26. True or False: Firms generally prefer to have a positive working capital (current assets - current liabilities). a. True b. False 27. True or False: Purchasing direct materials on account (i.e. buy now, pay later), all else equal, would decrease a firm's ROI (NOI/average operating assets). a. True b. False 28. True or False: All else equal, an increase in the cost of sales commissions would decrease both a MO firm's gross profit margin % (Gross Margin/Sales) and a firm's net profit margin % (Net Income/Sales). a. True b. False

26. True or False: Firms generally prefer to have a positive working capital (current assets - current liabilities). a. True b. False 27. True or False: Purchasing direct materials on account (i.e. buy now, pay later), all else equal, would decrease a firm's ROI (NOI/average operating assets). a. True b. False 28. True or False: All else equal, an increase in the cost of sales commissions would decrease both a MO firm's gross profit margin % (Gross Margin/Sales) and a firm's net profit margin % (Net Income/Sales). a. True b. False

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter10: Forecasting Financial Statement

Section: Chapter Questions

Problem 4QE: Suppose you are analyzing a firm that is successfully executing a strategy that differentiates its...

See similar textbooks

Similar questions

Consider the following statements: 1. Businesses that are capital intensive tend to have high operating gearing. 2. Businesses with relatively high total variable cost compared with their total fixed cost, at their normal level of activity, are said to have high operating gearing. Are the above statements true or false?
Suppose a company’s return on invested capital is less than itsWACC. What happens to the value of operations if the salesgrowth rate increases? Explain your answer.
Suppose a company’s return on invested capital is less than itsWACC. What happens to the value of operations if the salesgrowth rate increases?
Give typing answer with explanation and conclusion Which of the following is false? A) All else constant, if a firm can decrease its operating costs, then return on equity will decrease. B) Ratios that measure how efficiently a firm manages its assets and operations to generate net income are referred to as profitability ratios. C) The portion of net income that a firm reinvests in itself is called the retention ratio. D) If DJ's has total assets of $300,000, net fixed assets of $120,000, and the average daily operating costs of $3,000, then its value of the interval measure is 60 days.
suppose a company's return on invested capital is less than its wacc. what happens to the value of operations if the sales growth increases? Explain your answer
Give typing answer with explanation and conclusion 5. Which of the following statements is correct? A-- All the answers are correct. B-- A more direct method of calculating the DOL is to use the following equation is DOL = (Sales - Variable Costs)/EBIT. C-- Because the amount of debt is determined by managerial choice, the business risk that a firm faces is also determined by management. D-- Fixed costs are those costs that are expected to change at the same rate as the firm’s sales. E-- If a firm’s operating costs are all variable, then any variation in sales will be less than the variation in EBIT.
By modifying the break-even equation, a company is able to determine the sales required to earn a ________________ profit. a.banker's b.working capital c.target d. contribution
These are true/false questions ____ 31. The normal selling price must be set high enough to cover all costs and expenses (fixed and variable) and provide a reasonable profit. ____ 32. Methods that ignore present value in capital investment analysis include the cash payback method. ____ 33. The rate of return on investment may be computed by multiplying investment turnover by the profit margin. ____ 34. The excess of divisional income from operations over a minimum amount of desired income from operations is termed the residual income. ____ 35. Responsibility accounting reports for profit centers are normally in the form of income statements.
Which of the following does NOT always increase a company’s MVA? Group of answer choices: Increasing the expected growth rate of sales Decreasing the capital requirements (Capital/Sales) Decreasing the weighted average cost of capital Increasing the expected operating profitability (NOPAT/Sales) Increasing the expected rate of return on invested capital
When the company is working at full capacity, the assets in the AFN equation is the total assets True False Considering each action independently and holding other things constant, which of the following actions would reduce a firm’s need for additional capital? a. An increase in the dividend payout ratio. b. A decrease in the days sales outstanding. c. An increase in expected sales growth. d. A decrease in the profit margin.
Requirement 1. If SnowDreams cannot reduce its costs, what profit will it earn? State your answer in dollars and as a percent of assets. Will investors be happy with the profit level? Complete the following table to calculate SnowDreams' projected income. Revenue at market price Less: Total costs Operating income
Which of the following statements is true? A In linear break-even analysis, the contribution margin is the difference between the selling price and the average fixed cost. B The Theory of the Business Firm assumes perfect market competition. This means it assumes that the selling price decreases as a firm's production rate increases. C In the Theory of the Business Firm, profits per period are maximized at the production rate at which marginal cost equals average cost. D In the Theory of the Business Firm, profits per period are maximized at the production rate at which average cost is minimized. E All four statements are false.