Problem: Kingsbury Associates has current assets as follows:
Cash $3,000
Accounts receivable $4,500
Inventories $8,000
Q1. If Kingsbury has a current ratio of 3.2, what is its quick ratio?
a. 2.07
b. 1.55
c. 0.48
d. 0.96
Q2. Which of the following will decrease discretionary funds needed?
a. An increase in projected accounts receivable
b. An increase in projected accounts payable
c. An increase in projected dividends
d. Both a and c
Q3. Stern Corporation uses semi-hex joints in its manufacturing process. Stern's total demand for the joints for the next year is estimated to be 15,000 units, and the cost per order is $80. Assume that carrying costs for semi-hex joints are $.51 per unit and that Stern maintains a safety stock of 500 units. What is Stern's average inventory of semi-hex joints?
a. 1,135
b. 1,316
c. 1,407
d. 1,585
Q4. When the impact of taxes is considered with the net operating income approach to valuation, the value of the firm:
a. increases at a debt-to-total value ratio of 40 percent.
b. decreases by interest expense paid out.
c. increases by the present value of the tax shield.
d. decreases by the future value of cash flows.
Q5. In order to maximize firm value, management should invest in new assets when the internal rate of return is:
a. greater or equal to the firm's marginal cost of capital.
b. greater than the cost of debt financing.
c. less than or equal to the accounting rate of return.
d. less than or equal to the firm's marginal cost of capital.