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Unformatted text preview: Quiz #1 Solutions: Module 1, Chapters 2-4 FIN 5405 J. Houston 1. Financial markets Answer: e Money markets are the markets for short-term highly liquid debt securities. Therefore, a short-term Treasury bill is an example of a money market instrument. The other statements are clearly false. 2. DuPont equation: basic calculation Answer: b Profit margin 5.1% TATO 1.60 Equity multiplier 1.80 ROE 14.69% 3. Dividends and retained earnings Answer: b Current RE $150,000 Previous RE = Current RE + increment $145,000 Change in RE $5,000 Plus dividends paid $26,000 = Net income $31,000 4. Income statement: net income Answer: d Bonds $4,000 Interest rate 7% Tax rate 40% Sales $9,000 Operating costs excluding depr'n $6,000 Depreciation $1,500 Operating income (EBIT) $1,500 Interest charges-$280 Taxable income $1,220 Taxes-$488 Net income $732 5. Maximum debt ratio consistent with a given TIE ratio Answer: b Assets $600,000 Sales $435,000 Operating costs $350,000 Operating income (EBIT) $85,000 TIE 4.04....
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