WRITE OR PRINT THE ENTIRE ANSWER SHEET FOR TRIEOR FALSEOUESTIONS 10. 12- PROVIDE
ID: 2805647 • Letter: W
Question
WRITE OR PRINT THE ENTIRE ANSWER SHEET FOR TRIEOR FALSEOUESTIONS 10. 12- PROVIDED BELOW PART B: MULTIPLE CHOICE USE THE ANSWER SHEET 1. Which of the following statements is gomet? the same time its profit ts 10 60 %. Under these a. Suppose a fi's tocal assets narnover ratio alls from 1.0so0.9, but at and its debt increases from 40% oftotal a nalzm nies fam 9% to 105 condaions,the returm on oquity ratio (ROE) will decrease. Under these b Suppose a fim's total assets turnover eatio talls froem 1.0t009, but at the same time its profit margin rises fom, 9%105, and its detr ncreases frotn 40% ofttal assets to 60%. condisions the return on eguity ratio (ROE) will increase e Suppose a firm's total assets tanover ratio falls from 1.0to 09, but at the same time its profin margin nses from 9% to 10% and its debt increases from 40% or total assets to 60% Under these cnitons,is uncertain whether the return on equity ratio (ROE) will increase or decrease. a firm's total assets turmover ratio falls from 1.0 to 09, but at the same time its profit tin ries fren 9%to 10% and itsdet ia a es from 40%oftotal assets to 60% Under these conditions, there will be no change in the retarm on equity ratio (ROE) 2. Which of the following statements is not correct? a. Financial statements must be projectod (forecasted) in order to apply the corporate valustion model b. The corporate valuation model discounts free cash flows by the requirod return on equity c. In order to cakculation the horizon (continuing) value, the corporate valuation model assumes that free cash flows grow at a constant rate beginning in a future year d. The corporate valuation model can be applied for companies that pay dividends and also companies that do not pay dividends. 3. Which of the following statements pairs of sources of financing have little or no flotation costs? a. Issuance of long-term debt and common stock b. Issuance of long-tern debt and preferred stock. c. Retained carnings (internal equity) and issuance of long-term debt. d. Issuance of preferred stock and common stock 4. A company expects sales to increase. If it uses the additional funds needed (AFN) equation to forccast additional capital requirements, which of the following conditions would cause AFN to increase? a. The company increases its dividend payout ratio. b. The company begins to pay employees monthly rather than weekly. c. The company's profit margin increases d The company has unused excess capacityExplanation / Answer
1) [b] ROE = Total assets turnover*Profit margin*Equity multiplier ROE before change = 1*9*1.66 = 14.94% ROE after change = 0.9*10*2.5 = 22.50%; hence ROE increases 2) [b] 3) [c] 4) [a] 5) [d] 6) [a] 7) [d] 8) [a] 9) [d] 10) [d] 11) [b]
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