1. For each pair of firms, choose the one you think would be more sensitive to the business cycle.
A. General Autos or General Pharmaceuticals
B. Friendly Airlines or Happy Cinemas
2. A firm has an ROE of 3.4%, a debt to equity ratio of .9, a tax rate of 35%, and pays an interest of 6% on its debt. What is its operating ROA? Round 2 decimal places.
3. The following is cash flow data for Rocket Transport:
Cash Dividend: $82,000
Purchase of bus: $37,000
Interest paid on debt: $25,000
Sales of old equipment: $69,000
Repurchase of Stock: $56,000
Cash Payments to suppliers: $95,000
Cash collections from customers: $320,000
A. Find the net cash provided by or used in investing activities
B. Find the net cash provided by or used in financing activities
C. Find the net increase or decrease in cash for the year
4. What provides a snapshot of the financial condition of the firm at a particular time?
A. The balance sheet
B. The income statement
C. The statement of cash flows
D. All of the options
E. None of the options
5. What is a report of the cash flow generated by the firm's operations, investments, And financial activities?
A. The balance sheet
B. The income statement
C. The statement of cash flows
D. The auditor's statement of financial condition
E. None of the options
6. If the interest rate on debt is higher than ROA, a firm will what by increasing the
Use of debt in its capital structure?
A. Increasing the ROE
B. Not change the ROE
C. Decrease the ROE
D. Change the ROE in an indeterminable manner
7. A firm has an ROA of 14%, a debt/equity ratio of 0.8, a tax rate of 35%, and the interest rate on the debt is 10%. The firm's ROE is
A. 11.18%
B. 8.97%
C. 11.54%
D. 12.62%
8. Two firms, A and B, both produce widgets. The price of widgets is $1 each. Firm A has
Fixed costs of $500,000, VC of $.50 per widget. Firm B has fixed costs of $240,000
Variable costs of $.75 per widget. Corporate tax rate is 40%. If the economy is strong
Each firm will sell 1,200,000 widgets. If the economy enters a recession each firm will
Sell 1,100,000 widgets. Calculate Firm A degree of operating leverage
A. 11
B. 2.86
C. 9.09
D. 1
9. Consider two firms producing smart phones. One uses a highly automated robotics
Process, whereas the other uses workers on an assembly line and pays overtime
Where there is heavy production demand.
A. Which firm will have higher profits in a recession?
B. Which firm will have higher profits in a boom?
C. Which firm's stock will have a higher beta?