4. A firm with negative net working capital ______________.
A) is technically bankrupt
B) has no cash on hand
C) needs to sell some of its inventory to correct the problem
D) has more current liabilities than current assets
Answer: D
Net Working Capital = Current Assets – Current Liabilities
5. Calculate the
EBIT (earnings before interest and taxes)
for a firm with $5
million total revenues, $3 million cost of goods sold, $500,000 depreciation
expense, and $500,000 interest expense.
A) $1,500,000
B) $500,000
C) $1,000,000
D) -$500,000
Answer: A
EBIT = $5,000,000 - $3,000,000 - $500,000 = $1,500,000
6. What are the
annual sales
for a firm with $400,000 in liabilities, a total debt
ratio of 0.25, and an asset turnover of 3.0 (assume total assets remains
unchanged)?
A) $ 333,333
B) $3,200,000
C) $4,800,000
D) $6,400,000
Answer: C
Total Debt Ratio = Total Liabilities / Total Assets = .25 = ¼
¼ = $400,000/total assets, so total assets = $1,600,000
Asset Turnover = Sales / Average Total Assets = 3.0
3.0 = Sales / $1,600,000
So, Sales = $4,800,000
7. How much will accumulate in an account with an initial deposit of $100, and
which earns 15% interest for four years?
A) $107.69
B) $132.25
C) $152.09
D) $174.90
Answer: D
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