Reference no: EM132543805

Comment on the following statements.

1- Capital structure ratio measures the ability of the company to meet its annual interests.

2- There is only one type of risk that face bondholders.

3- It is better for the company to call the bonds, if the market interest rate is going down.

4- The required rate of return on bonds is higher than on common stocks.

5. Cash ratio should not exceed one.

6. Maximizing earning per share is the main objective of financial management.

7. Agency relationships exist only between stockholders and managers.

8. The P/E's ratio is an effective way in evaluating the common stock price with constant growth rate.

9. Bankruptcy risk is the risk that the company does not have enough money to pay internet payment and the face value of the loan.

10. The higher the EPS the higher the pay-out ratio.

11. The higher the liquidity ratio, the riskier the company is.

12. Quick ratio is more conservative than cash ratio in measuring the company's liquidity.

13. There a negative relationship between the DSO and Inventory turnover.

14. The longer the average selling period the better the company position in managing its inventory.

15. Profitability ratios measure the ability of the company to generate sales from using its assets.

Question 1. Firestone company has EBIT of $10,350 and NI of $2,528.50. The tax rate is 35%. What is the Interests coverage ratio?

Question 2. If the days of sales in inventory for British company is 31 days and the days of sales outstanding is 22 days. What is the inventory turnover rate?

Question 3. If the average selling period for American Eagle company is 85 days, and the cost of goods sold for the year are $1,250,000. What is the average value of the firm's inventory?

Question 4. If you know that the days of sales in inventory for PEPSI is 40 days and the days of sales outstanding is 24 days. The firm has sales of $491,600 and costs of goods sold of $407,300. What is the accounts receivable turnover rate?

Question 5. Yorkshire Inc., has total equity of $639,400 and net income of $51,700. The debt-equity ratio is 0.55 and the total asset turnover is 1.4. What is the profit margin?

Question 6. Dixons Inc., has sales of $510,400, total equity of $250,000, a profit margin of 8 percent and a debt-equity ratio of .60. What is the return on assets?

Question 7. Zaro stores has total assets of $248,000 and an equity multiplier of 2.5. What is the debt-equity ratio?

Question 8. ABC firm has cash of $1,600, accounts receivable of $2,500, inventory of $1,900, and net working capital of $500. What is the cash ratio?