4-11. You are given the following information: Stockholders' equity = $1,250; price/earnings ratio = 5; shares outstanding = 25; market/book ratio = 1.5. Calculate the market price of a share of the company's stock.
a) $ 33.33
b) $ 75.00
c) $ 10.00
4-12. A firm has a profit margin of 15 percent on sales of $20,000,000. If the firm has debt of $7,500,000, total assets of $22,500,000, and an after tax interest cost on total debt of 5 percent, what is the firm's ROA?
4-13. Ducheyne Electric recently declared a 15 percent stock dividend. On the date of the stock dividend Ducheyne had 16 million shares outstanding priced at $46 per share in the market. An accounting entry was required on the balance sheet transferring some retained earnings to the common stock account. If retained earnings were $280 million prior to the transaction, what was the dollar amount of retained earnings after the transfer?
a) $280.0 million
b) $110.4 million
c) $234.0 million
d) $277.6 million
e) $169.6 million
4-14. Determine the increase or decrease in cash for Rinky Supply Company for last year, given the following information. (Assume no other changes occurred during the past year.)
Decrease in marketable securities = $25
Increase in accounts receivables = $50
Increase in notes payable = $30
Decrease in accounts payable = $20
Increase in accrued wages and taxes = $15
Increase in inventories = $35
Retained earnings = $ 5
4-18. The degree of financial leverage for ABC Inc. is 2.5, and the degree of financial leverage for XYZ Corporation is 1.5. According to this information, which firm is considered to have greater financial risk?
a. ABC Inc.
b. XYZ Corporation.
c. The degree of financial leverage is not a measure of financial risk, so it is not possible to tell which firm has the greater financial risk given the above information.
d. To determine which firm has the greater financial risk, we need to know the operating income (NOI or EBIT) of each firm. XYZ Corporation would have less financial risk if its operating income is at least twice that of ABC Inc.
e. None of the above is a correct answer.
4-22. Texas Products Inc. has a division which makes burlap bags for the citrus industry. The unit has operating fixed costs of $10,000 per month, and it expects to sell 42,000 bags per month. If the variable cost per bag is $2.00, what price must the division charge in order to break even?
4-23. You are the owner of a small business which has the following balance sheet:
Current assets $ 5,000 Accounts payable $ 1,000
Net fixed assets 10,000 Accruals 1,000
Long-term debt 5,000
Common equity 8,000
Total assets $15,000 Total $15,000
Fixed and current assets are fully utilized, and the sales/assets and sales/spontaneous liabilities ratios will remain constant. Next year you expect sales to increase by 50 percent. You also expect to retain $2,000 of next year's earnings within the firm. What is next year's additional external funding requirement, i.e., what is your firm's AFN?
a) No additional funds are required.
e) The answer depends on this year's sales level.
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The Solution finds the correct answer for the questions about market share, return on assets, retained earnings, increase/decrease in cash, financial risk, and break even price.