Question Details

Faldo Corp sells on terms that allow customers 45 days to pay for merchandise 



1.	Which of the following statements is CORRECT?

a.	Other things held constant, the more debt a firm uses, the higher its operating margin will be.
b.	Debt management ratios show the extent to which a firm's managers are attempting to magnify returns on owners' capital through the use of financial leverage.
c.	Other things held constant, the more debt a firm uses, the higher its profit margin will be.
d.	Other things held constant, the higher a firm's debt ratio, the higher its TIE ratio will be.
e.	Debt management ratios show the extent to which a firm's managers are attempting to reduce risk through the use of financial leverage.  The higher the debt ratio, the lower the risk.

2.	Which of the following statements is CORRECT?

a.	In general, if investors regard a company as being relatively risky and/or having relatively poor growth prospects, then it will have relatively high P/E and M/B ratios.
b.	The basic earning power ratio (BEP) reflects the earning power of a firm's assets after giving consideration to financial leverage and tax effects. 
c.	The "apparent," but not necessarily the "true," financial position of a company whose sales are seasonal can change dramatically during a given year, depending on the time of year when the financial statements are constructed.  
d.	The market/book (M/B) ratio tells us how much investors are willing to pay for a dollar of accounting book value.  In general, investors regard companies with higher M/B ratios as being more risky and/or less likely to enjoy higher future growth.
e.	It is appropriate to use the fixed assets turnover ratio to appraise firms' effectiveness in managing their fixed assets if and only if all the firms being compared have the same proportion of fixed assets to total assets.

3.	Helmuth Inc's latest net income was $1,250,000, and it had 225,000 shares outstanding.  The company wants to pay out 45% of its income.  What dividend per share should it declare?

a.	$2.14
b.	$2.26
c.	$2.38
d.	$2.50
e.	$2.63
	
4.	Faldo Corp sells on terms that allow customers 45 days to pay for merchandise .  Its sales last year were $325,000, and its year-end receivables were $60,000.  If its DSO is less than the 45-day credit period, then customers are paying on time.  Otherwise, they are paying late.  By how much are customers paying early or late?  Base your answer on this equation:  DSO - Credit Period = Days early or late, and use a 365-day year when calculating the DSO.  A positive answer indicates late payments, while a negative answer indicates early payments.

a.	21.27
b.	22.38
c.	23.50
d.	24.68
e.	25.91
	
5.	Wie Corp's sales last year were $315,000, and its year-end total assets were $355,000.  The average firm in the industry has a total assets turnover ratio (TATO) of 2.4.  The firm's new CFO believes the firm has excess assets that can be sold so as to bring the TATO down to the industry average without affecting sales.  By how much must the assets be reduced to bring the TATO to the industry average, holding sales constant?

a.	$201,934
b.	$212,563
c.	$223,750
d.	$234,938
e.	$246,684



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