#8 Financial Ratio Analysis

# #8 Financial Ratio - Quiz Question 1(D The following is an excerpt from the financial statements of Erin Inc as of Total Assets \$ 420,000 Total

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Fusing the ART, SCIENCE , and TECHNOLOGY of Business. Quiz Question 1 (D) The following is an excerpt from the financial statements of Erin Inc. as of 12/31/2006: Total Assets \$ 420,000 Total Liabilities \$ 215,000 Paid in Capital \$ 75,000 If the Retained Earnings as of December 31, 2005 were \$ 78,000, and \$ 50,000 was paid in dividends to the shareholders, what was the Net Income for Erin Inc. in 2006? a. \$ 130,000 b. \$ 78,000 c. \$ 205,000 d. \$ 102,000 e. Cannot be calculated from the data provided

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Fusing the ART, SCIENCE , and TECHNOLOGY of Business. Explanation of Question 1 Since A=L+E, Ending Retained Earnings = 420,000-215,000-75,000 =130,000 NI = Ending RE – beginning RE + dividends = 130,000+50,000-78,000 = 102,000
Fusing the ART, SCIENCE , and TECHNOLOGY of Business. Quiz Question 2 Of the following list of transactions, which one of the transactions has no effect (no changes) on the total assets, total liabilities and total equity on the balance sheet? a. Obtained cash from a bank loan b. Paid an account payable c. Repaid principal and paid interest on a bank loan d. Purchased inventory on credit e. Collected an account receivable

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Fusing the ART, SCIENCE , and TECHNOLOGY of Business. Quiz Question 3 The Learning Wizards Co.(LWC) is selling LearnFast: a multi-vitamin formula enhancing student's learning capacity during the final exam period. LWC has listed the following costs for last year's operations: Item Amount COGS \$20,000 Depreciation \$10,000 Rent \$12,000 Advertising \$10,000 Manager's Salary \$25,000 Interest Expense \$ 1,000 If LWC wanted to generate a pre-tax profit of \$15,000 based on a revenue of \$ 100,000 for 20,000 bottles of vitamins, how many units did they need to sell? a. less than 14,000 b. between 15,000 and 16,000 c. between 16,001 and 17,000 d. between 17,001 and 18,000 e. more than 18,000
Fusing the ART, SCIENCE , and TECHNOLOGY of Business. Question 3 Explanation Price = \$100,000 / 20,000 = \$5 per bottle Variable Cost = \$20,000 / 20,000 = \$1 Contribution = \$4 Fixed Cost = \$58,000 Profit + Breakeven = \$58,000 + \$15,000 Volume = \$73,000 / \$4 per bottle = 18,250

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Fusing the ART, SCIENCE , and TECHNOLOGY of Business. Type 3: solve for the rate answer = 7.18% per year (note the answer is not negative) What rate would you have to earn to double your investment in 10 years? N PV FV I 10 -100 200 compute
Fusing the ART, SCIENCE , and TECHNOLOGY of Business. Type 4: solve for time answer = 33 periods (years) (note the answer is not negative) How long would it take to accumulate \$1 million, if I start with \$25,000 and invest it at 12% per year? I PV FV N 12 - 25,000 1,000,000 compute Try this again using an interest rate of 1% per month instead of 12% per year. The answer is 371 months (30.9 years). Why is it less?

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Fusing the ART, SCIENCE , and TECHNOLOGY of Business. Multi-step problems
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## This note was uploaded on 04/07/2008 for the course SM 299 taught by Professor Dixon during the Summer '08 term at BU.

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#8 Financial Ratio - Quiz Question 1(D The following is an excerpt from the financial statements of Erin Inc as of Total Assets \$ 420,000 Total

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