Question 1

A new firm is developing its business plan.It will require $565,000 of assets,and it projects $452,800 of sales and $354,300 of operating costs for the first year.Management is quite sure of these numbers because of contracts with its customers and suppliers.It can borrow at a rate of 7.5%,but the bank requires it to have a TIE of at least 4.0,and if the TIE falls below this level the bank will call in the loan and the firm will go bankrupt.What is the maximum debt-to-assets ratio the firm can use? (Hint: Find the maximum dollars of interest,then the debt that produces that interest,and then the related debt ratio.)

Accepted Answer

A)  47.33%
B)  49.82%
C)  52.45%
D)  55.21%
E)  58.11%F) A) and B)
G) A) and C)

Question 2

Companies Heidee and Leaudy are virtually identical in that they are both profitable,and they have the same total assets (TA) ,Sales (S) ,return on assets (ROA) ,and profit margin (PM) .However,Company Heidee has the higher debt ratio.Which of the following statements is CORRECT?

Accepted Answer

A)  Company Heidee has a lower operating income (EBIT)  than Company LD.
B)  Company Heidee has a lower total assets turnover than Company Leaudy.
C)  Company Heidee has a lower equity multiplier than Company Leaudy.
D)  Company Heidee has a higher fixed assets turnover than Company Leaudy.
E)  Company Heidee has a higher ROE than Company Leaudy.F) B) and C)
G) B) and D)

Question 3

Last year Altman Corp.had $205,000 of assets,$303,500 of sales,$18,250 of net income,and a debt-to-total-assets ratio of 41%.The new CFO believes the firm has excessive fixed assets and inventory that could be sold,enabling it to reduce its total assets to $152,500.Sales,costs,and net income would not be affected,and the firm would maintain the 41% debt ratio.By how much would the reduction in assets improve the ROE?

Accepted Answer

A)  4.69%
B)  4.93%
C)  5.19%
D)  5.45%
E)  5.73%F) A) and B)
G) A) and C)

Question 4

The times-interest-earned ratio is one,but not the only,indication of a firm's ability to meet its long-term and short-term debt obligations.

Accepted Answer

A) True 
 B)False

Exam 7: Analysis of Financial Statements

Correct Answer
verified

The times-interest-earned ratio is one,but not the only,indication of a firm's ability to meet its long-term and short-term debt obligations.

Correct Answer
verified

Correct Answer
verified

Companies Heidee and Leaudy are virtually identical in that they are both profitable,and they have the same total assets (TA) ,Sales (S) ,return on assets (ROA) ,and profit margin (PM) .However,Company Heidee has the higher debt ratio.Which of the following statements is CORRECT?

Correct Answer
verified

Exam 7: Analysis of Financial Statements

Correct AnswerverifiedShow Answer

The times-interest-earned ratio is one,but not the only,indication of a firm's ability to meet its long-term and short-term debt obligations.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Companies Heidee and Leaudy are virtually identical in that they are both profitable,and they have the same total assets (TA) ,Sales (S) ,return on assets (ROA) ,and profit margin (PM) .However,Company Heidee has the higher debt ratio.Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified