Chapter 3: Assignment 1. Doggieworld Corp's total assets at the end of last year were $300,000 and its net income after taxes was $25,530. What was its return on total assets? A. 8.15% B. 8.33% C. 8.51% D. 8.69% E. 8.87% 2. Catco Corp's total common equity at the end of last year was $300,000 and its net income after taxes was $59,010. What was its ROE? A. 18.33% B. 18.67% C. 19.00% D. 19.33% E. 19.67% 3. Jimmy Corp's stock price at the end of last year was $31.15 and its earnings per share for the year were $2.45. What was its P/E ratio? A. 11.65 B. 12.00 C. 12.35 D. 12.71 E. 13.05 4. The Wilson Corporation has the following results: Sales/Total assets 2.0 Return on assets (ROA) 6.0% Return on equity (ROE) 8.0% What is Wilsons profit margin and debt ratio? A. 3%; 1.33 B. 3%; 0.75 C. 3%; 0.25 D. 2%; 0.33 E. None of the above 5. The Carter Co.s return on equity (ROE) is 18%. If sales were $4 million, the debt ratio was 40%, and total liabilities were $2 million, what would be Carters return on assets (ROA)? A. 10.80% B. 0.80% C. 1.25% D. 12.60% E. Insufficient information 6. Inflation can distort A. inventory costs. B. cost of goods sold. C. interest write-offs. D. salaries and wages. 7. The ________ ratios are primarily measures of return. A. liquidity B. activity C. debt D. profitability 8. If you were given the average collection period of a firm was currently 45 days, that the average collection of the firm for the past 3 years was 30 days and that the average collection period of the firm's industry for the past few years and currently was 30 days, would you want to know any other information to evaluate the effectiveness of the firm's credit and collection policies? A. No, the firm obviously has a problem with its credit and collection policies. B. Yes, you would also want to know what the firm's credit terms are and especially if they had recently changed from 30 to 45 days. C. No, the firm does not seem to have any issues with its credit and collection policies. D. Yes, you would want to know what the average collection period was for the past few years and currently of the market in general. 9. The ________ of a business firm is measured by its ability to satisfy its short-term obligations as they come due. A. activity B. liquidity C. debt D. profitability 10. The ________ is useful in evaluating credit and collection policies. A. average payment period B. current ratio C. average collection period D. current asset turnover 11. The two basic measures of liquidity are A. inventory turnover and current ratio. B. current ratio and quick ratio. C. gross profit margin and ROE. D. current ratio and total asset turnover. 12. The ________ is a measure of liquidity which excludes ________, generally the least liquid asset. A. current ratio; accounts receivable B. quick ratio; accounts receivable C. current ratio; inventory D. quick ratio; inventory 13. The ________ ratio may indicate poor collections procedures or a lax credit policy. A. average payment period B. inventory turnover C. average collection period D. quick 14. ABC Corp. extends credit terms of 45 days to its customers. Its credit collection would likely be considered poor if its average collection period was A. 30 days. B. 36 days. C. 47 days. D. 57 days. 15. A firm has a current ratio of 1; in order to improve its liquidity ratios, this firm might A. improve its collection practices, thereby increasing cash and increasing its current and quick ratios. B. improve its collection practices and pay accounts payable, thereby decreasing current liabilities and increasing the current and quick ratios. C. decrease current liabilities by utilizing more long-term debt, thereby increasing the current and quick ratios. D. increase inventory, thereby increasing current assets and the current and quick ratios. 16. A firm with a total asset turnover that is lower than industry standard but with a current ratio which meets industry standard must have excessive A. fixed assets. B. inventory. C. accounts receivable. D. debt. 17. The ________ ratio measures the proportion of total assets financed by the firm's creditors. A. total asset turnover B. fixed asset turnover C. current D. debt 18. A firm with sales of $1,000,000, net profits after taxes of $30,000, total assets of $1,500,000, and total liabilities of $750,000 has a return on equity of _____. . A. 20 percent. B. 15 percent. C. 3 percent. D. 4 percent. 19. The DuPont system merges the income statement and balance sheet into two summary measures of profitability A. net profit margin and return on total assets. B. net profit margin and return on equity. C. return on total assets and return on equity. D. net profit margin and price/earning ratio. 20. A decrease in total asset turnover will result in ________ in the return on equity. Hint: Think about DuPont System Analysis A. an increase B. a decrease C. no change D. an undetermined change