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Exam 8: Stock

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Question 41

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The net profit margin increases as the firm's interest expense declines.

A) True
B) False

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Question 42

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If the industry average days sales outstanding is 65 days and a firm with sales of $1,034,550 has receivables of $268,700, how much in interest expense could the firm save if the receivables turn over as quickly as the industry average and the cost of carrying the receivables is 9%?

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(This problem essentially repeats #8 but...

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Question 43

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A firm's balance sheet has the following entries: What will be each of these balance sheet entries after a a. $2 a share cash dividend b. four-for-one split c. 5 percent stock dividend (current price of the stock is $20)?

The inventory turnover for an industry is 6 (every two months)but Slow Corp. turns over its inventory 4 times a year (every three months).  If annual sales are $1,000,000 and the interest cost to carry inventory is 12 percent, what is the potential savings in interest expense if the firm achieves the industry for the turnover of its inventory?

Which of the following occurs when a 10 percent stock dividend is paid?

An inventory turnover of 3.0 suggests that inventory is sold every four months.

The debt ratio is a measure 1. of financial leverage 2. of the use of debt financing 3. of asset utilization

Advantages of the corporate form of business include

A times-interest-earned of 0.9 means that interest will not be paid.

Dividend reinvestment plans offer which advantages? 1. deferment of federal income taxes 2. a convenient means to accumulate shares 3. goodwill achieved by the firm by providing another service for its stockholders

An increase in assets financed by equity increases the debt ratio.

Which of the following is a cash inflow?

If a firm retains earnings, total equity increases.

Using the balance sheet and income statement shown below, compute the following ratios. Compare the results with the industry averages. What strengths and weaknesses are apparent?   

Some firms have more than one class of common stock.

The gross profit margin on sales tends to exceed the operating profit margins on sales.

Coverage ratios measure a firm's

Preferred stock dividends are usually cumulative.

Coverage ratios may be used to measure the safety of debt and other fixed obligations.

Both corporate earnings and cash dividends received by stockholders are taxed by the federal government.