1)Kaye's Kitchenware has a market book ratio equal to 1 Its stock price is $15 per share and it has 4 8 million shares outstanding The firm's total capital is $115 million and it finances with only debt and common equity What is its debt to capital ratio Round your answer to two decimal places 2)Edelman Engines has $15 billion in total assets of which cash and equivalents total $80 million Its balance sheet shows $2 25 billion in current liabilities of which the notes payable balance totals $0 98 billion The firm also has $6 75 billion in long term debt and $6 billion in common equity It has 400 million shares of common stock outstanding, and its stock price is $28 per share The firm's EBITDA totals $1 792 billion Assume the firm's debt is priced at par, so the market value of its debt equals its book value What are Edelman's market book and its EV EBITDA ratios Do not round intermediate calculations Round your answers to two decimal places 3)A firm has a profit margin of 5 5 and an equity multiplier of 2 2 Its sales are $410 million, and it has total assets of $205 million What is its ROE Do not round intermediate calculations Round your answer to two decimal places 4)Baker Industries' net income is $21,000, its interest expense is $5,000, and its tax rate is 25 Its notes payable equals $23,000, long term debt equals $80,000, and common equity equals $255,000 The firm finances with only debt and common equity, so it has no preferred stock What are the firm's ROE and ROIC Do not round intermediate calculations Round your answers to two decimal places 5)Precious Metal Mining has $12 million in sales, its ROE is 16 , and its total assets turnover is 3 2 Common equity on the firm's balance sheet is 50 of its total assets What is its net income Do not round intermediate calculations Round your answer to the nearest cent 6)Broward Manufacturing recently reported the following information Net income $282,000 ROA 10 Interest expense $107,160 Accounts payable and accruals $1,000,000 7)Broward's tax rate is 25 Broward finances with only debt and common equity, so it has no preferred stock 40 of its total invested capital is debt, and 60 of its total invested capital is common equity Calculate its basic earning power (BEP), its return on equity (ROE), and its return on invested capital (ROIC) Do not round intermediate calculations Round your answers to two decimal places 8) eBook Problem Walk Through You are given the following information Stockholders' equity as reported on the firm's balance sheet $3 75 billion, price earnings ratio 19 5, common shares outstanding 170 million, and market book ratio 2 4 The firm's market value of total debt is $5 billion, the firm has cash and equivalents totaling $240 million, and the firm's EBITDA equals $1 billion What is the price of a share of the company's common stock Do not round intermediate calculations Round your answer to the nearest cent $ What is the firm's EV EBITDA Do not round intermediate calculations Round your answer to two decimal places 9) eBook Problem Walk Through Assume the following relationships for the Caulder Corp Sales Total assets 1 3 Return on assets (ROA) 4 0 Return on equity (ROE) 11 0 Calculate Caulder's profit margin and debt to capital ratio assuming the firm uses only debt and common equity, so total assets equal total invested capital Do not round intermediate calculations Round your answers to two decimal places Profit margin Debt to capital ratio 10) eBook Problem Walk Through Thomson Trucking has $24 billion in assets, and its tax rate is 25 Its basic earning power (BEP) ratio is 20 , and its return on assets (ROA) is 4 25 What is its times interest earned (TIE) ratio Round your answer to two decimal places 11) The W C Pruett Corp has $300,000 of interest bearing debt outstanding, and it pays an annual interest rate of 10 In addition, it has $700,000 of common equity on its balance sheet It finances with only debt and common equity, so it has no preferred stock Its annual sales are $0 81 million, its average tax rate is 25 , and its profit margin is 8 What are its TIE ratio and its return on invested capital (ROIC) Round your answers to two decimal places 12)Pacific Packaging's ROE last year was only 6 , but its management has developed a new operating plan that calls for a debt to capital ratio of 45 , which will result in annual interest charges of $684,000 The firm has no plans to use preferred stock, and total assets equal total invested capital Management projects an EBIT of $2,052,000 on sales of $18,000,000, and it expects to have a total assets turnover ratio of 1 7 Under these conditions, the tax rate will be 25 If the changes are made, what will be the company's return on equity Do not round intermediate calculations Round your answer to two decimal places 13)Lloyd Inc has sales of $650,000, a net income of $52,000, and the following balance sheet Cash $ 96,525 Accounts payable $ 82,875 Receivables 121,875 Notes payable to bank 39,975 Inventories 507,000 Total current liabilities $ 122,850 Total current assets $ 725,400 Long term debt 145,275 Net fixed assets 249,600 Common equity 706,875 Total assets $ 975,000 Total liabilities and equity $ 975,000 The new owner thinks that inventories are excessive and can be lowered to the point where the current ratio is equal to the industry average, 2 5, without affecting sales or net income If inventories are sold and not replaced (thus reducing the current ratio to 2 5), if the funds generated are used to reduce common equity (stock can be repurchased at book value), and if no other changes occur, by how much will the ROE change Do not round intermediate calculations Round your answer to two decimal places ROE will Select increasedecreaseItem 1 by percentage points What will be the firm's new quick ratio Do not round intermediate calculations Round your answer to two decimal places 14)Commonwealth Construction (CC) needs $3 million of assets to get started, and it expects to have a basic earning power ratio of 20 CC will own no securities, all of its income will be operating income If it so chooses, CC can finance up to 45 of its assets with debt, which will have a 7 interest rate If it chooses to use debt, the firm will finance using only debt and common equity, so no preferred stock will be used Assuming a 25 tax rate on taxable income, what is the difference between CC's expected ROE if it finances these assets with 45 debt and its expected ROE if it finances these assets entirely with common stock Round your answer to two decimal places 15) eBook Which of the following statements is most correct The higher the interest rate on a firm's debt, the lower its BEP ratio, other things held constant The higher a firm's debt ratio, the lower its BEP ratio, other things held constant If a firm's expected basic earning power (BEP) is constant for all of its assets and exceeds the interest rate on its debt, adding assets and financing them with debt will raise the firm's expected return on common equity (ROE) The higher a firm's tax rate, the lower its BEP ratio, other things held constant Statement c is false, but statements a, b, and d are true 16)MPI Incorporated has $9 billion in assets, and its tax rate is 25 Its basic earning power (BEP) ratio is 13 , and its return on assets (ROA) is 7 What is MPI's times interest earned (TIE) ratio Do not round intermediate calculations Round your answer to two decimal places 17)The Stewart Company has $1,574,500 in current assets and $551,075 in current liabilities Its initial inventory level is $362,135, and it will raise funds as additional notes payable and use them to increase inventory How much can its short term debt (notes payable) increase without pushing its current ratio below 2 0 Round your answer to the nearest dollar 18) Ingraham Inc currently has $415,000 in accounts receivable, and its days sales outstanding (DSO) is 68 days It wants to reduce its DSO to 25 days by pressuring more of its customers to pay their bills on time If this policy is adopted, the company's average sales will fall by 20 What will be the level of accounts receivable following the change Assume a 365 day year Do not round intermediate calculations Round your answer to the nearest dollar 19) Ferrell Inc recently reported net income of $10 million It has 410,000 shares of common stock, which currently trades at $47 a share Ferrell continues to expand and anticipates that 1 year from now, its net income will be $16 million Over the next year, it also anticipates issuing an additional 102,500 shares of stock so that 1 year from now it will have 512,500 shares of common stock Assuming Ferrell's price earnings ratio remains at its current level, what will be its stock price 1 year from now Do not round intermediate calculations Round your answer to the nearest cent 21) eBook Complete the balance sheet and sales information using the following financial data Total assets turnover 1 3 Days sales outstanding 73 0 days a Inventory turnover ratio 3 75 Fixed assets turnover 3 0 Current ratio 2 5 Gross profit margin on sales (Sales Cost of goods sold) Sales 30 a Calculation is based on a 365 day year Do not round intermediate calculations Round your answers to the nearest dollar Balance Sheet Cash $ Current liabilities $ Accounts receivable Long term debt 58,500 Inventories Common stock Fixed assets Retained earnings 136,500 Total assets $390,000 Total liabilities and equity $ Sales $ Cost of goods sold $ 22) Data for Barry Computer Co and its industry averages follow The firm's debt is priced at par, so the market value of its debt equals its book value Since dollars are in thousands, the number of shares is shown in thousands too Barry Computer Company Balance Sheet as of December 31, 2021 (in thousands) Cash $ 296,475 Accounts payable $ 336,005 Receivables 711,540 Other current liabilities 197,650 Inventories 592,950 Notes payable to bank 158,120 Total current assets $ 1,600,965 Total current liabilities $ 691,775 Long term debt 395,300 Net fixed assets 375,535 Common equity (88,942 5 shares) 889,425 Total assets $ 1,976,500 Total liabilities and equity $ 1,976,500 Barry Computer Company Income Statement for Year Ended December 31, 2021 (in thousands) Sales $ 2,950,000 Cost of goods sold Materials $1,180,000 Labor 767,000 Heat, light, and power 147,500 Indirect labor 324,500 2,419,000 Gross profit $ 531,000 Selling expenses 295,000 General and administrative expenses 29,500 Depreciation 59,000 Earnings before interest and taxes (EBIT) $ 147,500 Interest expense 31,624 Earnings before taxes (EBT) $ 115,876 Federal and state income taxes (25 ) 28,969 Net income $ 86,907 Earnings per share $ 0 9771 Price per share on December 31, 2021 $ 13 00 Calculate the indicated ratios for Barry Do not round intermediate calculations Round your answers to two decimal places Ratio Barry Industry Average Current 2 32 Quick 1 51 Days sales outstanding a days 42 days Inventory turnover 5 12 Total assets turnover 1 74 Profit margin 2 81 ROA 4 89 ROE 10 86 ROIC 7 90 TIE 4 71 Debt Total capital 39 86 M B 4 30 P E 15 46 EV EBITDA 9 10 a Calculation is based on a 365 day year Construct the DuPont equation for both Barry and the industry Do not round intermediate calculations Round your answers to two decimal places FIRM INDUSTRY Profit margin 2 81 Total assets turnover 1 74 Equity multiplier Select the correct option based on Barry's strengths and weaknesses as revealed by your analysis The firm's days sales outstanding ratio is more than twice as long as the industry average, indicating that the firm should loosen credit or apply a less stringent collection policy The total assets turnover ratio is well below the industry average so sales should be increased, assets increased, or both While the company's profit margin is higher than the industry average, its other profitability ratios are low compared to the industry net income should be higher given the amount of equity, assets, and invested capital However, the company seems to be in an average liquidity position and financial leverage is similar to others in the industry The firm's days sales outstanding ratio is less than the industry average, indicating that the firm should tighten credit or enforce a more stringent collection policy The total assets turnover ratio is well below the industry average so sales should be increased, assets decreased, or both While the company's profit margin is lower than the industry average, its other profitability ratios are high compared to the industry net income should be higher given the amount of equity, assets, and invested capital However, the company seems to be in an average liquidity position and financial leverage is similar to others in the industry The firm's days sales outstanding ratio is more than the industry average, indicating that the firm should tighten credit or enforce a more stringent collection policy The total assets turnover ratio is well above the industry average so sales should be increased, assets increased, or both While the company's profit margin is higher than the industry average, its other profitability ratios are low compared to the industry net income should be higher given the amount of equity, assets, and invested capital However, the company seems to be in an above average liquidity position and financial leverage is similar to others in the industry The firm's days sales outstanding ratio is comparable to the industry average, indicating that the firm should neither tighten credit nor enforce a more stringent collection policy The total assets turnover ratio is well below the industry average so sales should be increased, assets increased, or both While the company's profit margin is higher than the industry average, its other profitability ratios are low compared to the industry net income should be higher given the amount of equity, assets, and invested capital However, the company seems to be in a below average liquidity position and financial leverage is similar to others in the industry The firm's days sales outstanding ratio is more than twice as long as the industry average, indicating that the firm should tighten credit or enforce a more stringent collection policy The total assets turnover ratio is well below the industry average so sales should be increased, assets decreased, or both While the company's profit margin is higher than the industry average, its other profitability ratios are low compared to the industry net income should be higher given the amount of equity, assets, and invested capital Finally, it's market value ratios are also below industry averages However, the company seems to be in an average liquidity position and financial leverage is similar to others in the industry Suppose Barry had doubled its sales as well as its inventories, accounts receivable, and common equity during 2021 How would that information affect the validity of your ratio analysis ( Hint Think about averages and the effects of rapid growth on ratios if averages are not used No calculations are needed ) If 2021 represents a period of normal growth for the firm, ratios based on this year will be distorted and a comparison between them and industry averages will have little meaning Potential investors who look only at 2021 ratios will be misled, and a continuation of normal conditions in 2022 could hurt the firm's stock price If 2021 represents a period of normal growth for the firm, ratios based on this year will be accurate and a comparison between them and industry averages will have substantial meaning Potential investors who look only at 2021 ratios will be misled, and a return to supernormal conditions in 2022 could hurt the firm's stock price If 2021 represents a period of supernormal growth for the firm, ratios based on this year will be distorted and a comparison between them and industry averages will have substantial meaning Potential investors who look only at 2021 ratios will be well informed, and a return to normal conditions in 2022 could hurt the firm's stock price If 2021 represents a period of supernormal growth for the firm, ratios based on this year will be distorted and a comparison between them and industry averages will have little meaning Potential investors who look only at 2021 ratios will be misled, and a return to normal conditions in 2022 could hurt the firm's stock price If 2021 represents a period of supernormal growth for the firm, ratios based on this year will be accurate and a comparison between them and industry averages will have substantial meaning Potential investors need only look at 2021 ratios to be well informed, and a return to normal conditions in 2022 could help the firm's stock price 23) A firm has been experiencing low profitability in recent years Perform an analysis of the firm's financial position using the DuPont equation The firm has no lease payments but has a $1 million sinking fund payment on its debt The most recent industry average ratios and the firm's financial statements are as follows Industry Average Ratios Current ratio 2 Fixed assets turnover 6 Debt to capital ratio 20 Total assets turnover 3 Times interest earned 6 Profit margin 3 25 EBITDA coverage 10 Return on total assets 9 75 Inventory turnover 8 Return on common equity 15 10 Days sales outstanding a 19 days Return on invested capital 14 00 a Calculation is based on a 365 day year Balance Sheet as of December 31, 2021 (millions of dollars) Cash and equivalents $ 105 Accounts payable $ 66 Accounts receivables 72 Other current liabilities 17 Inventories 187 Notes payable 55 Total current assets $ 364 Total current liabilities $ 138 Long term debt 39 Total liabilities $ 177 Gross fixed assets 292 Common stock 127 Less depreciation 106 Retained earnings 246 Net fixed assets $ 186 Total stockholders' equity $ 373 Total assets $ 550 Total liabilities and equity $ 550 Income Statement for Year Ended December 31, 2021 (millions of dollars) Net sales $ 945 00 Cost of goods sold 800 00 Gross profit $ 145 00 Selling expenses 77 50 EBITDA $ 67 50 Depreciation expense 14 00 Earnings before interest and taxes (EBIT) $ 53 50 Interest expense 5 50 Earnings before taxes (EBT) $ 48 00 Taxes (25 ) 12 00 Net income $ 36 00 Calculate the following ratios Do not round intermediate calculations Round your answers to two decimal places Firm Industry Average Current ratio 2 Debt to total capital 20 Times interest earned 6 EBITDA coverage 10 Inventory turnover 8 Days sales outstanding days 19 days Fixed assets turnover 6 Total assets turnover 3 Profit margin 3 25 Return on total assets 9 75 Return on common equity 15 10 Return on invested capital 14 00 Construct a DuPont equation, and the industry Do not round intermediate calculations Round your answers to two decimal places Firm Industry Profit margin 3 25 Total assets turnover 3 Equity multiplier Do the balance sheet accounts or the income statement figures seem to be primarily responsible for the low profits The low ROE for the firm is due to the fact that the firm is utilizing more debt than the average firm in the industry and the low ROA is mainly a result of an excess investment in assets The low ROE for the firm is due to the fact that the firm is utilizing less debt than the average firm in the industry and the low ROA is mainly a result of an lower than average investment in assets Analysis of the extended Du Pont equation and the set of ratios shows that the turnover ratio of sales to assets is quite low however, its profit margin compares favorably with the industry average Either sales should be higher given the present level of assets, or the firm is carrying more assets than it needs to support its sales Analysis of the extended Du Pont equation and the set of ratios shows that the turnover ratio of sales to assets is quite low however, its profit margin compares favorably with the industry average Either sales should be lower given the present level of assets, or the firm is carrying less assets than it needs to support its sales Analysis of the extended Du Pont equation and the set of ratios shows that most of the Asset Management ratios are below the averages Either assets should be higher given the present level of sales, or the firm is carrying less assets than it needs to support its sales Which specific accounts seem to be most out of line relative to other firms in the industry The accounts which seem to be most out of line include the following ratios Current, EBITDA Coverage, Inventory Turnover, Days Sales Outstanding, and Return on Equity The accounts which seem to be most out of line include the following ratios Debt to Total Capital, Inventory Turnover, Total Asset Turnover, Return on Assets, and Profit Margin The accounts which seem to be most out of line include the following ratios Times Interest Earned, Total Asset Turnover, Profit Margin, Return on Assets, and Return on Equity The accounts which seem to be most out of line include the following ratios Inventory Turnover, Days Sales Outstanding, Fixed Asset Turnover, Profit Margin, and Return on Equity The accounts which seem to be most out of line include the following ratios Inventory Turnover, Days Sales Outstanding, Total Asset Turnover, Return on Assets, and Return on Equity If the firm had a pronounced seasonal sales pattern or if it grew rapidly during the year, how might that affect the validity of your ratio analysis Rapid growth would most likely affect the coverage ratios, with little effect on asset management ratios Seasonal sales patterns would not substantially affect your analysis Seasonal sales patterns would most likely affect the liquidity ratios, with little effect on asset management ratios Rapid growth would not substantially affect your analysis If the firm had sharp seasonal sales patterns, or if it grew rapidly during the year, many ratios would most likely be distorted It is more important to adjust the debt ratio than the inventory turnover ratio to account for any seasonal fluctuations Seasonal sales patterns would most likely affect the profitability ratios, with little effect on asset management ratios Rapid growth would not substantially affect your analysis It is possible to correct for such problems by insuring that all firms in the same industry group are using the same accounting techniques It is possible to correct for such problems by using average rather than end of period financial statement information It is possible to correct for such problems by comparing the calculated ratios to the ratios of firms in a different line of business It is possible to correct for such problems by comparing the calculated ratios to the ratios of firms in the same industry group over an extended period There is no need to correct for these potential problems since you are comparing the calculated ratios to the ratios of firms in the same industry group

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1)Kaye's Kitchenware has a market/book ratio equal to 1. Its stock price is $15 per share and it has 4.8 million shares outstanding. The firm's

1)Kaye's Kitchenware has a market/book ratio equal to 1. Its stock price is $15 per share and it has 4.8 million shares outstanding. The firm's total capital is $115 million and it finances with only debt and common equity. What is its debt-to-capital ratio? Round your answer to two decimal places.

2)Edelman Engines has $15 billion in total assets of which cash and equivalents total $80 million. Its balance sheet shows $2.25 billion in current liabilities of which the notes payable balance totals $0.98 billion. The firm also has $6.75 billion in long-term debt and $6 billion in common equity. It has 400 million shares of common stock outstanding, and its stock price is $28 per share. The firm's EBITDA totals $1.792 billion. Assume the firm's debt is priced at par, so the market value of its debt equals its book value. What are Edelman's market/book and its EV/EBITDA ratios? Do not round intermediate calculations. Round your answers to two decimal places.

3)A firm has a profit margin of 5.5% and an equity multiplier of 2.2. Its sales are $410 million, and it has total assets of $205 million. What is its ROE? Do not round intermediate calculations. Round your answer to two decimal places.

4)Baker Industries' net income is $21,000, its interest expense is $5,000, and its tax rate is 25%. Its notes payable equals $23,000, long-term debt equals $80,000, and common equity equals $255,000. The firm finances with only debt and common equity, so it has no preferred stock. What are the firm's ROE and ROIC? Do not round intermediate calculations. Round your answers to two decimal places.

5)Precious Metal Mining has $12 million in sales, its ROE is 16%, and its total assets turnover is 3.2. Common equity on the firm's balance sheet is 50% of its total assets. What is its net income? Do not round intermediate calculations. Round your answer to the nearest cent.

6)Broward Manufacturing recently reported the following information:

Net income	$282,000
ROA	10%
Interest expense	$107,160
Accounts payable and accruals	$1,000,000

7)Broward's tax rate is 25%. Broward finances with only debt and common equity, so it has no preferred stock. 40% of its total invested capital is debt, and 60% of its total invested capital is common equity. Calculate its basic earning power (BEP), its return on equity (ROE), and its return on invested capital (ROIC). Do not round intermediate calculations. Round your answers to two decimal places.

eBook Problem Walk-Through

You are given the following information: Stockholders' equity as reported on the firm's balance sheet = $3.75 billion, price/earnings ratio = 19.5, common shares outstanding = 170 million, and market/book ratio = 2.4. The firm's market value of total debt is $5 billion, the firm has cash and equivalents totaling $240 million, and the firm's EBITDA equals $1 billion. What is the price of a share of the company's common stock? Do not round intermediate calculations. Round your answer to the nearest cent.

What is the firm's EV/EBITDA? Do not round intermediate calculations. Round your answer to two decimal places.

eBook Problem Walk-Through

Assume the following relationships for the Caulder Corp.:

Sales/Total assets	1.3
Return on assets (ROA)	4.0%
Return on equity (ROE)	11.0%

Calculate Caulder's profit margin and debt-to-capital ratio assuming the firm uses only debt and common equity, so total assets equal total invested capital. Do not round intermediate calculations. Round your answers to two decimal places.

Profit margin: %

Debt-to-capital ratio: %

10)

eBook Problem Walk-Through

Thomson Trucking has $24 billion in assets, and its tax rate is 25%. Its basic earning power (BEP) ratio is 20%, and its return on assets (ROA) is 4.25%. What is its times-interest-earned (TIE) ratio? Round your answer to two decimal places.

11) The W.C. Pruett Corp. has $300,000 of interest-bearing debt outstanding, and it pays an annual interest rate of 10%. In addition, it has $700,000 of common equity on its balance sheet. It finances with only debt and common equity, so it has no preferred stock. Its annual sales are $0.81 million, its average tax rate is 25%, and its profit margin is 8%. What are its TIE ratio and its return on invested capital (ROIC)? Round your answers to two decimal places.

12)Pacific Packaging's ROE last year was only 6%, but its management has developed a new operating plan that calls for a debt-to-capital ratio of 45%, which will result in annual interest charges of $684,000. The firm has no plans to use preferred stock, and total assets equal total invested capital. Management projects an EBIT of $2,052,000 on sales of $18,000,000, and it expects to have a total assets turnover ratio of 1.7. Under these conditions, the tax rate will be 25%. If the changes are made, what will be the company's return on equity? Do not round intermediate calculations. Round your answer to two decimal places.

13)Lloyd Inc. has sales of $650,000, a net income of $52,000, and the following balance sheet:

Cash	$	96,525	Accounts payable	$	82,875
Receivables		121,875	Notes payable to bank		39,975
Inventories		507,000	Total current liabilities	$	122,850
Total current assets	$	725,400	Long-term debt		145,275
Net fixed assets		249,600	Common equity		706,875
Total assets	$	975,000	Total liabilities and equity	$	975,000

The new owner thinks that inventories are excessive and can be lowered to the point where the current ratio is equal to the industry average, 2.5, without affecting sales or net income. If inventories are sold and not replaced (thus reducing the current ratio to 2.5), if the funds generated are used to reduce common equity (stock can be repurchased at book value), and if no other changes occur, by how much will the ROE change? Do not round intermediate calculations. Round your answer to two decimal places.

ROE will -Select-increasedecreaseItem 1 by percentage points.

What will be the firm's new quick ratio? Do not round intermediate calculations. Round your answer to two decimal places.

14)Commonwealth Construction (CC) needs $3 million of assets to get started, and it expects to have a basic earning power ratio of 20%. CC will own no securities, all of its income will be operating income. If it so chooses, CC can finance up to 45% of its assets with debt, which will have a 7% interest rate. If it chooses to use debt, the firm will finance using only debt and common equity, so no preferred stock will be used. Assuming a 25% tax rate on taxable income, what is the difference between CC's expected ROE if it finances these assets with 45% debt and its expected ROE if it finances these assets entirely with common stock? Round your answer to two decimal places.

15)

eBook

Which of the following statements is most correct?

The higher the interest rate on a firm's debt, the lower its BEP ratio, other things held constant.
The higher a firm's debt ratio, the lower its BEP ratio, other things held constant.
If a firm's expected basic earning power (BEP) is constant for all of its assets and exceeds the interest rate on its debt, adding assets and financing them with debt will raise the firm's expected return on common equity (ROE).
The higher a firm's tax rate, the lower its BEP ratio, other things held constant.
Statement c is false, but statements a, b, and d are true.

16)MPI Incorporated has $9 billion in assets, and its tax rate is 25%. Its basic earning power (BEP) ratio is 13%, and its return on assets (ROA) is 7%. What is MPI's times-interest-earned (TIE) ratio? Do not round intermediate calculations. Round your answer to two decimal places.

17)The Stewart Company has $1,574,500 in current assets and $551,075 in current liabilities. Its initial inventory level is $362,135, and it will raise funds as additional notes payable and use them to increase inventory. How much can its short-term debt (notes payable) increase without pushing its current ratio below 2.0? Round your answer to the nearest dollar.

18) Ingraham Inc. currently has $415,000 in accounts receivable, and its days sales outstanding (DSO) is 68 days. It wants to reduce its DSO to 25 days by pressuring more of its customers to pay their bills on time. If this policy is adopted, the company's average sales will fall by 20%. What will be the level of accounts receivable following the change? Assume a 365-day year. Do not round intermediate calculations. Round your answer to the nearest dollar.

19) Ferrell Inc. recently reported net income of $10 million. It has 410,000 shares of common stock, which currently trades at $47 a share. Ferrell continues to expand and anticipates that 1 year from now, its net income will be $16 million. Over the next year, it also anticipates issuing an additional 102,500 shares of stock so that 1 year from now it will have 512,500 shares of common stock. Assuming Ferrell's price/earnings ratio remains at its current level, what will be its stock price 1 year from now? Do not round intermediate calculations. Round your answer to the nearest cent.

21)

eBook

Complete the balance sheet and sales information using the following financial data: Total assets turnover: 1.3 Days sales outstanding: 73.0 days^a Inventory turnover ratio: 3.75 Fixed assets turnover: 3.0 Current ratio: 2.5 Gross profit margin on sales: (Sales - Cost of goods sold)/Sales = 30% ^aCalculation is based on a 365-day year.

Do not round intermediate calculations. Round your answers to the nearest dollar.

Balance Sheet

Cash	$	Current liabilities	$
Accounts receivable		Long-term debt	58,500
Inventories		Common stock
Fixed assets		Retained earnings	136,500
Total assets	$390,000	Total liabilities and equity	$
Sales	$	Cost of goods sold	$

22)

Data for Barry Computer Co. and its industry averages follow. The firm's debt is priced at par, so the market value of its debt equals its book value. Since dollars are in thousands, the number of shares is shown in thousands too.

Barry Computer Company:
Balance Sheet as of December 31, 2021 (in thousands)

Cash	$	296,475	Accounts payable	$	336,005
Receivables		711,540	Other current liabilities		197,650
Inventories		592,950	Notes payable to bank		158,120
Total current assets	$	1,600,965	Total current liabilities	$	691,775
			Long-term debt		395,300
Net fixed assets		375,535	Common equity (88,942.5 shares)		889,425
Total assets	$	1,976,500	Total liabilities and equity	$	1,976,500

Barry Computer Company: Income Statement for Year Ended December 31, 2021 (in thousands)

Sales		$	2,950,000
Cost of goods sold
Materials	$1,180,000
Labor	767,000
Heat, light, and power	147,500
Indirect labor	324,500		2,419,000

Gross profit	$	531,000
Selling expenses		295,000
General and administrative expenses		29,500
Depreciation		59,000
Earnings before interest and taxes (EBIT)	$	147,500
Interest expense		31,624
Earnings before taxes (EBT)	$	115,876
Federal and state income taxes (25%)		28,969
Net income	$	86,907
Earnings per share	$	0.9771
Price per share on December 31, 2021	$	13.00

Calculate the indicated ratios for Barry. Do not round intermediate calculations. Round your answers to two decimal places.

Ratio	Barry	Industry Average
Current		2.32
Quick		1.51
Days sales outstanding^a	days	42	days
Inventory turnover		5.12
Total assets turnover		1.74
Profit margin	%	2.81	%
ROA	%	4.89	%
ROE	%	10.86	%
ROIC	%	7.90	%
TIE		4.71
Debt/Total capital	%	39.86	%
M/B		4.30
P/E		15.46
EV/EBITDA		9.10

^aCalculation is based on a 365-day year.
Construct the DuPont equation for both Barry and the industry. Do not round intermediate calculations. Round your answers to two decimal places.

	FIRM	INDUSTRY
Profit margin	%	2.81%
Total assets turnover		1.74
Equity multiplier

Select the correct option based on Barry's strengths and weaknesses as revealed by your analysis.
1. The firm's days sales outstanding ratio is more than twice as long as the industry average, indicating that the firm should loosen credit or apply a less stringent collection policy. The total assets turnover ratio is well below the industry average so sales should be increased, assets increased, or both. While the company's profit margin is higher than the industry average, its other profitability ratios are low compared to the industry - net income should be higher given the amount of equity, assets, and invested capital. However, the company seems to be in an average liquidity position and financial leverage is similar to others in the industry.
2. The firm's days sales outstanding ratio is less than the industry average, indicating that the firm should tighten credit or enforce a more stringent collection policy. The total assets turnover ratio is well below the industry average so sales should be increased, assets decreased, or both. While the company's profit margin is lower than the industry average, its other profitability ratios are high compared to the industry - net income should be higher given the amount of equity, assets, and invested capital. However, the company seems to be in an average liquidity position and financial leverage is similar to others in the industry.
3. The firm's days sales outstanding ratio is more than the industry average, indicating that the firm should tighten credit or enforce a more stringent collection policy. The total assets turnover ratio is well above the industry average so sales should be increased, assets increased, or both. While the company's profit margin is higher than the industry average, its other profitability ratios are low compared to the industry - net income should be higher given the amount of equity, assets, and invested capital. However, the company seems to be in an above average liquidity position and financial leverage is similar to others in the industry.
4. The firm's days sales outstanding ratio is comparable to the industry average, indicating that the firm should neither tighten credit nor enforce a more stringent collection policy. The total assets turnover ratio is well below the industry average so sales should be increased, assets increased, or both. While the company's profit margin is higher than the industry average, its other profitability ratios are low compared to the industry - net income should be higher given the amount of equity, assets, and invested capital. However, the company seems to be in a below average liquidity position and financial leverage is similar to others in the industry.
5. The firm's days sales outstanding ratio is more than twice as long as the industry average, indicating that the firm should tighten credit or enforce a more stringent collection policy. The total assets turnover ratio is well below the industry average so sales should be increased, assets decreased, or both. While the company's profit margin is higher than the industry average, its other profitability ratios are low compared to the industry - net income should be higher given the amount of equity, assets, and invested capital. Finally, it's market value ratios are also below industry averages. However, the company seems to be in an average liquidity position and financial leverage is similar to others in the industry.
Suppose Barry had doubled its sales as well as its inventories, accounts receivable, and common equity during 2021. How would that information affect the validity of your ratio analysis? (Hint: Think about averages and the effects of rapid growth on ratios if averages are not used. No calculations are needed.)
1. If 2021 represents a period of normal growth for the firm, ratios based on this year will be distorted and a comparison between them and industry averages will have little meaning. Potential investors who look only at 2021 ratios will be misled, and a continuation of normal conditions in 2022 could hurt the firm's stock price.
2. If 2021 represents a period of normal growth for the firm, ratios based on this year will be accurate and a comparison between them and industry averages will have substantial meaning. Potential investors who look only at 2021 ratios will be misled, and a return to supernormal conditions in 2022 could hurt the firm's stock price.
3. If 2021 represents a period of supernormal growth for the firm, ratios based on this year will be distorted and a comparison between them and industry averages will have substantial meaning. Potential investors who look only at 2021 ratios will be well informed, and a return to normal conditions in 2022 could hurt the firm's stock price.
4. If 2021 represents a period of supernormal growth for the firm, ratios based on this year will be distorted and a comparison between them and industry averages will have little meaning. Potential investors who look only at 2021 ratios will be misled, and a return to normal conditions in 2022 could hurt the firm's stock price.
5. If 2021 represents a period of supernormal growth for the firm, ratios based on this year will be accurate and a comparison between them and industry averages will have substantial meaning. Potential investors need only look at 2021 ratios to be well informed, and a return to normal conditions in 2022 could help the firm's stock price.

23)

A firm has been experiencing low profitability in recent years. Perform an analysis of the firm's financial position using the DuPont equation. The firm has no lease payments but has a $1 million sinking fund payment on its debt. The most recent industry average ratios and the firm's financial statements are as follows:

Industry Average Ratios

Current ratio	2		Fixed assets turnover	6
Debt-to-capital ratio	20	%	Total assets turnover	3
Times interest earned	6		Profit margin	3.25	%
EBITDA coverage	10		Return on total assets	9.75	%
Inventory turnover	8		Return on common equity	15.10	%
Days sales outstanding^a	19	days	Return on invested capital	14.00	%
^aCalculation is based on a 365-day year.

Balance Sheet as of December 31, 2021 (millions of dollars)

Cash and equivalents	$	105	Accounts payable	$	66
Accounts receivables		72	Other current liabilities		17
Inventories		187	Notes payable		55
Total current assets	$	364	Total current liabilities	$	138
			Long-term debt		39
			Total liabilities	$	177
Gross fixed assets		292	Common stock		127
Less depreciation		106	Retained earnings		246
Net fixed assets	$	186	Total stockholders' equity	$	373
Total assets	$	550	Total liabilities and equity	$	550

Income Statement for Year Ended December 31, 2021 (millions of dollars)

Net sales	$	945.00
Cost of goods sold		800.00
Gross profit	$	145.00
Selling expenses		77.50
EBITDA	$	67.50
Depreciation expense		14.00
Earnings before interest and taxes (EBIT)	$	53.50
Interest expense		5.50
Earnings before taxes (EBT)	$	48.00
Taxes (25%)		12.00
Net income	$	36.00

Calculate the following ratios. Do not round intermediate calculations. Round your answers to two decimal places.

	Firm	Industry Average
Current ratio		2
Debt to total capital	%	20	%
Times interest earned		6
EBITDA coverage		10
Inventory turnover		8
Days sales outstanding	days	19	days
Fixed assets turnover		6
Total assets turnover		3
Profit margin	%	3.25	%
Return on total assets	%	9.75	%
Return on common equity	%	15.10	%
Return on invested capital	%	14.00	%

Construct a DuPont equation, and the industry. Do not round intermediate calculations. Round your answers to two decimal places.

	Firm	Industry
Profit margin	%	3.25%
Total assets turnover		3
Equity multiplier

Do the balance sheet accounts or the income statement figures seem to be primarily responsible for the low profits?
1. The low ROE for the firm is due to the fact that the firm is utilizing more debt than the average firm in the industry and the low ROA is mainly a result of an excess investment in assets.
2. The low ROE for the firm is due to the fact that the firm is utilizing less debt than the average firm in the industry and the low ROA is mainly a result of an lower than average investment in assets.
3. Analysis of the extended Du Pont equation and the set of ratios shows that the turnover ratio of sales to assets is quite low; however, its profit margin compares favorably with the industry average. Either sales should be higher given the present level of assets, or the firm is carrying more assets than it needs to support its sales.
4. Analysis of the extended Du Pont equation and the set of ratios shows that the turnover ratio of sales to assets is quite low; however, its profit margin compares favorably with the industry average. Either sales should be lower given the present level of assets, or the firm is carrying less assets than it needs to support its sales.
5. Analysis of the extended Du Pont equation and the set of ratios shows that most of the Asset Management ratios are below the averages. Either assets should be higher given the present level of sales, or the firm is carrying less assets than it needs to support its sales.
Which specific accounts seem to be most out of line relative to other firms in the industry?
1. The accounts which seem to be most out of line include the following ratios: Current, EBITDA Coverage, Inventory Turnover, Days Sales Outstanding, and Return on Equity.
2. The accounts which seem to be most out of line include the following ratios: Debt to Total Capital, Inventory Turnover, Total Asset Turnover, Return on Assets, and Profit Margin.
3. The accounts which seem to be most out of line include the following ratios: Times Interest Earned, Total Asset Turnover, Profit Margin, Return on Assets, and Return on Equity.
4. The accounts which seem to be most out of line include the following ratios: Inventory Turnover, Days Sales Outstanding, Fixed Asset Turnover, Profit Margin, and Return on Equity.
5. The accounts which seem to be most out of line include the following ratios: Inventory Turnover, Days Sales Outstanding, Total Asset Turnover, Return on Assets, and Return on Equity.
If the firm had a pronounced seasonal sales pattern or if it grew rapidly during the year, how might that affect the validity of your ratio analysis?
1. Rapid growth would most likely affect the coverage ratios, with little effect on asset management ratios. Seasonal sales patterns would not substantially affect your analysis.
2. Seasonal sales patterns would most likely affect the liquidity ratios, with little effect on asset management ratios. Rapid growth would not substantially affect your analysis.
3. If the firm had sharp seasonal sales patterns, or if it grew rapidly during the year, many ratios would most likely be distorted.
4. It is more important to adjust the debt ratio than the inventory turnover ratio to account for any seasonal fluctuations.
5. Seasonal sales patterns would most likely affect the profitability ratios, with little effect on asset management ratios. Rapid growth would not substantially affect your analysis.
6. It is possible to correct for such problems by insuring that all firms in the same industry group are using the same accounting techniques.
7. It is possible to correct for such problems by using average rather than end-of-period financial statement information.
8. It is possible to correct for such problems by comparing the calculated ratios to the ratios of firms in a different line of business.
9. It is possible to correct for such problems by comparing the calculated ratios to the ratios of firms in the same industry group over an extended period.
10. There is no need to correct for these potential problems since you are comparing the calculated ratios to the ratios of firms in the same industry group.