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ale4655 [162]
3 years ago
13

Which of the following statements is CORRECT?A. Even though Firm A's current ratio exceeds that of Firm B, Firm B's quick ratio

might exceed that of A. However, if A's quick ratio exceeds B's, then we can be certain that A's current ratio is also larger than B's.B. Suppose a firm wants to maintain a specific TIE ratio. It knows the amount of its debt, the interest rate on that debt, the applicable tax rate, and its operating costs. With this information, the firm can calculate the amount of sales required to achieve its target TIE ratio.C. Since the ROA measures the firm's effective utilization of assets without considering how these assets are financed, two firms with the same EBIT must have the same ROA.D. Suppose all firms follow similar financing policies, face similar risks, have equal access to capital, and operate in competitive product and capital markets. However, firms face different operating conditions because, for example, the grocery store industry is different from the airline industry. Under these conditions, firms with high profit margins will tend to have high asset turnover ratios, and firms with low profit margins will tend to have low turnover ratios.E. Klein Cosmetics has a profit margin of 5.0%, a total assets turnover ratio of 1.5 times, a zero debt ratio and therefore an equity multiplier of 1.0, and an ROE of 7.5%. The CFO recommends that the firm borrow money, use it to buy back stock, and raise the debt ratio to 50% and the equity multiplier to 2.0. She thinks that operations would not be affected, but interest on the new debt would lower the profit margin to 4.5%. This would probably not be a good move, as it would decrease the ROE from 7.5% to 6.5%.
Business
1 answer:
gayaneshka [121]3 years ago
7 0

Answer:

B. Suppose a firm wants to maintain a specific TIE ratio. It knows the amount of its debt, the interest rate on that debt, the applicable tax rate, and its operating costs. With this information, the firm can calculate the amount of sales required to achieve its target TIE ratio.

Explanation:

The times interest earned (TIE) ratio measures the company's ability to meet its debt obligations from its current income. The formula for calculating TIE number is 'earnings before interest and taxes (EBIT) divided by the total interest payable on all debts.

With the above definition and formula in mind it becomes <u>true</u> that if a firm wants to maintain a specific TIE ratio, If it knows the amount of its debt, the interest rate on that debt, the applicable tax rate, and its operating costs. With this information, the firm can calculate the amount of sales required to achieve its target TIE ratio, because;

With the parameters 'If it knows the amount of its debt, the interest rate on that debt,' It will work out total interest on all debts which is the denominator of TIE.

AND

With the parameters 'the applicable tax rate, and its operating costs' it will work out the Earnings Before Interest and Taxes'

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The dividend for Should I, Inc., is currently $1.40 per share. It is expected to grow at 16 percent next year and then decline l
nexus9112 [7]

Answer:

The most you would pay per share is $18.90 price per share today.

Explanation:

Note: See the attached file for the calculation of present values for year 1 to 3 dividends.

From the attached excel file, we have:

Previous year dividend in year 1 = Dividend just paid = $1.40

Total of PV of dividends from year 1 to year 3 = $4.50720663265306

Year 3 dividend = $1.55542091836735

Therefore, we have:

Year 4 dividend = Year 3 dividend * (100% + Dividend growth rate in year 4) = $1.55542091836735 * (100% + 4%) = $1.61763775510204

Price at year 3 = Year 4 dividend / (Rate of return - Perpetual dividend growth rate) = $1.61763775510204 / (12% - 4%) = $20.2204719387755

PV of price at year 3 = Price at year 3 / (100% + Required return)^Number of years = $20.2204719387755 / (100% + 12%)^3 = $14.3925325274857

Price per share today = Total of PV of dividends from year 1 to year 3 + PV of price at year 3 = $4.50720663265306 + $14.3925325274857 = $18.90

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Download xlsx
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What is one way governments try to encourage growth?.
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Governments use spending and taxing powers to promote stable and sustainable growth.

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In finance what is the time horizon
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Read 2 more answers
Cost Behavior; High-Low Method [LO2-4, LO2-5] Hoi Chong Transport, Ltd., operates a fleet of delivery trucks in Singapore. The c
vova2212 [387]

Answer:

Y=4200+0.074X

At  activity level of 80,000 kilometers total cost is $10,120

Explanation:

Variable cost=(cost at higher activity-cost at lower activity level)/(vol. at higher activity level-vol. at lower activity level)

cost at higher activity  level=105000*0.114=$11,970

cost at lower activity level=70000*$0.134=$9,380

variable cost=($11,970-$9,380)/(105,000-70,000)

                     =$0.074

The cost function is Y=a+bX

where Y is total cost

a is fixed cost

b is the variable cost

X is the volume of output at a particular level of output

by substituting variable cost at higher activity level of 105000 units

$11,970=a+($0.074*105000)

$11,970=a+$7770

a=$11,970-$7,770

a=$4,200

Y=4200+0.074X

If 80,000 kilometers were driven during the year,the total cost is computed thus:

Y=$4200+($0.074*80000)

Y=$4200+$5920

Y=$10,120

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3 years ago
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