Question

Which of the following statements is CORRECT?

Select one:

a. The days sales outstanding ratio tells us how long it takes, on average, to collect after a sale is made. The account collection period (ACP) can be compared with the firm's credit terms to get an idea of whether customers are paying on time.

Last year Harrington Inc. had sales of $325,000 and a net income of $19,000, and its year-end assets were $250,000. The firm's total-debt-to-total-assets ratio was 67.5%. Based on the DuPont equation, what was the ROE?

Select one:

a. 23.38%

b. 22.22%

c. 18.94%

d. 22.68%

e. 21.98%

b. A decline in a firm's inventory turnover ratio suggests that it is improving both its inventory management and its liquidity position, i.e., that it is becoming more liquid.

c. The more conservative a firm's management is, the higher its debt ratio is likely to be.

d. In general, it's better to have a low inventory turnover ratio than a high one, as a low one indicates that the firm has an adequate stock of inventory relative to sales and thus will not lose sales as a result of running out of stock.

e. If a firm's fixed assets turnover ratio is significantly lower than its industry average, this could indicate that it uses its fixed assets very efficiently or is operating at over capacity and should probably add fixed assets.

A company's cash sales for the month are $200,000 and its accounts receivable payments for the month are $100,000. What is its total incoming cash flow for the month if its beginning cash for the month is $50,000 and there are no other cash inflows for the month?

Select one:

a. $300,000

b. $100,000

c. $150,000

d. $350,000

Answer 1

Q1
Answer : a. The days sales outstanding ratio tells us how long it takes, on average, to collect after a sale is made. The account collection period (ACP) can be compared with the firm's credit terms to get an idea of whether customers are paying on time
Q2
Equity multiplier = 1 / ( 1 - Debt to assets ratio ) = 1 / ( 1 - 67.5% )	3.0769
Net income = Profit margin * Asset turnover * Equity multiplier = (19000/325000) * (325000/250000) * 3.0769	23.38%
Q3
Total incoming cashflow = Cash sales + accounts receivable payments = 200000 + 100000	300000
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