Financial Management and Policy (FIN 551)
Due date: 6pm, Thursday, Jan 26th via Ctools
Problem Set 1
The total number of points is 20; each question is worth 1 point. Please clearly indicate one letter answer for each question. To ensure full credit, please document the reasoning behind your answer. All submissions are to be made via Ctools.
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1) The income statement represents a snapshot of account balances at one point in time. a. True b. False 2) A balance sheet is a statement of the financial position of the firm on a given date, including its asset holdings, liabilities, and equity. a. True b. False 3) An advantage of balance sheet numbers is that assets reflect current market values. a. True b. False 4) Total equity on the balance sheet increases as dividends paid increases. a. True b. False 5) Financial ratios can highlight a firm’s financial performance with regard to liquidity, solvency, and profitability. a. True b. False 6) Ratios are used to standardize financial information. a. True b. False
7) Which of the following is not a reason why financial analysts use ratio analysis? a. Ratios help to pinpoint a firm's strengths. b. Ratios restate accounting data in relative terms. c. Ratios are ideal for smoothing out the differences that may exist when comparing firms that use different accounting practices. d. Some of a firm’s weaknesses can be identified through the usage of ratios.
8) a. b. c. d.
The debt ratio is a measure of a firm’s: leverage. profitability. liquidity. efficiency.
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9) Industrial goods manufacturer Carterpilla Company earned $10,501,000 in net income. It paid out a cash dividend of $2,100,000 only to its preferred stockholders. If the firm has 750,000 shares of common stock outstanding, what is the firm’s earnings per share on the common stock? a. $14.00/share b. $16.80/share c. $11.20/share d. $2.80/share e. None of the above
(Use the following information to answer the next three questions.) Kobalt Company is the largest refiner of Cobalt mineral ore in U.S.A. The firm participates in a very competitive, fast business environment. The refining time from raw ore to pure product is almost 3 months. Hence, it maintains large inventories and provides significant credit to its customers. At the end of the year their accounts receivable is $509,000 and the inventories stand at $491,000. The total cash and equivalents were $300,000 and other remaining current assets maintained at a $100,000. At the end of the year the firm had net fixed assets of $2,050,200. The current liabilities are $925,600 and Kobalt has issued long term bonds that mature after 7 years and have a market value of $1,000,000. The book value of these bonds is 10% higher than the market value. 10) Calculate Kobalt Companies stockholders’ equity a. $1,424,600 b. $3,090,200 c. $1,524,600 d. $1,925,600 e. None of the above 11) What is the firms net working capital? a. $1,050,200 b. $950,200 c. $1,400,000 d. $474,400 e. None of the above 12) If Kobalt companies total current liabilities included $925,600 in accounts payable and $400,000 in short term debt (notes payable), how does the firms net working capital change compared to answer in b)? a. Firms net working capital increases by $925,600 +$ 400,000 b. Firms net working capital decreases by $925,600 + $400,000 c. Firms net working capital does not change. d. None of the above.
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(Use the following information to answer the next two questions.) Laser-media Inc. manufactures high capacity storage devices in a plant located at Ann Arbor, MI. The firm had a net income of $54 million and a net profit margin of 15% at the end of last year. The gross profit margin for the same year was 25%. 13) How much inventory can Lasermedia Inc. hold and still maintain an inventory turnover ratio of at least 5.7 times? a. $47.4 Million b. $32.2 Million c. $9.5 Million d. $63.2 Million e. None of...