Reference no: EM13203810

Questions 1.

The most recent financial statements for Live Co. are shown here:

Income Statement			Balance Sheet
Sales	$13,250	Current assets	$10,400	Debt	$51,000
Costs	9,480	Fixed assets	28,750	Equity	21,650
Taxable income	$3,770	Total	$39,150	Total	$39,150
Taxes (34%)	1,508
Net income	$2,262

Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 30 percent dividend payout ratio. No external equity financing is possible.

Required:

What is the internal growth rate?

1. 4.11%
2. 7.89%
3. 1.76%
4. 4.21%
5. 4.31%

Questions 2.

McCormac Co. wishes to maintain a growth rate of 12 percent a year, a debt-equity ratio of 1.20, and a dividend payout ratio of 30 percent. The ratio of total assets to sales is constant at .75.

Required:

What profit margin must the firm achieve?

1. 21.65%
2. 9.28%
3. 12.18%
4. 5.47%
5. 5.22%

Seaweed Mfg., Inc., is currently operating at only 95 percent of fixed asset capacity. Fixed assets are $440,000. Current sales are $550,000 and projected to grow to $630,000.

Required:

How much in new fixed assets are required to support this growth in sales?

1. $38,700
2. $38,800
3. $64,000
4. $38,900
5. $39,000

Questions 3.

Assume that the following ratios are constant.

Total asset turnover	2.50
Profit margin	7.8%
Equity multiplier	1.80
Payout ratio	60%

Required:

What is the sustainable growth rate?

1. 16.33%
2. 16.83%
3. -8.56%
4. -5.87%
5. 26.68%

Questions 4.

The most recent financial statement for Throwing Copper Co. are shown here:

Income Statement			Balance Sheet
Sales	$42,000	Current assets	$21,000	Long-term debt	$51,000
Costs	28,500	Fixed assets	86,000	Equity	56,000
Taxable income	$13,500	Total	$107,000	Total	$107,000
Taxes (34%)	4,590
Net income	$8,910

Assets and costs are proportional to sales. The company maintains a constant 30 percent dividend payout ratio and a constant debt-equity ratio.

Required:

What is the maximum increase in sales that can be sustained assuming no new equity is issued?

1. $5,364.03
2. $5,164.03
3. $2,105.24
4. $5264.03
5. $2,599.70

Questions 5.

Consider the following simplified financial statements for the Phillips Corporation (assuming no income taxes):

Income Statement			Balance Sheet
Sales	$23,000	Assets	$15,800	Debt	$5,200
Costs	16,700			Equity	10,600
Net income	$6,300	Total	$15,800	Total	$15,800

Phillips has predicated a sales increase of 15 percent. It has predicated that every item on the balance sheet will increase by 15 percent as well.

Required:

Calculate the dividend paid.

1. $5,555
2. $5,755
3. $5,655
4. $4,875
5. $5,855

Questions 6.

If the Gamett Corp. has a 15 percent ROE and a 25 percent payout ratio, what is its sustainable growth rate?

1. 3.90%
2. 12.68%
3. 12.78%
4. 12.88%
5. 12.58%

Questions 7.

A firm wishes to maintain a growth rate of 11.5 percent and dividend payout ratio of 30 percent. The ratio of total assets to sales is constant at .60, and the profit margin is 6.2 percent. If the firm also wishes to maintain a constant debt-equity ratio, what must it be?

1. 0.42
2. 2.46
3. 2.33
4. 0.43
5. 0.44

Questions 8.

The most recent financial statement for Zoso, Inc., are shown here (assuming no income taxes):

Income Statement			Balance Sheet
Sales	$6,300	Assets	$18,300	Debt	$12,400
Costs	3,890			Equity	5,900
Net Income	$2,410	Total	$18,300	Total	$18,300

Assets and costs are proportional to sales. Debt and equity are not. No dividends are paid. Next year's sales are projected to be $7,434.

Required:

What is the external financing needed?

1. $450
2. $430
3. $2,232
4. $475
5. $470