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QUESTION ONE Ster the following sterements are true or false and correct the underline words if necessary marks) Statement TA (correction) the inventory mover ratio and days sales outstanding (DSO) are tworation that can be used to assess how effectively the firm is managing it in consideration of current and projected operating levels 2. Rationis involves a comparison of the relationship between financial statement accounts to analyze the financial position and strength of a firm 3- Partnership is an unincorporated business owned by one individual 4. As debt increase return on assets must increase 5. We can use the fixed assets tumover ratio to legitimately compare timms in different industries as long as all the firms being compared are using the same proportion of fixed assets to total assets 6. Corporation is a legal entity created by a state, separate and distinct from its owners and managers, having unlimited life, easy transferability of ownership, and limited liability 7- Market value ratios provide management with a current assessment of how investors in the market view the firm's past performance and future prospects 8. Net Income removes effect of taxes and financial leverage. Useful for comparison 9. Current ratio is calculated by deducting inventories from current assets and dividing the remainder by current liabilities 10. The use of debt lowers equity hence must raise ROE. 11-If the equity multiplier is 2.0, the debt ratio must be 50% 12- A decline in the inventory tumover ratio suggests that the firm's liquidity position is improving 13- Since ROA measures the firm's effective utilization of assets (without considering how these assets are financed), two firms with the same EBIT must have the same ROA 14-P/E and M/B are high if ROE is low, QUESTION TWO: State the scientific concept the match each following statements 7 marks) Statement Scientific concept 1- A ratio that shows how much investors will pay for SI of eamings. 2- A ratio calculated by dividing sales by total assets. 3- A set of ratios that measure how effectively a firm is managing its assets. STAY SAFE KEEP DISTANCE + A weighted averae of the componente de terre and common 3. The ratio calculated by dividing account wie hy ver wales per day 6. A relationship exists whenever a principal fire an town their behalr 7 A ratio calculated through dividing current assets by CUTI liabilities 8. A ratio used to cure the firm's shility to meet an interest payments 9. A formule which shows that the rate of return on equity can be found as the product of the profit margin, sets turnover and equity multiplier 10- The ratio that measures net income per dollar of water 11- The ratio which indicates the ability of the firm's assets to generate operating income, calculated by dividing EBIT by total asset 12. Techniques can make statements and ratios look better. 13. The ratio of sales to net fixed assets 14. The ratio of the net income to total assets. QUESTION THREE: solve the following problems (16 marks) 1) The following data apply to Modern Furniture Co. (million Cash $250 Fixed Assets S500 $3000 Sales $150 Net Income 2.5.0X Quick ratio 5.0X Current ratio DSO 35 days 10% ROE ROA 7% Modern Furniture Co. has no preferred stock-only common cquity, current liabilities, and long. term debt. a- If Modern Furniture Co. could reduce its DSO from 35 days to 20 days while holding other things constant, how much cash could it generate? (3 Marks) QUESTION ONE Stare if the following statements are true or false and correct the underline words if necessary. (Zmarks) TE Statement (correction) The inventory turnover ratio and days sales outstanding (DSO) are two ratios that can be used to assess how effectively the firm is managing, its assets in consideration of current and projected operating levels. 2. Ratio analysis involves a comparison of the relationships between financial statement accounts and strength of a firm as to analyze the financial position 3. Partnership is an unincorporated business owned by one individual. 4. As debt increase return on assets must increase S. We can use the fixed assets turnover ratio to legitimately compare firms in different industries as long as all the firms being compared are using the same proportion of fixed assets to total assets 6. Corporation is a legal entity created by a state, separate and distinct from its owners and managers, having unlimited life, casy transferability of ownership, and limited liability 7- Market value ratios provide management with a current assessment of how investors in the market view the firm's past performance and future prospects. 8- Net Income removes effect of taxes and financial leverage. Useful for comparison 9. Current ratio is calculated by deducting inventories from current assets and dividing the remainder by current liabilities. 10- The use of debt lowers equity hence must raise ROE. 11- If the equity multiplier is 2.0, the debt ratio must be 50%. 12- A decline in the inventory turnover ratio suggests that the firm's liquidity position is improving. 13- Since ROA measures the firm's effective utilization of assets (without considering how these assets are financed), two firms with the same EBIT must have the same ROA. 14- P/E and MB are high if ROE is low. QUESTION TWO: State the scientific concept the match each following statements (7 marks) Statement Scientific concept 1- A ratio that shows how much investors will pay for $1 of earnings. 2. A ratio calculated by dividing sales by total assets. 3- A set of ratios that measure how effectively a firm is managing its assets. 4. A weighted average of the component costs or debi, preferred stock and common equity. 5. The ratio calculated by dividing nccounts receivable by average sales per day 6- A relationship exists whenever a principal hires an agent to act on their behalt 7. A ratio calculated through dividing current issets by current liabilities. 8. A ratio used to measure the firm's ability to meet its annual interest payments 9. A formula which shows that the rate of return on equity can be found as the product of the profit margin, assets tumover and equity multiplier 10- The ratio that measures net income per dollar of sales 11- The ratio which indicates the ability of the firm's assets to generate operating income; calculated by dividing EBIT by total assets. 12- Techniques can make statements and ratios look better 13. The ratio of sales to net fixed assets. 14 - The ratio of the net income to total assets. QUESTION THREE: solve the following problems (16 marks) 1) The following data apply to Modern Furniture Co. (million Cash $250 $500. Fixed Assets S3000 Sales $150 Net Income 2.5.0X Quick ratio 5.0X Current ratio DSO 35 days 10% ROE ROA 7% Modern Furniture Co. has no preferred stock-only common equity, current liabilities, and long- term debt. a- If Modern Furniture Co. could reduce its DSO from 35 days to 20 days while holding other things constant, how much cash could it generate