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Permanent Funds Requirements

Address the following word problems. Use the charts attached and show your work.

8) A firm had the following accounts and financial data for 2005:

Sales Revenue $3,060 Cost of goods sold $1,800
Accounts receivable 500 Preferred stock dividends 18
Interest expense 126 Tax rate 40%
Total operating expenses 600 Number of common shares 1,000 outstanding
Accounts payable 240

The firm's earnings per share, rounded to the nearest cent, for 2005 was ________.
A) $0.5335
B) $0.5125
C) $0.3204
D) $0.3024

Answer: ________

9) A firm had the following accounts and financial data for 2005.
Sales Revenue $3,060 Cost of goods sold $1,800
Accounts receivable 500 Preferred stock dividends 18
Interest expense 126 Tax rate 40%
Total operating expenses 600 Number of common shares 1,000
Accounts payable 240 outstanding

The firm's net profit after taxes for 2005 was ______.
A) -$206.40
B) $213.80
C) $320.40
D) $206.25

Answer: ________

10) Paid-in-capital in excess of par represents the amount of proceeds
A) from the original sale of stock.
B) in excess of the par value from the original sale of common stock.
C) at the current market value of common stock.
D) at the current book value of common stock.

Answer: ________

11) A firm had year end 2004 and 2005 retained earnings balances of $670,000 and $560,000, respectively. The firm paid $10,000 in dividends in 2005. The firm's net profit after taxes in 2004
was ________.
A) -$100,000
B) -$110,000
C) $100,000
D) $110,000

Answer: ________

12) A corporation had a year end 2004 retained earnings balance of $220,000. The firm reported net profits after taxes of $50,000 in 2005 and paid dividends in 2005 of $30,000. The firm's retained earnings balance at year end 2005 was ________.
A) $240,000
B) $250,000
C) $270,000
D) $300,000

Answer: ________

15) The future value of $100 received today and deposited at 6 percent for four years is
A) $126.
B) $ 79.
C) $124.
D) $116.

Answer: ________

16) The present value of $100 to be received 10 years from today, assuming an opportunity cost of 9 percent, is
A) $236.
B) $699.
C) $ 42.
D) $ 75.

Answer: ________

Table 14.1
Irish Air Services has determined several factors relative to its asset and financing mix.

(a) The firm earns 10 percent annually on its current assets.
(b) The firm earns 20 percent annually on its fixed assets.
(c) The firm pays 13 percent annually on current liabilities.
(d) The firm pays 17 percent annually on long-term funds.
(e) The firm's monthly current, fixed and total asset requirements for the previous year are summarized in the
table below:

Current Fixed Total
Month Assets Assets Assets
January $45,000 $100,000 $145,000
February 40,000 100,000 140,000
March 50,000 100,000 150,000
April 55,000 100,000 155,000
May 60,000 100,000 160,000
June 75,000 100,000 175,000
July 75,000 100,000 175,000
August 75,000 100,000 175,000
September 60,000 100,000 160,000
October 55,000 100,000 155,000
November 50,000 100,000 150,000
December 50,000 100,000 150,000

37) The firm's monthly average permanent funds requirement is ________. (See Table 14.1)
A) $100,000.
B) $57,500.
C) $140,000.
D) $157,500.

Answer: ________

38) The firm's monthly average seasonal funds requirement is ________. (See Table 14.1)
A) $17,500.
B) $57,500.
C) $40,000.
D) $157,500.

Answer: ________

39) The firm's annual financing costs of the aggressive financing strategy are ________. (See Table 14.1)

A) $21,175.
B) $26,075.
C) $24,475.
D) $22,775.

Answer: ________

446 Gitman ? Principles of Managerial Finance, 12e

40) The firm's annual financing costs of conservative financing strategy are ________. (See Table
14.1)
A) $22,775.
B) $26,075.
C) $26,775.
D) $21,175.

Answer: ________

41) The firm's annual profits on total assets for the previous year were ________. (See Table 14.1)
A) $20,000.
B) $21,500.
C) $23,625.
D) $25,750.

Answer: ________

42) If the firm's current liabilities in December were $40,000, the net working capital was ________.
(See Table 14.1)
A) $140,000.
B) $60,000.
C) $10,000.
D) -$10,000.

Answer: ________

Table 14.2
Flum Packages, Inc.
Assets Liabilities & Equity
Current assets $10,000 Current Liabilities $ 5,000
Fixed assets 20,000 Long-term debt 12,000
Equity 13,000
Total $30,000 Total $30,000

The company earns 5 percent on current assets and 15 percent on fixed assets. The firm's current liabilities cost 7 percent to maintain and the average annual cost of long-term funds is 20 percent

43) The firm's initial ratio of current to total asset is ________. (See Table 14.2)
A) 1:3
B) 3:1
C) 2:3
D) 3:2

Answer: ________

45) Tangshan Mining was extended credit terms of 3/15 net 30 EOM. The cost of giving up the cash discount, assuming payment would be made on the last day of the credit period, would be
A) 75.26%.
B) 18.56%.
C) 72.99%.
D) 37.12%.

Answer: ________

46) As part of a union negotiation agreement, the United Clerical Workers Union conceded to be paid every two weeks instead of every week. A major firm employing hundreds of clerical
workers had a weekly payroll of $1,000,000 and the cost of short -term funds was 12 percent. The effect of this concession was to delay clearing time by one week. Due to the concession, the firm
A) realized an annual loss of $120,000.
B) realized an annual savings of $120,000.
C) increased its cash cycle.
D) decreased its cash turnover.

Answer: ________

47) A firm purchased goods on January 27 with a purchase price of $1,000 and credit terms of 2/10 net 30 EOM. The firm paid for these goods on February 9. The firm must pay _____ for the goods.
A) $1,000
B) $980
C) $800
D) $900

Answer: ________

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Solution Summary

The solution set gives a basic but clear description of terms like aggressive financing strategy, earnings per share, future value and present value.

Also full explanation of the multiple choice questions are provided. Calculations are fully explained.

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