Financial Management Midterm Exam Guide
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kvelezFinancial Management Midterm Exam Guide
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- Midterm Exam Instructions
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Common questions
Powered by AIHanson Corporation maintained a constant ROE of 14% even as profit margins halved from 8% to 4%, by increasing leverage from 1.2 to 1.5, which compensated for the margin drop. Consequently, to maintain ROE, asset turnover increased from 1.46 to 2.33 as shifts in business efficiency and operational factors counterbalanced leverage impact .
Eastwood Corp.'s net sales for the year are P4,000,000, computed from the given current and quick ratios, inventory turnover, and gross profit margin. With a current ratio of 2.0 and quick ratio of 1.5, one can deduce the relationship between inventory levels and sales, and the inventory turnover augment this to estimate total sales .
MPX Corporation's net income fell from P800,000 in 2015 to P200,000 in 2016. To offset this decline and revert to the original income, MPX must increase its net income by 200%. This is calculated as ((P800,000 - P200,000) / P200,000) * 100% = 300% increase needed to bring the income back to the 2015 level .
If a company expects both a 25% increase in sales and maintains a 15% profit margin, profit will also rise by 25%, creating increased overall profitability. This simultaneous increase suggests enhanced operational efficiency expected to sustain or improve margins as scale increases, indicating strategic growth and potentially stabilizing profitability .
If a company pays P9,000 in interest and has a net income of P99,000, assuming different tax rates, the times interest earned would be determined by adding back the interest expense and taxes to net income, then dividing by the interest expense. Given a 25% tax rate on P100,000 and 35% beyond, the ratio is 16.21 times, meaning the company covers its interest obligations 16.21 times over .
The ending working capital for the service company for January is P80,500. This is computed by adding the income from services performed on account (P30,000) and subtracting expenses and payments such as purchased supplies (P5,000), consumed supplies (P4,000), loan repayments (P6,500), salaries (P10,000), and accrued salaries (P3,500) from the initial P70,000 .
Nutella Co. plans to issue an additional $300,000 in common stock and is negotiating a loan with a bank that requires a debt-to-equity ratio of 0.75. This ratio suggests that for every dollar of equity, the company can have 0.75 dollars of debt. With $700,000 existing debt and $300,000 new equity, the equity becomes $1,000,000. Thus, maintaining the required ratio, maximum additional borrowing is ((0.75 * $1,000,000) - $700,000), which is $330,000 .
ABC Company's net income is P241,000, derived by considering the 8% preferred stock included in the average stockholders' equity, totaling P2,000,000. Given a 12.5% return on common equity, this reflects dividends to preferred shareholders first, then applies the return rate to calculate true net income .
The correct cash flow from operations for Oriental Air Corporation is P3,901,000. This is derived from the change in the cash balance, which is the ending balance (P1,357,000) minus the beginning balance (P789,000), combined with cash flows from financing and investing activities. The discrepancy in the provided response, P6,369,000, likely arises from a miscalculation or misinterpretation of these values .
Polar Glacier's cash flow from operating activities correct assessment is $25,600. The discrepancy may come from miscategorizing non-operational cash flows or misunderstanding accruals' impact on cash activities. This involves evaluating changes in working capital, income adjustments, and cash payments' impact .
