7. A firm has a return on assets of 12 percent and a return on equity of 18 percent. What is the debt-to-total assets ratio?

8. In the year 2010, the average firm in the S&P 500 Index had a total market value of fives times stockholders equity (book value). Assume a firm had total assets of $10 million, total debt of $6 million, and net income of $600,000.

a. What is the percent return on equity?

b. What is the percent return on total market value? Does this appear to be an adequate return on the actual market value of the firm?

9. A firm has the following financial data:

Current assets $600,000

Fixed assets 400,000

Current liabilities 300,000

Inventory 200,000

If inventory increases by $100,000, what will be the impact on the current ratio, the quick ratio, and the net-working-capital-to-total-assets ratio? Show the ratios before and after the changes.

BEFORE AFTER

Current ratio

Quick ratio

Net working

capital to total assets

10. Given the following financial data, compute:

a. Return on equity.

b. Quick ratio.

c. Long-term debt to equity.

d. Fixed-charge coverage.

Assets:

Cash

$ 2,500

Accounts receivable

3,000

Inventory

6,500

Fixed assets

8,000

Total assets

$20,000

Liabilities and stockholders equity:

Short-term debt

$ 3,000

Long-term debt

2,000

Stockholders equity

15,000

Total liabilities and stockholders equity

$20,000

Income before fixed charges and taxes

$ 4,400

Interest payments

800

Lease payment

400

Taxes (35 percent tax rate)

1,120

Net income (after-taxes)

$ 2,080