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Lecture

module_15_problems.pdf

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Department
Administrative Studies
Course Code
ADMS 2500
Professor
all

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Financial Statement Analysis Practice Problems PROBLEM 1MULTIPLE CHOICE1 A companys computes its debtequity ratio by dividing its longterm debt by its shareholders equity Its debtequity ratio will decrease when it a Collects accounts receivable b Borrows cash giving a shortterm note payable c Purchases land for cash d Issues stock for cash e None of the above 2 A companys computes its debtequity ratio by dividing its longterm debt by its shareholders equity Its debtequity ratio will increase when it a Collects accounts receivable b Borrows cash giving a shortterm note payable c Purchases land for cash d Issues stock for cash e None of the above 3Which of these transactions would result in an increase in a companys current ratio currentassetscurrent liabilitiesAssume current assets are equal to current liabilities before the transactions below take place a declaring a cash dividend b issuing longterm debt c making a mortgage payment d collecting an accounts receivable e none of the above4 One measure of profitability used by the business is EBITAaverage assets where EBITA is earnings before interest taxes and amortizationIf the business were to operate exactly the same in 2004 as in 2003 same sales same product costs EXCEPT that on January 1 2004 additional common shares are issued and the proceeds are used to repay half the mortgage then for 2004 as compared to 2003 EBITAaverage assets would a increase b decrease c stay the same d can not be determined from the information given5If the business had the opportunity to triple sales and maintain the same profit margin byincreasing plant capacity at a cost of 380000 then ignoring changes in the risk to maximize the return to the shareholders measured by net incomeshareholders equity the business should finance this expansion by a not paying dividends for 2 years and using the savings at the end of that time b issuing more sharesc borrowing at a lower rate of interest than it earns on shareholders equityd none of the above
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