PLEASE SHOW ALL CALCULATIONS.

Circle the letter corresponding to the correct answer. 2 points per question 20 points

1.When examining liquidity ratios, the primary emphasis is the firms

Ability to effectively employ its resources

Overall debt position

Ability to pay short-term obligations on time

Ability to earn an adequate return.

2. Which two ratios are used in the Du Pont system to create return on assets?

Return on assets and asset turnover

Profit margin and asset turnover

Return on total capital and profit margin

Inventory turnover and return on fixed assets

3. A firm as a debt-to-equity ratio of 4 (40%) debt of $250,000, a net income of $100,000, the return on equity is: SHOW CALCULATION BELOW MULTIPLE CHOICE ANSWERS.

60%

16%

30%

Theres not enough information to determine the return on equity.

4.Asset Utilization Ratios

Relate balance sheet items to income statement items

Measure how much cash is available for reinvestment into current assets

Are most important to stockholders

Measure the firms ability to generate a profit on sales

5. Which of the following is not an asset utilization ratio?

Inventory turnover

Return on assets

Fixed asset turnover

Average collection period

6. For a given level of profitability as measured by profit margin, the firms return on equity will:

Increase as its debt-to-assets ratio decreases

Decrease as its current ratio increases

Increase as its debt-to-assets ratio increases

Decrease as its times-interest-earned ratio decreases

7.Compute net increase or decrease in cash flows if Star corporation had $250,000 in net income, $30,000 in depreciation expense, a decrease of $20,000 in accounts receivable and an increase in bonds payable of $50,000?

$370,000

$350,000

$280,000

$310,000

8.Hoover, Inc. has current assets of $350,000 and fixed assets of $650,000. Current liabilities are $100,000 and long term liabilities of $250,000. There is $120,000 in preferred stock outstanding and the firm has issued 10,000 shares of common stock. Computer book value (net worth) per share.

$84.00

$53.00

$75.00

$64.00

9. If Crossroads International has $3,000,000 in total sales (75% on credit) and receivables of $500,000, what is its average collection period?

80 days

60 days

61 days

81 days

10. Investors and financial analysts wanting to evaluate the operating efficiency of a firms managers would probably look primarily at the firms

Debt utilization ratios

Liquidity ratios

Asset utilization ratios

Profitability ratios

11.Identify each of the following as increasing (+) or decreasing (-) cash flows from operating activities (o), investment activities (I), or financing activities (F). (EXAMPLE: the sale of plant and equipment would increase cash flows from investing activities, and the correct would be +1.

	1	Increase in Accounts Payable
	2	Decrease in inventory
	3	Net income from operations
	4	Payment of dividends
	5	Sale of preferred stock
	6	Increase in accrued expenses
	7	Purchase of new equipment
	8	Depreciation expense
	9	Increase in accounts receivable
	10	Decrease in notes payable
	11	Increase in net worth
	12	Increase in long-term liabilities
	13	Increase in investments
	14	Decrease in marketable securities
	15	Repurchase of common shares
	16	Increase in prepaid expenses
	17	Decrease in income taxes payable
	18	Decrease of long term bonds payable
	19	Sale of new common stock

Gerry Co. has a gross profit of $1,200,000 and $400,000 in depreciation expense. Selling and administration expense is $250,000. Given that the tax rate if 40 percent, compute the cash flow for Gerry Co. SHOW CALCULATIONS 12 points

$730,000

$550,000

$330,000

None of the above

Given the BS and IS for Simmons Mfg. Co., compute the ratios on the next page. For each ratio indicate if Simmons is doing better or worse than the industry average by providing an x in the appropriate box. SHOW CALCULATIONS ON NEXT PAGE BELOW THE CHART. 15 points

SIMMONS MANUFACTURING COMPANY

Balance Sheet

Assets Liabilities and Stockholders Equity

Cash $ 15,000 Accounts Payable $ 21,000

Accts. Receivable 22,000 Notes Payable 20,000

Inventory 30,000 Accrued Expenses 5,000

Current Assets 67,000 Current Liabilities 46,000

Net Fixed Assets 73,000 Long-Term Debt 30,000

Stockholders Equity 64,000

Total Liabilities +

Total Assets $ 140,000 Stockholders equity $140,000

Income Statement

Sales (80% credit) $120,000

Less: COGS 45,000

Gross Profit 75,000

Selling & Administrative Expenses 20,000

Rent Expense (lease) 8,000

EBIT 47,000

Interest Expense 5,000

EBT 42,000

Taxes (25%) 10,500

Net Income $ 31,500

Common Shares outstanding 15,000

EPS $ 2.10

Ratio	Ratio For Simmons	Industry Average Ratios	Better	Worse
Profit margin		17.5%
Return on assets		20.8%
Return on equity		35%
Receivables Turnover		4.44x
Avg. Collection Period		68.0 days
Fixed asset turnover		2.4x
Total asset turnover		.76x
Quick Ratio		.85
Debt to Total Assets		.45
Times interest earned		12.0x

Put the number of the term that best matches the definition in the box next to the definition.

Term	Definition	Number of Correct Term
1.Statement of Cash Flows	The allocation of the initial cost of an asset over its useful life.
2. Stockholders Equity	Represents the net cash flow that results from a firms production and sales activities
3. Income Statement	All of the assets of the firm minus liabilities and preferred stock.
4. Cash flow from financing	A financial statement that measures the profitability of the firm over a period of time.
5. Notes Payable	The relative convertibility of short-term assets into cash.
6. liquidity	A financial statement that indicates what the firm owns or possesses, and how these assets are financed in the form of liabilities or ownership interest.
7. Net worth or Book Value	Change accrual-based information from the income statement and balance sheet into cash-based information
8.Depreciation	Short-term signed obligations to banks or other creditors.
9.Balance Sheet	The total ownership position of preferred and common stockholders
10.Cash flow from Operations	Cash flow that is generated (or reduced) from the sale or repurchase of securities, the payment of cash dividends, and borrowing or repayment of debt

ElectroWizard Company produces a popular video game called Destruction, which sells for $65.

Last year, ElectroWizard sold 100,000 Destructo games, each of which costs $10 to produce.

ElectroWizard incurred selling and administrative expenses of $200,000 and a depreciation of

$100,000. In addition, ElectroWizard has a $1,000,000 loan outstanding at 8%. Its tax rate is 40%.

There are 400,000 common shares outstanding. Prepare an Income Statement for ElectroWizard

(Include EPS).

ElectroWizard Company

Income Statement

Year ended 12/31/13

Sales (100,000 @65) $6,500.000

Less: COG (100,000 @10) 1,000,000)

Less: Operating Expenses

Selling and Administration 200,000

Depreciation 100,000 300,000

Operating profit (EBIT) 5,200,000

Less: Interest expense (1,000,000 @8%) 80,000

EBIT 5,120,000

Less: taxes (40%) 2,048,000

Net Income 3,072,000

Common Shares 400,000

EPS $7.68