Fin 534 – homework chapter 3
FIN 534 – Homework Chapter 3
1. Which of the subjoined propositions is CORRECT?
a. The pertinency of long-term default to completion chief is over slight to trial seasonal fluctuations than is either the DSO or the list turnover pertinency.
b. If two decideds feel the identical ROA, the decided delay the most default can be expected to feel the inferior ROE.
c. An acception in the DSO, other things held faithful, could be expected to acception the completion proceeds turnover pertinency.
d. An acception in the DSO, other things held faithful, could be expected to acception the ROE.
e. An acception in a decided’s default pertinency, delay no fluctuates in its sales or at-liberty costs, could be expected to inferior the advantage boundary.
2. Companies HD and LD feel the identical tax trounce, sales, completion proceeds, and basic earning government. Both companies feel dogmatic net allowances. Posse HD has a preferable default pertinency and, consequently, a preferable curiosity-behalf payment. Which of the subjoined propositions is CORRECT?
a. Posse HD has a inferior equity multiplier.
b. Posse HD has over net allowance.
c. Posse HD pays over in taxes.
d. Posse HD has a inferior ROE.
e. Posse HD has a inferior times curiosity-behalf earned (TIE) pertinency.
3. Companies HD and LD feel the identical completion proceeds, sales, at-liberty costs, and tax trounces, and they pay the identical curiosity-behalf trounce on their default. However, posse HD has a preferable default pertinency. Which of the subjoined propositions is CORRECT?
a. Given this notice, LD must feel the preferable ROE.
b. Posse LD has a preferable basic earning government pertinency (BEP).
c. Posse HD has a preferable basic earning government pertinency (BEP).
d. If the curiosity-behalf trounce the companies pay on their default is over than their basic earning government (BEP), then Posse HD obtain feel the preferable ROE.
e. If the curiosity-behalf trounce the companies pay on their default is short than their basic earning government (BEP), then Posse HD obtain feel the preferable ROE.
4. Muscarella Inc. has the subjoined neutralize prevarication and allowance proposition data:
Cash $ 14,000 Accounts payable $ 42,000
Receivables 70,000 Other exoteric liabilities 28,000
Inventories 210,000 Completion CL $ 70,000
Total CA $294,000 Long-term default 70,000
Net urban proceeds 126,000 Low equity 280,000
Total proceeds $420,000 Completion liab. and equity $420,000
Net allowance $ 21,000
The new CFO thinks that inventories are immodereprimand and could be inferiored sufficiently to principle the exoteric pertinency to resembling the activity middle, 2.70, delayout imposing either sales or net allowance. Assuming that inventories are sold off and not replaced to get the exoteric pertinency to the target smooth, and that the funds generated are used to buy tail low supply at bulk prize, by how ample would the ROE fluctuate?
5. Quigley Inc. is regarding two financial plans for the hence year. Management expects sales to be $301,770, at-liberty costs to be $266,545, proceeds to be $200,000, and its tax trounce to be 35%. Under Plan A it would use 25% default and 75% low equity. The curiosity-behalf trounce on the default would be 8.8%, but the TIE pertinency would feel to be kept at 4.00 or over. Under Plan B the zenith default that met the TIE distraction would be filled. Assuming that sales, at-liberty costs, proceeds, the curiosity-behalf trounce, and the tax trounce would all survive faithful, by how ample would the ROE fluctuate in confutation to the fluctuate in the chief construction?