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Question
Which of the following statements is CORRECT?
a. Assume that two firms are both following generally accepted accounting principles. Both firms commenced operations two years ago with $1 million of identical fixed assets, and neither firm either sold any of those assets or purchased any new fixed assets. The two firms would be required to report the same amount of net fixed assets on their balance sheets as those statements are presented to investors.
b. Assets other than cash are expected to produce cash over time, and the amount of cash they eventually produce must be the same as the amounts at which the assets are carried on the books.
c. The income statement shows the difference between a firm's income and its costsi.e., its profitsduring a specified period of time. However, all reported income comes in the form of cash, and reported costs likewise are consistent with cash outlays. Therefore, there will not be a substantial difference between a firm's reported profits and its actual cash flow for the same period.
d. The primary reason the annual report is important in finance is that it is used by investors when they form expectations about the firm's future earnings and dividends and the riskiness of those cash flows.
e. EPS stands for "earnings per share," while DPS stands for "dividends per share." We would normally expect to see DPS exceed EPS.
Answer
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Related questions
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A firm's peak borrowing needs will probably be overstated if it bases its monthly cash budget on the assumption that both cash receipts and cash payments occur uniformly over the month but in reality payments are concentrated at the beginning of each month.
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Q:
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Q:
Last year Jain Technologies had $250 million of sales and $100 million of fixed assets, so its Fixed Assets/Sales ratio was 40%. However, its fixed assets were used at only 40% of capacity. Now the company is developing its financial forecast for the coming year. As part of that process, the company wants to set its target Fixed Assets/Sales ratio at the level, it would have had, had it been operating at full capacity. What target Fixed Assets/Sales ratio should the company set?
a. 13.3%
b. 14.1%
c. 16.0%
d. 18.2%
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ANSWER: c
RATIONALE: Sales $250
Fixed assets $100
% of capacity utilized 40%
Sales at full capacity = Actual sales / % of capacity used = $625.00
u200b
Target FA/Sale ratio = Actual FA/Full capacity sales = 16.0%
LOCAL STANDARDS: United States - OH - Default City - N/A - Since we still do not have the Cengage Business School Outcomes, you do not need to include anything for this category.
35. Fairchild Garden Supply expects $590 million of sales this year, and it forecasts a 15% increase for next year. The CFO uses this equation to forecast inventory requirements at different levels of sales: Inventories = $30.2 + 0.25(Sales). All dollars are in millions. What is the projected inventory turnover ratio for the coming year?
a. 3.84 times
b. 3.23 times
c. 3.63 times
d. 3.60 times
e. 3.40 times
ANSWER: e
RATIONALE: Current yr.'s sales $590
Growth rate 15%
Projected sales $678.5
Req. inventories = $30.2 + 0.25 Projected sales
= $30.2 + 0.25 $678.5 = $199.8
u200b
Inventory turnover ratio = Sales / Inventories = 3.40 times
u200b
LOCAL STANDARDS: United States - OH - Default City - N/A - Since we still do not have the Cengage Business School Outcomes, you do not need to include anything for this category.
Q:
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b. The company increases its dividend payout ratio.
c. The company begins to pay employees monthly rather than weekly.
d. The companys profit margin increases.
e. The company decides to stop taking discounts on purchased materials.
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Q:
Zervos Inc. had the following data for last year (in millions). The new CFO believes (1) that an improved inventory management system could lower the average inventory by $4,000, (2) that improvements in the credit department could reduce receivables by $2,000, and (3) that the purchasing department could negotiate better credit terms and thereby increase accounts payable by $2,000. Furthermore, she thinks that these changes would not affect either sales or the costs of goods sold. If these changes were made, by how many days would the cash conversion cycle be lowered? Do not round your intermediate calculations.
Original Revised
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Cost of goods sold: unchanged $80,000 $80,000
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Average receivables: lowered by $2,000 $16,000 $14,000
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u200b
a. 37.41 days
b. 28.57 days
c. 37.75 days
d. 34.01 days
e. 25.51 days
Q:
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Q:
Which of the following statements is CORRECT?
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b. If cash inflows from collections occur in equal daily amounts but most payments must be made on the 10th of each month, then a regular monthly cash budget will be misleading. The problem can be corrected by using a daily cash budget.
c. Sound working capital policy is designed to maximize the time between cash expenditures on materials and the collection of cash on sales.
d. If a firm wants to generate more cash flow from operations in the next month or two, it could change its credit policy from 2/10, net 30 to net 60.
e. If a firm sells on terms of net 90, and if its sales are highly seasonal, with 80% of its sales in September, then its DSO as it is typically calculated (with sales per day = Sales for past 12 months/365) would probably be lower in October than in August.
Q:
Ingram Office Supplies, Inc., buys on terms of 2/15, net 50 days. It does not take discounts, and it typically pays on time, 50 days after the invoice date. Net purchases amount to $300,000 per year. On average, what is the dollar amount of costly trade credit (total credit free credit) the firm receives during the year? (Assume a 365-day year, and note that purchases are net of discounts.) Do not round intermediate calculations.
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Q:
A firm buys on terms of 3/15, net 45. It does not take the discount, and it generally pays after 110 days. What is the nominal annual percentage cost of its non-free trade credit, based on a 365-day year?
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Q:
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b. $41.34
c. $40.15
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e. $31.40
Q:
Whitman Antique Cars Inc. has the following data, and it follows the residual dividend model. Some Whitman family members would like more dividends, and they also think that the firm's capital budget includes too many projects whose NPVs are close to zero. If Whitman reduced its capital budget to the indicated level, by how much could dividends be increased, holding other things constant?
u200b
Original capital budget $3,000,000
New capital budget $2,150,000
Net income $3,500,000
% Debt 33%
u200b
a. $438,515
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Q:
Chicago Brewing has the following data, dollars in thousands. If it follows the residual dividend model, what will its dividend payout ratio be?
Capital budget $5,700
% Debt 45%
Net income (NI) $3,300
u200b
a. 3.95%
b. 5.00%
c. 5.90%
d. 5.35%
e. 5.55%