A firm has a return on equity of 20% and a total asset turnover of 4. Assuming a debt ratio of 50% and sales of $1,000,000

A firm has a return on equity of 20% and a total asset turnover of 4. Assuming a debt ratio of 50% and sales of $1,000,000, calculate net income.

A) $25,000

B) $50,000

C) $75,000

D) $100,000  

An increase in the current ratio would indicate an increase in

A) leverage.

B) liquidity.

C) return on investment.

D) operating income.

Which of the following is NOT a component of return on assets (ROA)?

A) Total assets

B) Cost of goods sold

C) Sales

D) Leverage

________ indicates management's effectiveness in managing the firm's income statement.

A) Gross profit margin

B) Operating profit margin

C) Net profit margin

D) Return on assets

Holding all other variables constant, which of the following could cause a firm's current ratio to decrease from 3.0 to 2.5? An increase in

A) inventory.

B) long-term debt.

C) accounts receivable.

D) accounts payable.

Which of the following will increase return on equity?

A) An increase in sales with a proportionate increase in costs and expenses

B) An increase in sales relative to the asset base

C) A decrease in leverage

D) Both A and C

Which of the following is NOT a driving force of the operating profit margin?

A) The average selling price for each product

B) The ability to control all of the firm's expenses

C) The ability to control general and administrative expenses

D) The number of units of product sold

Smith Company Balance Sheet and selected Income Statement data

                                                         Table 1

Smith Company Balance Sheet and selected Income Statement data

Assets:

Cash and marketable securities                                                  $300,000

Accounts receivable                                                                       2,215,000

Inventories                                                                                        1,837,500

Prepaid expenses                                                                                 24,000

Total current assets                                                                      $3,286,500

Fixed assets                                                                                      2,700,000

Less: accumulated depreciation                                                1,087,500

Net fixed assets                                                                             $1,612,500

Total assets                                                                                     $4,899,000

Liabilities:

Accounts payable                                                                            $240,000

Notes payable                                                                                     825,000

Accrued taxes                                                                                        42,500

Total current liabilities                                                               $1,107,000

Long-term debt                                                                                   975,000

Owner's equity                                                                                2,817,000

Total liabilities and owner's equity                                        $4,899,000

Net sales (all credit)                                                                     $6,375,000

Less: Cost of goods sold                                                                4,312,500

Selling and administrative expense                                         1,387,500

Depreciation expense                                                                       135,000

Interest expense                                                                                  127,000

Earnings before taxes                                                                     $412,500

Income taxes                                                                                        225,000

Net income                                                                                        $187,500

Common stock dividends                                                               $97,500

Change in retained earnings                                                          $90,000

Based on the information in Table 1, the current ratio is

A) 2.97.

B) 1.46.

C) 2.11.

D) 2.23.

Based on the information in Table 1, the average collection period is

A) 71 days.

B) 84 days.

C) 64 days.

D) 127 days.

Based on the information in Table 1, the debt ratio is

A) 0.70.

B) 0.20.

C) 0.74.

D) 0.42.

Based on the information in Table 1, the net profit margin is

A) 4.61%.

B) 2.94%.

C) 1.97%.

D) 5.33%.

Based on the information in Table 1, the inventory turnover ratio is

A) 0.29 times.

B) 2.35 times.

C) 0.43 times.

D) 3.47 times.