Question
13) Exhibit 4.1 The balance sheet and income statement shown below are for Gray Inc. Note that the firm has no amortization charges, it does
13) Exhibit 4.1 The balance sheet and income statement shown below are for Gray 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 2021
Cash and securities $3,000
Accounts receivable 15,000
Inventories 18,000
Total current assets $36,000
Net plant and equipment $24,000
Total assets $60,000
Liabilities and Equity Accounts payable $17,160
Accruals 9,240
Notes payable 6,000
Total current liabilities $32,400
Long-term bonds $12,000
Total liabilities $44,400
Common stock $3,900
Retained earnings 11,700
Total common equity $15,600
Total liabilities and equity $60,000
Income Statement (Millions of $) 2021 Net sales $66,000
Operating costs except depreciation 61,380
Depreciation 1,320
Earnings before interest and taxes (EBIT) $3,300
Less interest 1,080
Earnings before taxes (EBT) $2,220
Taxes (25%) 555
Net income $1,665
Other data: Shares outstanding (millions) 500.00
Common dividends (millions of $) $582.75
Int. rate on notes payable & L-T bonds 6%
Federal plus state income tax rate 25%
Year-end stock price $39.96
Refer to Exhibit 4.1. What is the firm's ROE? Do not round your intermediate calculations. Group of answer choices
a)10.67% b)9.61% c)11.42% d)9.82% e)11.85%
14) Which of the following statements is CORRECT? Group of answer choices
A)Proprietorships and partnerships generally have a tax advantage over corporations. B)Proprietorships are subject to more regulations than corporations. C)In any partnership, every partner has the same rights, privileges, and liability exposure as every other partner. D)Corporations of all types are subject to the corporate income tax. E)One of the disadvantages of incorporating your business is that you could become subject to the firm's liabilities in the event of bankruptcy.
15) Wu Systems has the following balance sheet. Assume that all current assets are used in operations. How much net operating working capital does the firm have? Cash $ 100 Accounts payable $ 200 Accounts receivable 650 Accruals 290 Inventory 550 Notes payable 410 Current assets $ 1,300 Total current liabilities $ 900 Net fixed assets $ 1,000 Long-term bonds 600 Total liabilities $ 1,500 Common stock 300 Retained earnings 500 Common equity $ 800 Total assets $ 2,300 Total liab. & equity $ 2,300
Group of answer choices
a)$713 b)$810 c)$761 d)$915 e)$988
16) On the balance sheet, total assets must always equal the sum of total liabilities and equity. Group of answer choices
True
False
17) Other things held constant, the more debt a firm uses, the lower the firm's return on total assets will be. Group of answer choices
True
False
18) The current and quick ratios help us measure a firm's liquidity. The current ratio measures the relationship of the firm's current assets to its current liabilities, while the quick ratio measures the firm's ability to pay off short-term obligations without relying on the sale of inventories. Group of answer choices
True
False
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