Principles of Finance- 4026

4-11. You are given the following information: Stockholders' equity =
$1,250; price/earnings ratio = 5; shares outstanding = 25; market/book
ratio = 1.5. Calculate the market price of a share of the company's
stock.

$ 33.33

 

$ 75.00

$ 10.00

$166.67

$133.32

4-12. A firm has a profit margin of 15 percent on sales of $20,000,000.
If the firm has debt of $7,500,000, total assets of $22,500,000, and an
after-tax interest cost on total debt of 5 percent, what is the firm's
ROA?

 8.4%

10.9%

12.0%

13.3%

15.1%

4-13. Ducheyne Electric recently declared a 15 percent stock dividend.
On the date of the stock dividend Ducheyne had 16 million shares
outstanding priced at $46 per share in the market. An accounting entry
was required on the balance sheet transferring some retained earnings to
the common stock account. If retained earnings were $280 million prior
to the transaction, what was the dollar amount of retained earnings
after the transfer?

$280.0 million

$110.4 million

$234.0 million

$277.6 million

$169.6 million

4-14. Determine the increase or decrease in cash for Rinky Supply
Company for last year, given the following information. (Assume no other
changes occurred during the past year.)

                   Decrease in marketable
securities   = $25

                   Increase in accounts
receivables    = $50

                   Increase in notes
payable           = $30

                   Decrease in accounts
payable        = $20

                   Increase in accrued wages and taxes
= $15

                   Increase in
inventories             = $35

                   Retained
earnings                   = $ 5

(Points: 10)

-$50

+$40

-$30

+$20

-$10

4-18. The degree of financial leverage for ABC Inc. is 2.5, and the
degree of financial leverage for XYZ Corporation is 1.5.  According to
this information, which firm is considered to have greater financial
risk?

a.  ABC Inc.

XYZ Corporation.

The degree of financial leverage is not a measure of financial risk, so
it is not possible to tell which firm has the greater financial risk
given the above information.

To determine which firm has the greater financial risk, we need to know
the operating income (NOI or EBIT) of each firm.  XYZ Corporation would
have less financial risk if its operating income is at least twice that
of ABC Inc.

None of the above is a correct answer.

4-22. Texas Products Inc. has a division which makes burlap bags for
the citrus industry. The unit has operating fixed costs of $10,000 per
month, and it expects to sell 42,000 bags per month. If the variable
cost per bag is $2.00, what price must the division charge in order to
break even?

$2.24

$2.47

 

$2.82

$3.15

$2.00

4-23. You are the owner of a small business which has the following
balance sheet:

            Current assets    $ 5,000          
Accounts payable  $ 1,000

            Net fixed assets  
10,000           Accruals                 
1,000

                                    
                       Long-term
debt        5,000

     
                                    
                 Common equity       8,000

            Total assets     
$15,000            Total                  
  $15,000

 

Fixed and current assets are fully utilized, and the sales/assets and
sales/spontaneous liabilities ratios will remain constant. Next year you
expect sales to increase by 50 percent. You also expect to retain $2,000
of next year's earnings within the firm. What is next year's additional
external funding requirement, i.e., what is your firm's AFN?

 

No additional funds are required.

$3,500

$4,500

$5,500

The answer depends on this year's sales level.