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Finance ch. 4

# Finance ch. 4 - order to meet Mertz's target for net income...

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7. Ricardo Entertainment recently reported the following income statement: Sales \$12,000,000 Cost of goods sold 7,500,000 EBIT \$ 4,500,000 Interest 1,500,000 EBT \$ 3,000,000 Taxes (40%) 1,200,000 Net income \$ 1,800,000 The company's CFO, Fred Mertz, wants to see a 25% increase in net income over the next year. In other words, his target for next year's net income is \$2,250,000. Mertz has made the following observations: Ricardo's operating margin (EBIT/Sales) was 37.5% this past year. Mertz expects that next year this margin will increase to 40%. Ricardo's interest expense is expected to remain constant. Ricardo's tax rate is expected to remain at 40%. On the basis of these numbers, what is the percentage increase in sales that Ricardo needs in

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Unformatted text preview: order to meet Mertz's target for net income? A) 2.50% B) 48.44% C) 25.00% D) 72.92% E) 9.38% Points Earned: 5.0/5.0 Correct Answer(s): E 8. Van Buren Company's current ratio is 1.9. Considered alone, which of the following actions would REDUCE the company's current ratio? A) Use cash to reduce short-term notes payable. B) Borrow using short-term notes payable and use the proceeds to reduce long-term debt. C) Borrow using short-term notes payable and use the proceeds to reduce accruals. D) Use cash to reduce accounts payable. E) Use cash to reduce accruals. Points Earned: 5.0/5.0 Correct Answer(s): B...
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Finance ch. 4 - order to meet Mertz's target for net income...

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