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58) The maximum rate at which a firm can grow while maintaining a constant debt-equity ratio
is best defined by its:
A) rate of return on assets.
B) internal rate of growth.
C) average historical rate of growth.
D) rate of return on equity.
E) sustainable rate of growth.
59) The sustainable growth rate will be equivalent to the internal growth rate when, and only
when:
A) a firm has no debt.
B) the growth rate is positive.
C) the plowback ratio is positive but less than 1.
D) a firm has a debt-equity ratio equal to 1.
E) the retention ratio is equal to 1.
60) The sustainable growth rate:
A) assumes there is no external financing of any kind.
B) is normally higher than the internal growth rate.
C) assumes the debt-equity ratio is variable.
D) is based on receiving additional external equity financing.
E) assumes the dividend payout ratio is equal to zero.
61) If a firm bases its growth projection on the rate of sustainable growth, shows positive net
income, and has a dividend payout ratio of 30 percent, then the:
A) fixed assets will have to increase at the sustainable growth rate, even if the firm is currently
operating at only 78 percent of capacity.
B) number of common shares outstanding will increase at the same rate of growth.
C) debt-equity ratio will have to increase.
D) debt-equity ratio will remain constant while retained earnings increase.
E) fixed assets, the debt-equity ratio, and number of common shares outstanding will all
increase.
62) Marcie's Mercantile wants to maintain its current dividend policy, which is a payout ratio of
35 percent. The firm does not want to increase its equity financing but is willing to maintain its
current debt-equity ratio. Given these requirements, the maximum rate at which Marcie's can
grow is equal to:
A) 35 percent of the internal rate of growth.
B) 65 percent of the internal rate of growth.
C) the internal rate of growth.
D) the sustainable rate of growth.
E) 65 percent of the sustainable rate of growth.
63) The value of the variable "b" as used in the internal growth rate formula can be computed as:
A) 1 + Growth rate.
B) Total dividends/Net income.
C) 1 − Dividend payout ratio.
D) Net income/Total sales.
E) 1 − PE ratio.
64) The sustainable rate of growth for a firm can be increased by:
A) decreasing the debt-equity ratio.
B) decreasing the profit margin.
C) increasing the dividend payout ratio.
D) increasing the capital intensity ratio.
E) increasing the total asset turnover.
65) Financial planning models are most apt to omit:
A) the changes in net working capital required for additional sales.
B) the increases in costs required to increase sales.
C) any change in retained earnings due to changes in the income statement.
D) the timing, risk, and size of the cash flows.
E) any additions that might be needed to fixed assets.
66) DL Motors has sales of $22,400, net income of $3,600, net fixed assets of $18,700, inventory
of $2,800, and total current assets of $6,300. What is the common-size statement value of
inventory?
A) 10.07 percent
B) 13.67 percent
C) 11.20 percent
D) 12.50 percent
E) 9.84 percent
67) Weston's has sales of $38,900, net income of $2,400, total assets of $43,100, and total equity
of $24,700. Interest expense is $830. What is the common-size statement value of the interest
expense?
A) 2.13 percent
B) 3.08 percent
C) 1.93 percent
D) 2.49 percent
E) 3.46 percent
68) Southern Markets has sales of $78,400, net income of $2,400, costs of goods sold of
$43,100, and depreciation of $6,800. What is the common-size statement value of EBIT?
A) 36.35 percent
B) 38.08 percent
C) 41.93 percent
D) 32.49 percent
E) 35.46 percent
69) Jessica's Boutique has cash of $218, accounts receivable of $457, accounts payable of $398,
and inventory of $647. What is the value of the quick ratio?
A) .55
B) 1.05
C) 1.70
D) 1.32
E) 1.52
70) Browning's has a debt-equity ratio of .47. What is the equity multiplier?
A) 1.47
B) .53
C) 2.13
D) 1.13
E) 1.53
71) Cado Industries has total debt of $6,800 and a debt-equity ratio of .36. What is the value of
the total assets?
A) $18,889
B) $24,480
C) $23,520
D) $25,689
E) $25,360
72) Leo's Markets has sales of $684,000, costs of $437,000, interest paid of $13,800, total assets
of $712,000, and depreciation of $109,400. The tax rate is 21 percent and the equity multiplier is
1.6. What is the return on equity?
A) 21.30 percent
B) 23.92 percent
C) 20.06 percent
D) 19.48 percent
E) 21.98 percent
73) Rosita's Resources paid $11,310 in interest and $16,500 in dividends last year. The times
interest earned ratio is 2.9, the depreciation expense is $7,900, and the tax rate is 21 percent.
What is the value of the cash coverage ratio?
A) 3.71
B) 2.58
C) 3.60
D) 2.78
E) 3.10
74) Home Systems has sales of $312,800, cost of goods sold of $218,400, inventory of $46,300,
and accounts receivable of $62,700. How many days, on average, does it take the firm to both
sell its inventory and collect payment on the sale?
A) 142.10
B) 96.37
C) 178.21
D) 150.54
E) 124.03
75) Northern Industries has accounts receivable of $42,300, inventory of $61,200, sales of
$544,200, and cost of goods sold of $393,500. How many days, on average, does it take the firm
to sell its inventory?
A) 93.08
B) 74.92
C) 85.14
D) 56.77
E) 80.46
76) Two Sisters Dresses has net working capital of $43,800, net fixed assets of $232,400, net
income of $43,900, and current liabilities of $51,300. The tax rate is 21 percent and the profit
margin is 9.3 percent. How many dollars of sales are generated from every $1 in total assets?
A) $1.44
B) $1.32
C) $1.73
D) $.97
E) $1.06
77) Flo's Restaurant has sales of $418,000, total equity of $224,400, a tax rate of 23 percent, a
debt-equity ratio of .37, and a profit margin of 5.1 percent. What is the return on assets?
A) 6.93 percent
B) 9.50 percent
C) 11.08 percent
D) 7.13 percent
E) 13.13 percent
78) Sun Shade's has sales of $363,000, total assets of $323,500, and a profit margin of 14.6
percent. The firm has a total debt ratio of 54 percent. What is the return on equity?
A) 28.45 percent
B) 35.61 percent
C) 23.29 percent
D) 31.74 percent
E) 7.88 percent
79) Discount Mart has $876,400 in sales with a profit margin of 3.8 percent. There are 32,500
shares of stock outstanding at a market price per share of $21.60. What is the price-earnings
ratio?
A) 23.40
B) 22.60
C) 19.21
D) 21.08
E) 18.47
80) New Metals has depreciation of $28,300, interest expense of $11,400, EBIT of $62,700, a
price-earnings ratio of 8.6, a profit margin of 7.2 percent, a tax rate of 21 percent, and 37,500
shares of stock outstanding. What is the market price per share?
A) $13.48
B) $7.09
C) $9.29
D) $12.48
E) $10.92
81) A firm has 12,000 shares of stock outstanding, sales of $638,100, a profit margin of 8.2
percent, a tax rate of 21 percent, a price-earnings ratio of 11.3, and a book value per share of
$7.98. What is the market-to-book ratio?
A) 6.08
B) 5.42
C) 5.16
D) 6.17
E) 6.90
82) Preston Woods has 17,500 shares of stock outstanding along with $408,000 of interest-
bearing debt. The market and book values of the debt are the same. The firm has sales of
$697,000 and a profit margin of 6.8 percent. The tax rate is 21 percent, the debt-equity ratio is 40
percent, and the price-earnings ratio is 11.8. The firm has $130,000 of current assets of which
$41,200 is cash. What is the enterprise value multiple?
A) $1,106,308
B) $994,520
C) $830,479
D) $1,018,097
E) $926,073
83) Samuelson's has sales of $317,000, a profit margin of 8.6 percent, an equity multiplier of 1.8,
and total debt of $144,400. What is the return on equity?
A) 15.48 percent
B) 14.46 percent
C) 7.05 percent
D) 15.10 percent
E) 11.25 percent
