Financial Ratios and Sales

1. (TCO A) Which of the following statements is CORRECT? (Points : 10) One of the disadvantages of a sole proprietorship is that the proprietor is exposed to unlimited liability. It is generally easier to transfer one’s ownership interest in a partnership than in a corporation. One of the advantages of the corporate form of organization is that it avoids double taxation. One of the advantages of a corporation from a social standpoint is that every stockholder has equal voting rights, i.e., “one person, one vote.” Corporations of all types are subject to the corporate income tax.

2. (TCO G) Which of the following statements is CORRECT? (Points : 10) In the statement of cash flows, a decrease in accounts receivable is reported as a use of cash. Dividends do not show up in the statement of cash flows because dividends are considered to be a financing activity, not an operating activity. In the statement of cash flows, a decrease in accounts payable is reported as a use of cash. In the statement of cash flows, depreciation charges are reported as a use of cash. In the statement of cash flows, a decrease in inventories is reported as a use of cash.

3. (TCO G) LeCompte Corp. has $312,900 of assets, and it uses only common equity capital (zero debt). Its sales for the last year were $620,000, and its net income after taxes was $24,655. Stockholders recently voted in a new management team that has promised to lower costs and get the return on equity up to 15%. What profit margin would LeCompte need in order to achieve the 15% ROE, holding everything else constant? (Points : 10) 7.57% 7.95% 8.35% 8.76% 9.20%

4. (TCO B) You want to buy a new sports car three years from now, and you plan to save $4,200 per year, beginning one year from today. You will deposit your savings in an account that pays 5.2% interest. How much will you have just