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REVISION
INCOME STATEMENT
How much does each additional sales
dollar contribute toward profit for a firm
with $6 million break-even level of
revenues and $1.5 million in fixed costs
including depreciation?
a) $0.30;
b) $0.25;
c) $0.75;
d) $0.50;
INCOME STATEMENT
A manufacturer contemplates a change in
technology that would reduce fixed costs from
$800,000 to $600,000, and reduce depreciation
expense from $125,000 to $100,000. However,
the ratio of variable costs to sales will increase
from 68% to 80%. What will happen to breakeven level of revenues?
a) A reduction to the level of $875,000.
b) A reduction to the level of $2,890,625.
c) An increase to the level of $3,500,000.
d) An increase to the level of $3,625,000.
INCOME STATEMENT
For a firm with a DOL (degree of operating
leverage) of 1.5, an increase in sales of
6% will:
a) increase operating profits by 1.5%.
b) decrease operating profits by 1.5%.
c) increase operating profits by 9 %.
d) increase operating profits by 7.5%.
Ratio Analysis
Kanji Company had sales last year of $265 million,
including cash sales of $25 million. If its average
collection period was 36 days, its ending
accounts receivable balance is closest to
.
(Assume a 365-days year.)
$26.1 million
$23.7 million
$7.4 million
$18.7 million
Ratio Analysis
An increase in the firm's receivable
turnover ratio means that:
it is collecting credit sales more quickly
than before.
cash sales have decreased.
it has initiated more liberal credit terms.
inventories have increased.
Ratio Analysis
Felton Farm Supplies, Inc., has an 8 percent
return on total assets of $300,000 and a
net profit margin of 5 percent. What are its
sales?
$3,750,000
$480,000
$300,000
$1,500,000
Ratio Analysis
Determine a firm's total asset turnover
(TAT) if its net profit margin (NPM) is 5
percent, total assets are $8 million, and
ROA is 8 percent.
1.60
2.05
2.50
4.00
Ratio Analysis
Profit Margin and ROE Burger Corp has $500,000 of
assets, and it uses only common equity capital (zero
debt). Its sales for the last year were $600,000, and its
net income after taxes was $25,000. Stockholders
recently voted in a new management team that has
promised to lower costs and get the return on equity up
to 15%. What profit margin would Burger need in order
to achieve the 15% ROE, holding everything else
constant?
a. 8.00%
b. 9.50%
c. 11.00%
d. 12.50%
Ratio Analysis
A firm's inventory turnover (IT) is 5 times on a cost
of goods sold (COGS) of $800,000. If the IT is
improved to 8 times while the COGS remains
the same, a substantial amount of funds is
released from or additionally invested in
inventory. In fact,
$160,000 is released.
$100,000 is additionally invested.
$60,000 is additionally invested.
$60,000 is released.
Ratio Analysis
Which of the following would NOT improve
the current ratio?
Borrow short term to finance additional
fixed assets.
Issue long-term debt to buy inventory.
Sell common stock to reduce current
liabilities.
Sell fixed assets to reduce accounts
payable.
Ratio Analysis