58%e. 6.91%

Q: Last year Central Chemicals had sales of $205,000, assets of $127,500, a profit margin of 5.3%, and an equity multiplier of 1.2. The CFO believes that the company could reduce its assets by $21,000 without affecting either sales or costs. Had it reduced its assets in this amount, and had the debt-to-assets ratio, sales, and costs remained constant, by how much would the ROE have changed?a. 1.81%b. 2.02%c. 2.22%d. 2.44%e. 2.68%

Q: Last year Vaughn Corp. had sales of $315,000 and a net income of $17,832, and its year-end assets were $210,000. The firm's total-debt-to-total-assets ratio was 42.5%. Based on the DuPont equation, what was Vaughn's ROE?a. 14.77%b. 15.51%c. 16.28%d. 17.10%e. 17.95%

Q: Northwest Lumber had a profit margin of 5.25%, a total assets turnover of 1.5, and an equity multiplier of 1.8. What was the firm's ROE?a. 12.79%b. 13.47%c. 14.18%d. 14.88%e. 15.63%

Q: Companies Heidee and Leaudy have the same tax rate, sales, total assets, and basic earning power. Both companies have positive net incomes. Company Heidee has a higher debt ratio and, therefore, a higher interest expense. Which of the following statements is CORRECT? a. Company Heidee has a lower times interest earned (TIE) ratio. b. Company Heidee has a lower equity multiplier. c. Company Heidee has more net income. d. Company Heidee pays more in taxes. e. Company Heidee has a lower ROE.

Q: Companies Heidee and Leaudy have the same sales, tax rate, interest rate on their debt, total assets, and basic earning power. Both companies have positive net incomes. Company Heidee has a higher debt ratio and, therefore, a higher interest expense. Which of the following statements is CORRECT? a. Company Heidee has more net income. b. Company Heidee pays less in taxes. c. Company Heidee has a lower equity multiplier. d. Company Heidee has a higher ROA. e. Company Heidee has a higher times interest earned (TIE) ratio.

Q: Heidee Corp. and Leaudy Corp. have identical assets, sales, interest rates paid on their debt, tax rates, and EBIT. However, Heidee uses more debt than Leaudy. Which of the following statements is CORRECT? a. Heidee would have the higher net income as shown on the income statement. b. Without more information, we cannot tell if Heidee or Leaudy would have a higher or lower net income. c. Heidee would have the lower equity multiplier for use in the DuPont equation. d. Heidee would have to pay more in income taxes. e. Heidee would have the lower net income as shown on the income statement.

Q: Companies Heidee and Leaudy are virtually identical in that they are both profitable, and they have the same total assets (TA), Sales (S), return on assets (ROA), and profit margin (PM). However, Company Heidee has the higher debt ratio. Which of the following statements is CORRECT? a. Company Heidee has a lower operating income (EBIT) than Company LD. b. Company Heidee has a lower total assets turnover than Company Leaudy. c. Company Heidee has a lower equity multiplier than Company Leaudy. d. Company Heidee has a higher fixed assets turnover than Company Leaudy. e. Company Heidee has a higher ROE than Company Leaudy.

Q: You observe that a firm's ROE is above the industry average, but its profit margin and debt ratio are both below the industry average. Which of the following statements is CORRECT?a. Its total assets turnover must equal the industry average.b. Its total assets turnover must be above the industry average.c. Its return on assets must equal the industry average.d. Its TIE ratio must be below the industry average.e. Its total assets turnover must be below the industry average.

Q: Which of the following statements is CORRECT?a. Suppose a firm's total assets turnover ratio falls from 1.0 to 0.9, but at the same time its profit margin rises from 9% to 10%, and its debt increases from 40% of total assets to 60%. Under these conditions, the ROE will decrease.b. Suppose a firm's total assets turnover ratio falls from 1.0 to 0.9, but at the same time its profit margin rises from 9% to 10% and its debt increases from 40% of total assets to 60%. Under these conditions, the ROE will increase.c. Suppose a firm's total assets turnover ratio falls from 1.0 to 0.9, but at the same time its profit margin rises from 9% to 10% and its debt increases from 40% of total assets to 60%. Without additional information, we cannot tell what will happen to the ROE.d. The modified DuPont equation provides information about how operations affect the ROE, but the equation does not include the effects of debt on the ROE.e. Other things held constant, an increase in the debt ratio will result in an increase in the profit margin on sales.

Q: Which of the following statements is CORRECT? a. All else equal, increasing the debt ratio will increase the ROA. b. The use of debt financing will tend to lower the basic earning power ratio, other things held constant. c. A firm that employs financial leverage will have a higher equity multiplier than an otherwise identical firm that has no debt in its capital structure. d. If two firms have identical sales, interest rates paid, operating costs, and assets, but differ in the way they are financed, the firm with less debt will generally have the higher expected ROE. e. Holding bonds is better than holding stock for investors because income from bonds is taxed on a more favorable basis than income from stock.

Q: If a firm finances with only debt and common equity, and if its equity multiplier is 3.0, then its debt ratio must be 0.667. a. True b. False

Q: Suppose firms follow similar financing policies, face similar risks, have equal access to capital, and operate in competitive product and capital markets. Under these conditions, then firms that have high profit margins will tend to have high asset turnover ratios, and firms with low profit margins will tend to have low turnover ratios. a. True b. False

Q: Determining whether a firm's financial position is improving or deteriorating requires analyzing more than the ratios for a given year. Trend analysis is one method of measuring changes in a firm's performance over time. a. True b. False

Q: Pettijohn Inc.The balance sheet and income statement shown below are for Pettijohn Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over.Balance Sheet (Millions of $) Assets 2016Cash and securities $ 1,554.0Accounts receivable 9,660.0Inventories 13,440.0Total current assets $24,654.0Net plant and equipment 17,346.0Total assets $42,000.0Liabilities and Equity Accounts payable $ 7,980.0Notes payable 5,880.0Accruals 4,620.0Total current liabilities $18,480.0Long-term bonds 10,920.0Total debt $29,400.0Common stock 3,360.0Retained earnings 9,240.0Total common equity $12,600.0Total liabilities and equity $42,000.0 Income Statement (Millions of $) 2016Net sales $58,800.0Operating costs except depr'n $54,978.0Depreciation $ 1,029.0Earnings bef int and taxes (EBIT) $ 2,793.0Less interest 1,050.0Earnings before taxes (EBT) $ 1,743.0Taxes $ 610.1Net income $ 1,133.0Other data: Shares outstanding (millions) 175.00Common dividends $ 509.83Int rate on notes payable & L-T bonds 6.25%Federal plus state income tax rate 35%Year-end stock price $77.69Refer to the data for Pettijohn Inc.What is the firm's market-to-book ratio?a. 0.56b. 0.66c. 0.78d. 0.92e. 1.08

Q: Pettijohn Inc.The balance sheet and income statement shown below are for Pettijohn Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over.Balance Sheet (Millions of $) Assets 2016Cash and securities $ 1,554.0Accounts receivable 9,660.0Inventories 13,440.0Total current assets $24,654.0Net plant and equipment 17,346.0Total assets $42,000.0Liabilities and Equity Accounts payable $ 7,980.0Notes payable 5,880.0Accruals 4,620.0Total current liabilities $18,480.0Long-term bonds 10,920.0Total debt $29,400.0Common stock 3,360.0Retained earnings 9,240.0Total common equity $12,600.0Total liabilities and equity $42,000.0 Income Statement (Millions of $) 2016Net sales $58,800.0Operating costs except depr'n $54,978.0Depreciation $ 1,029.0Earnings bef int and taxes (EBIT) $ 2,793.0Less interest 1,050.0Earnings before taxes (EBT) $ 1,743.0Taxes $ 610.1Net income $ 1,133.0Other data: Shares outstanding (millions) 175.00Common dividends $ 509.83Int rate on notes payable & L-T bonds 6.25%Federal plus state income tax rate 35%Year-end stock price $77.69Refer to the data for Pettijohn Inc.What is the firm's book value per share?a. $61.73b. $64.98c. $68.40d. $72.00e. $75.60

Q: Pettijohn Inc.The balance sheet and income statement shown below are for Pettijohn Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over.Balance Sheet (Millions of $) Assets 2016Cash and securities $ 1,554.0Accounts receivable 9,660.0Inventories 13,440.0Total current assets $24,654.0Net plant and equipment 17,346.0Total assets $42,000.0Liabilities and Equity Accounts payable $ 7,980.0Notes payable 5,880.0Accruals 4,620.0Total current liabilities $18,480.0Long-term bonds 10,920.0Total debt $29,400.0Common stock 3,360.0Retained earnings 9,240.0Total common equity $12,600.0Total liabilities and equity $42,000.0 Income Statement (Millions of $) 2016Net sales $58,800.0Operating costs except depr'n $54,978.0Depreciation $ 1,029.0Earnings bef int and taxes (EBIT) $ 2,793.0Less interest 1,050.0Earnings before taxes (EBT) $ 1,743.0Taxes $ 610.1Net income $ 1,133.0Other data: Shares outstanding (millions) 175.00Common dividends $ 509.83Int rate on notes payable & L-T bonds 6.25%Federal plus state income tax rate 35%Year-end stock price $77.69Refer to the data for Pettijohn Inc.What is the firm's P/E ratio?a. 12.0b. 12.6c. 13.2d. 13.9e. 14.6

Q: Pettijohn Inc.The balance sheet and income statement shown below are for Pettijohn Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over.Balance Sheet (Millions of $) Assets 2016Cash and securities $ 1,554.0Accounts receivable 9,660.0Inventories 13,440.0Total current assets $24,654.0Net plant and equipment 17,346.0Total assets $42,000.0Liabilities and Equity Accounts payable $ 7,980.0Notes payable 5,880.0Accruals 4,620.0Total current liabilities $18,480.0Long-term bonds 10,920.0Total debt $29,400.0Common stock 3,360.0Retained earnings 9,240.0Total common equity $12,600.0Total liabilities and equity $42,000.0 Income Statement (Millions of $) 2016Net sales $58,800.0Operating costs except depr'n $54,978.0Depreciation $ 1,029.0Earnings bef int and taxes (EBIT) $ 2,793.0Less interest 1,050.0Earnings before taxes (EBT) $ 1,743.0Taxes $ 610.1Net income $ 1,133.0Other data: Shares outstanding (millions) 175.00Common dividends $ 509.83Int rate on notes payable & L-T bonds 6.25%Federal plus state income tax rate 35%Year-end stock price $77.69Refer to the data for Pettijohn Inc.What is the firm's EPS?a. $5.84b. $6.15c. $6.47d. $6.80e. $7.14

Q: Stewart Inc.'s latest EPS was $3.50, its book value per share was $22.75, it had 215,000 shares outstanding, and its debt-to-assets ratio was 46%. How much debt was outstanding?a. $3,393,738b. $3,572,356c. $3,760,375d. $3,958,289e. $4,166,620

Q: Emerson Inc.'s would like to undertake a policy of paying out 45% of its income. Its latest net income was $1,250,000, and it had 225,000 shares outstanding. What dividend per share should it declare?a. $2.14b. $2.26c. $2.38d. $2.50e. $2.63

Q: Lindley Corp.'s stock price at the end of last year was $33.50, and its book value per share was $25.00. What was its market/book ratio?a. 1.34b. 1.41c. 1.48d. 1.55e. 1.63

Q: Vang Corp.'s stock price at the end of last year was $33.50 and its earnings per share for the year were $2.30. What was its P/E ratio?a. 13.84b. 14.57c. 15.29d. 16.06e. 16.86

Q: Which of the following statements is CORRECT? a. If Firms X and Y have the same net income, number of shares outstanding, and price per share, then their market-to-book ratios must also be the same. b. If Firms X and Y have the same P/E ratios, then their market-to-book ratios must also be the same. c. If Firms X and Y have the same net income, number of shares outstanding, and price per share, then their P/E ratios must also be the same. d. If Firms X and Y have the same earnings per share and market-to-book ratio, they must have the same price earnings ratio. e. If Firm X's P/E ratio exceeds that of Firm Y, then Y is likely to be less risky and also to be expected to grow at a faster rate.

Q: The Cavendish Company 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 debt ratio increased. b. The company's current ratio increased. c. The company's times interest earned ratio decreased. d. The company's basic earning power ratio increased. e. The company's equity multiplier increased.

Q: Which of the following statements is CORRECT? a. If a firm has the highest price/earnings ratio of any firm in its industry, then, other things held constant, this suggests that the board of directors should fire the president. b. If a firm has the highest market/book ratio of any firm in its industry, then, other things held constant, this suggests that the board of directors should fire the president. c. Other things held constant, the higher a firm's expected future growth rate, the lower its P/E ratio is likely to be. d. The higher the market/book ratio, then, other things held constant, the higher one would expect to find the Market Value Added (MVA). e. If a firm has a history of high Economic Value Added (EVA) numbers each year, and if investors expect this situation to continue, then its market/book ratio and MVA are both likely to be below average.

Q: Companies A and C each reported the same earnings per share (EPS), but Company A's stock trades at a higher price. Which of the following statements is CORRECT? a. Company A trades at a higher P/E ratio. b. Company A probably has fewer growth opportunities. c. Company A is probably judged by investors to be riskier. d. Company A must have a higher market-to-book ratio. e. Company A must pay a lower dividend.

Q: Market value ratios provide management with an indication of how investors view the firm's past performance and especially its future prospects. a. True b. False

Q: Pettijohn Inc.The balance sheet and income statement shown below are for Pettijohn Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over.Balance Sheet (Millions of $) Assets 2016Cash and securities $ 1,554.0Accounts receivable 9,660.0Inventories 13,440.0Total current assets $24,654.0Net plant and equipment 17,346.0Total assets $42,000.0Liabilities and Equity Accounts payable $ 7,980.0Notes payable 5,880.0Accruals 4,620.0Total current liabilities $18,480.0Long-term bonds 10,920.0Total debt $29,400.0Common stock 3,360.0Retained earnings 9,240.0Total common equity $12,600.0Total liabilities and equity $42,000.0 Income Statement (Millions of $) 2016Net sales $58,800.0Operating costs except depr'n $54,978.0Depreciation $ 1,029.0Earnings bef int and taxes (EBIT) $ 2,793.0Less interest 1,050.0Earnings before taxes (EBT) $ 1,743.0Taxes $ 610.1Net income $ 1,133.0Other data: Shares outstanding (millions) 175.00Common dividends $ 509.83Int rate on notes payable & L-T bonds 6.25%Federal plus state income tax rate 35%Year-end stock price $77.69Refer to the data for Pettijohn Inc.What is the firm's cash flow per share?a. $10.06b. $10.59c. $11.15d. $11.74e. $12.35

Q: Pettijohn Inc.The balance sheet and income statement shown below are for Pettijohn Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over.Balance Sheet (Millions of $) Assets 2016Cash and securities $ 1,554.0Accounts receivable 9,660.0Inventories 13,440.0Total current assets $24,654.0Net plant and equipment 17,346.0Total assets $42,000.0Liabilities and Equity Accounts payable $ 7,980.0Notes payable 5,880.0Accruals 4,620.0Total current liabilities $18,480.0Long-term bonds 10,920.0Total debt $29,400.0Common stock 3,360.0Retained earnings 9,240.0Total common equity $12,600.0Total liabilities and equity $42,000.0 Income Statement (Millions of $) 2016Net sales $58,800.0Operating costs except depr'n $54,978.0Depreciation $ 1,029.0Earnings bef int and taxes (EBIT) $ 2,793.0Less interest 1,050.0Earnings before taxes (EBT) $ 1,743.0Taxes $ 610.1Net income $ 1,133.0Other data: Shares outstanding (millions) 175.00Common dividends $ 509.83Int rate on notes payable & L-T bonds 6.25%Federal plus state income tax rate 35%Year-end stock price $77.69Refer to the data for Pettijohn Inc.What is the firm's dividends per share?a. $2.62b. $2.91c. $3.20d. $3.53e. $3.88

Q: Pettijohn Inc.The balance sheet and income statement shown below are for Pettijohn Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over.Balance Sheet (Millions of $) Assets 2016Cash and securities $ 1,554.0Accounts receivable 9,660.0Inventories 13,440.0Total current assets $24,654.0Net plant and equipment 17,346.0Total assets $42,000.0Liabilities and Equity Accounts payable $ 7,980.0Notes payable 5,880.0Accruals 4,620.0Total current liabilities $18,480.0Long-term bonds 10,920.0Total debt $29,400.0Common stock 3,360.0Retained earnings 9,240.0Total common equity $12,600.0Total liabilities and equity $42,000.0 Income Statement (Millions of $) 2016Net sales $58,800.0Operating costs except depr'n $54,978.0Depreciation $ 1,029.0Earnings bef int and taxes (EBIT) $ 2,793.0Less interest 1,050.0Earnings before taxes (EBT) $ 1,743.0Taxes $ 610.1Net income $ 1,133.0Other data: Shares outstanding (millions) 175.00Common dividends $ 509.83Int rate on notes payable & L-T bonds 6.25%Federal plus state income tax rate 35%Year-end stock price $77.69Refer to the data for Pettijohn Inc.What is the firm's profit margin?a. 1.40%b. 1.56%c. 1.73%d. 1.93%e. 2.12%

Q: Pettijohn Inc.The balance sheet and income statement shown below are for Pettijohn Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over.Balance Sheet (Millions of $) Assets 2016Cash and securities $ 1,554.0Accounts receivable 9,660.0Inventories 13,440.0Total current assets $24,654.0Net plant and equipment 17,346.0Total assets $42,000.0Liabilities and Equity Accounts payable $ 7,980.0Notes payable 5,880.0Accruals 4,620.0Total current liabilities $18,480.0Long-term bonds 10,920.0Total debt $29,400.0Common stock 3,360.0Retained earnings 9,240.0Total common equity $12,600.0Total liabilities and equity $42,000.0 Income Statement (Millions of $) 2016Net sales $58,800.0Operating costs except depr'n $54,978.0Depreciation $ 1,029.0Earnings bef int and taxes (EBIT) $ 2,793.0Less interest 1,050.0Earnings before taxes (EBT) $ 1,743.0Taxes $ 610.1Net income $ 1,133.0Other data: Shares outstanding (millions) 175.00Common dividends $ 509.83Int rate on notes payable & L-T bonds 6.25%Federal plus state income tax rate 35%Year-end stock price $77.69Refer to the data for Pettijohn Inc.What is the firm's BEP?a. 6.00%b. 6.32%c. 6.65%d. 6.98%e. 7.33%

Q: Pettijohn Inc.The balance sheet and income statement shown below are for Pettijohn Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over.Balance Sheet (Millions of $) Assets 2016Cash and securities $ 1,554.0Accounts receivable 9,660.0Inventories 13,440.0Total current assets $24,654.0Net plant and equipment 17,346.0Total assets $42,000.0Liabilities and Equity Accounts payable $ 7,980.0Notes payable 5,880.0Accruals 4,620.0Total current liabilities $18,480.0Long-term bonds 10,920.0Total debt $29,400.0Common stock 3,360.0Retained earnings 9,240.0Total common equity $12,600.0Total liabilities and equity $42,000.0 Income Statement (Millions of $) 2016Net sales $58,800.0Operating costs except depr'n $54,978.0Depreciation $ 1,029.0Earnings bef int and taxes (EBIT) $ 2,793.0Less interest 1,050.0Earnings before taxes (EBT) $ 1,743.0Taxes $ 610.1Net income $ 1,133.0Other data: Shares outstanding (millions) 175.00Common dividends $ 509.83Int rate on notes payable & L-T bonds 6.25%Federal plus state income tax rate 35%Year-end stock price $77.69Refer to the data for Pettijohn Inc.What is the firm's ROE?a. 8.54%b. 8.99%c. 9.44%d. 9.91%e. 10.41%

Q: Pettijohn Inc.The balance sheet and income statement shown below are for Pettijohn Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over.Balance Sheet (Millions of $) Assets 2016Cash and securities $ 1,554.0Accounts receivable 9,660.0Inventories 13,440.0Total current assets $24,654.0Net plant and equipment 17,346.0Total assets $42,000.0Liabilities and Equity Accounts payable $ 7,980.0Notes payable 5,880.0Accruals 4,620.0Total current liabilities $18,480.0Long-term bonds 10,920.0Total debt $29,400.0Common stock 3,360.0Retained earnings 9,240.0Total common equity $12,600.0Total liabilities and equity $42,000.0 Income Statement (Millions of $) 2016Net sales $58,800.0Operating costs except depr'n $54,978.0Depreciation $ 1,029.0Earnings bef int and taxes (EBIT) $ 2,793.0Less interest 1,050.0Earnings before taxes (EBT) $ 1,743.0Taxes $ 610.1Net income $ 1,133.0Other data: Shares outstanding (millions) 175.00Common dividends $ 509.83Int rate on notes payable & L-T bonds 6.25%Federal plus state income tax rate 35%Year-end stock price $77.69Refer to the data for Pettijohn Inc.What is the firm's ROA?a. 2.70%b. 2.97%c. 3.26%d. 3.59%e. 3.95%

Q: For the coming year, Crane Inc. is considering two financial plans. Management expects sales to be $301,770, operating costs to be $266,545, assets to be $200,000, and its tax rate to be 35%. Under Plan A it would use 25% debt and 75% common equity. The interest rate on the debt would be 8.8%, but the TIE ratio would have to be kept at 4.00 or more. Under Plan B the maximum debt that met the TIE constraint would be employed. Assuming that sales, operating costs, assets, the interest rate, and the tax rate would all remain constant, by how much would the ROE change in response to the change in the capital structure?a. 3.83%b. 4.02%c. 4.22%d. 4.43%e. 4.65%

Q: Last year Swensen Corp. had sales of $303,225, operating costs of $267,500, and year-end assets of $195,000. The debt-to-total-assets ratio was 27%, the interest rate on the debt was 8.2%, and the firm's tax rate was 37%. The new CFO wants to see how the ROE would have been affected if the firm had used a 45% debt ratio. Assume that sales and total assets would not be affected, and that the interest rate and tax rate would both remain constant. By how much would the ROE change in response to the change in the capital structure?a. 2.08%b. 2.32%c. 2.57%d. 2.86%e. 3.14%

Q: Last year Altman Corp. had $205,000 of assets, $303,500 of sales, $18,250 of net income, and a debt-to-total-assets ratio of 41%. The new CFO believes the firm has excessive fixed assets and inventory that could be sold, enabling it to reduce its total assets to $152,500. Sales, costs, and net income would not be affected, and the firm would maintain the 41% debt ratio. By how much would the reduction in assets improve the ROE?a. 4.69%b. 4.93%c. 5.19%d. 5.45%e. 5.73%

Q: Last year Urbana Corp. had $197,500 of assets, $307,500 of sales, $19,575 of net income, and a debt-to-total-assets ratio of 37.5%. The new CFO believes a new computer program will enable it to reduce costs and thus raise net income to $33,000. Assets, sales, and the debt ratio would not be affected. By how much would the cost reduction improve the ROE?a. 9.32%b. 9.82%c. 10.33%d. 10.88%e. 11.42%

Q: LeCompte Corp. has $312,900 of assets, and it uses only common equity capital (zero debt). Its sales for the last year were $620,000, and its net income after taxes was $24,655. Stockholders recently voted in a new management team that has promised to lower costs and get the return on equity up to 15%. What profit margin would LeCompte need in order to achieve the 15% ROE, holding everything else constant?a. 7.57%b. 7.95%c. 8.35%d. 8.76%e. 9.20%

Q: An investor is considering starting a new business. The company would require $475,000 of assets, and it would be financed entirely with common stock. The investor will go forward only if she thinks the firm can provide a 13.5% return on the invested capital, which means that the firm must have an ROE of 13.5%. How much net income must be expected to warrant starting the business?a. $52,230b. $54,979c. $57,873d. $60,919e. $64,125

Q: Nikko Corp.'s total common equity at the end of last year was $305,000 and its net income after taxes was $60,000. What was its ROE?a. 16.87%b. 17.75%c. 18.69%d. 19.67%e. 20.66%

Q: Chambliss Corp.'s total assets at the end of last year were $305,000 and its EBIT was 62,500. What was its basic earning power (BEP)?a. 18.49%b. 19.47%c. 20.49%d. 21.52%e. 22.59%

Q: Branch Corp.'s total assets at the end of last year were $315,000 and its net income after taxes was $22,750. What was its return on total assets?a. 7.22%b. 7.58%c. 7.96%d. 8.36%e. 8.78%

Q: Rappaport Corp.'s sales last year were $320,000, and its net income after taxes was $23,000. What was its profit margin on sales?a. 6.49%b. 6.83%c. 7.19%d. 7.55%e. 7.92%

Q: Companies Heidee and Leaudy have the same total assets, sales, operating costs, and tax rates, and they pay the same interest rate on their debt. However, company Heidee has a higher debt ratio. Which of the following statements is CORRECT? a. If the interest rate the companies pay on their debt is less than their basic earning power (BEP), then Company Heidee will have the higher ROE. b. Given this information, Leaudy must have the higher ROE. c. Company Leaudy has a higher basic earning power ratio (BEP). d. Company Heidee has a higher basic earning power ratio (BEP). e. If the interest rate the companies pay on their debt is more than their basic earning power (BEP), then Company Heidee will have the higher ROE.

Q: Which of the following statements is CORRECT?a. An increase in a firm's debt ratio, with no changes in its sales or operating costs, could be expected to lower the profit margin.b. The ratio of long-term debt to total capital is more likely to experience seasonal fluctuations than is either the DSO or the inventory turnover ratio.c. If two firms have the same ROA, the firm with the most debt can be expected to have the lower ROE.d. An increase in the DSO, other things held constant, could be expected to increase the total assets turnover ratio.e. An increase in the DSO, other things held constant, could be expected to increase the ROE.

Q: Cordelion Communications is considering issuing new common stock and using the proceeds to reduce its outstanding debt. The stock issue would have no effect on total assets, the interest rate Cordelion pays, EBIT, or the tax rate. Which of the following is likely to occur if the company goes ahead with the stock issue? a. The times interest earned ratio will decrease. b. The ROA will decline. c. Taxable income will decrease. d. The tax bill will increase. e. Net income will decrease.

Q: Which of the following would indicate an improvement in a company's financial position, holding other things constant? a. The current and quick ratios both increase. b. The inventory and total assets turnover ratios both decline. c. The debt ratio increases. d. The profit margin declines. e. The EBITDA coverage ratio declines.

Q: If the CEO of a large, diversified, firm were filling out a fitness report on a division manager (i.e., "grading" the manager), which of the following situations would be likely to cause the manager to receive a better grade? In all cases, assume that other things are held constant. a. The division's DSO (days' sales outstanding) is 40, whereas the average for its competitors is 30. b. The division's basic earning power ratio is above the average of other firms in its industry. c. The division's total assets turnover ratio is below the average for other firms in its industry. d. The division's debt ratio is above the average for other firms in the industry. e. The division's inventory turnover is 6, whereas the average for its competitors is 8.

Q: A firm's new president wants to strengthen the company's financial position. Which of the following actions would make it financially stronger? a. Increase inventories while holding sales and cost of goods sold constant. b. Increase accounts receivable while holding sales constant. c. Increase EBIT while holding sales constant. d. Increase accounts payable while holding sales constant. e. Increase notes payable while holding sales constant.

Q: Suppose Firms A and B have the same amount of assets, pay the same interest rate on their debt, have the same basic earning power (BEP), and have the same tax rate. However, Firm A has a higher debt ratio. If BEP is greater than the interest rate on debt, Firm A will have a higher ROE as a result of its higher debt ratio.a. Trueb. False

Q: Since the ROA measures the firm's effective utilization of assets (without considering how these assets are financed), two firms with the same EBIT must have the same ROA. a. True b. False

Q: The basic earning power ratio (BEP) reflects the earning power of a firm's assets after giving consideration to financial leverage and tax effects. a. True b. False

Q: Profitability ratios show the combined effects of liquidity, asset management, and debt management on operating results. a. True b. False