Which of the following is true? I. If there is no change in gross fixed assets from one year to the next, then net fixed assets would have to have decreased. II. For firms with lower P/E ratios, investors are valuing each dollar of earnings more than for firms with higher P/E ratios. III. A increase in the current ratio indicates an improvement in a firm's long-term solvency condition.

Which of the following is true? I. If there is no change in gross fixed assets from one year to the next, then net fixed assets would have to have decreased. II. For firms with lower P/E ratios, investors are valuing each dollar of earnings more than for firms with higher P/E ratios. III. A increase in the current ratio indicates an improvement in a firm's long-term solvency condition.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter9: Corporate Valuation And Financial Planning

Section: Chapter Questions

Problem 6Q

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A company had WACC (weighted average cost of capital) equal to 8. % If the company pays off mortgage bonds with an interest rate of 4% and issues an equal amount of new stock considered to be relatively risky by the market, which of the following is true? a. residual income will increase. b. ROI will decrease. c. WACC will increase. d. WACC will decrease.
You observe that a firm's ROE has increased from the previous year, but both its profit margin and equity multiplier are below the previous year's levels. Which of the following statements is CORRECT? Its return on assets must be lower than the previous year. Its total assets turnover must be lower than the previous year. Its TIE ratio must be higher than the previous year. Its total assets turnover must be higher than the previous year.
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.
Which of the following actions can a firm take to increase its current ratio? A. Issue short-term debt and use the proceeds to buy back long-term debt with a maturity of more than one year. B. Reduce the company's days sales outstanding to the industry average and use the resulting cash savings to purchase plant and equipment. C. Use cash to purchase additional inventory. D. Statements a and b are correct. E. None of the statements above is correct.
A firm wants to strengthen its financial position. Which of the following actions would increase its current ratio? 1. b. Reduce the company's days' sales outstanding to the industry average and use the resulting cash savings to purchase plant and equipment. 2. d. Borrow using short-term debt and use the proceeds to repay debt that has a maturity of more than one year. 3. e. Issue new stock and then use some of the proceeds to purchase additional inventory and hold the remainder as cash. 4. a. Use cash to increase inventory holdings. 5. c. Use cash to repurchase some of the company's own stock.
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. When the company is working at full capacity, the assets in the AFN equation is the fixed assets only True False
A firm's current ratio has steadily increased over the past 5 years, from 1.9 to 3.8. What would a financial analyst probably conclude from this information? A. The firm's fixed assets turnover has improved. B. The firm's liquidity position has improved. C. The firm's financial leverage has improved. D. All of the above
Suppose a company has a days sales outstanding (DSO) that is considerably higher than itsindustry average. If the company could reduceits accounts receivable to the point where itsDSO was equal to the industry average withoutaffecting its sales or its operating costs, howwould this affect (a) its free cash flow, (b) itsreturn on common equity, (c) its debt ratio,(d) its times-interest-earned ratio, (e) its EBITDAcoverage ratio, (f) its price/earnings ratio, and(g) its market/book ratio?
Which of the following would most likely signal that a company may be using aggressiveaccrual accounting policies to shift current expenses to later periods? Over the last fi veyear period, the ratio of cash fl ow to net income has:A . increased each year.B . decreased each year.C . fl uctuated from year to year.
Which of the following statements is correct? A. a. Since accounts payable and accruals must eventually be paid, as these accounts increase, AFN also increases. B. b. Suppose a firm is operating its fixed assets below 100 percent capacity but is at 100 percent with respect to current assets. If sales grow, the firm can offset the needed increase in current assets with its idle fixed assets capacity. C. c. If a firm retains all of its earnings, then it will not need any additional funds to support sales growth. D. d. Additional funds needed are typically raised from some combination of notes payable, long-term bonds, and common stock. These accounts are nonspontaneous in that they require an explicit financing decision to increase them. E. e. All of the statements above are false.
Consider a retail firm with a net profit margin of 3.93 %, a total asset turnover of 1.87, total assets of $42.3 million, and a book value of equity of $18.6 million.a. What is the firm's current ROE?b. If the firm increased its net profit margin to 4.58 %, what would be its ROE?c. If, in addition, the firm increased its revenues by 19 % (maintaining this higher profit margin and without changing its assets or liabilities), what would be its ROE?
Consider a retail firm with a net profit margin of 3.36%, a total asset turnover of 1.88, total assets of $45.5 million, and a book value of equity of $17.6 million. a. What is the firm's current ROE? b. If the firm increased its net profit margin to 4.27%, what would be its ROE? c. If, in addition, the firm increased its revenues by 18% (maintaining this higher profit margin and without changing its assets or liabilities), what would be its ROE?