Bsg quiz 2 answer key

1. Given the following Year 12 balance sheet data for a footwear company:

Balance Sheet Data

Cash on Hand

2,000

Total Current Assets

78,000

Total Assets

315,000

Overdraft Loan Payable

4,000

1-Year Bank Loan Payable

8,000

Current Portion of Long-Term Loans

13,000

Total Current Liabilities

48,000

Long-Term Bank Loans Outstanding

105,000

Shareholder Equity:

Year 11 Balance

Year 12 Change

Common Stock

10,000

0

10,000

Additional Capital

100,000

0

100,000

Retained Earnings

30,000

22,000

52,000

Total Shareholder Equity

140,000

+22,000

162,000

Based on the above figures and the formula for calculating the debt-assets ratio found on the Help screen for p. 5 of the Footwear Industry Report, the company’s debt-assets ratio (where debt is defined to include both short-term and long-term debt) is

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None of these.

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37.5%.

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40.0%.

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33.3%.

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41.3%.

2. In supplying private-label footwear to chain retailers, the sizes of a company's margins over direct costs should be viewed as

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how much the company received from private-label sales over and above materials costs and direct labor costs—these dollars can be used to help cover the company's income taxes and dividend payments.

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the net profit a company earns on private-label sales.

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how much the company received from private-label sales over and above materials costs and direct labor costs— these dollars thus represent a “cash contribution” that can be used to pay down any loans outstanding or to add to the company's retained earnings account.

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how many dollars the company had available from private-label sales to help cover the company's administrative expenses and interest costs and contribute to the company's bottom line (if the company's margins on branded footwear were sufficient to cover administrative expenses and all interest costs, then the margins over direct costs represent pre-tax profit).

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free cash flow, which management can use for any purpose it sees fit.

3. Assume a company has 10 million shares of stock outstanding and that its Income Statement for Year 12 is as follows:

Income Statement Data

Year 12 (in 000s)

Net Revenues from Footwear Sales

$ 290,000

Cost of Pairs Sold

180,000

Warehouse Expenses

16,000

Marketing Expenses

42,000

Administrative Expenses

8,000

Operating Profit (Loss)

44,000

Interest Income (expenses)

(10,000)

Pre-tax Profit (Loss)

34,000

Income Taxes

10,200

Net Profit (Loss)

$ 23,800

Based on the above income statement data, the company's operating profit margin and EPS are

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None of the above.

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15.2% and $2.38.

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11.7% and $3.40.

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15.2% and $4.40.

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15.2% and $3.40.

4. If a company pays a production worker a base wage of $2,800 and a piecework incentive of $0.30 per pair, if a production worker's annual productivity is 2,500 pairs per year, and if a plant's reject rate averages 4%, then the average annual compensation of production workers would be

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$3,520 (because workers do not receive a piecework incentive on pair rejected due to defects).

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$2,950.

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None of the above.

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$3,550.

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$3,050.

5. The accounts payable entry on the company's balance sheet represents

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25% of the year's materials costs incurred in making branded and private-label footwear that are owed to suppliers and that will be paid for in the first quarter of the upcoming year (payments for materials delivered by suppliers are not due and payable for 90 days following delivery).

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the amounts due for interest on loans outstanding that becomes due in the first quarter of the upcoming year.

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the amounts due to production workers for incentive bonuses.

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the amounts due shareholders for dividends declared the prior-year and payable in the current year.

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the amounts due for income taxes on prior-year profit.

6. Based on information on the Help Screen for the Plant Operations Report (see the Plant Investment section), if a company adds new plant capacity at a cost of $30 million, then its annual depreciation costs will rise by

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$1,500,000.

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$1,200,000.

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$120,000.

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$150,000.

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None of these.

7. Assume a company's Income Statement for Year 12 is as follows:

Income Statement Data

Year 12 (in 000s)

Net Revenues from Footwear Sales

$ 320,000

Cost of Pairs Sold

200,000

Warehouse Expenses

17,000

Marketing Expenses

45,000

Administrative Expenses

8,000

Operating Profit (Loss)

50,000

Interest Income (expenses)

(10,000)

Pre-tax Profit (Loss)

40,000

Income Taxes

12,000

Net Profit (Loss)

$ 28,000

Based on the above income statement data (assume interest income is zero) and the formula for calculating the coverage ratio presented on the Help screen for p. 5 of the Footwear Industry Report, the company’s interest coverage ratio is

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None of the above.

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2.80.

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320.0.

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4.00.

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5.00.

8. Assume a company's Income Statement for Year 12 is as follows:

Income Statement Data

Year 12 (in 000s)

Net Revenues from Footwear Sales

$ 290,000

Cost of Pairs Sold

180,000

Warehouse Expenses

16,000

Marketing Expenses

42,000

Administrative Expenses

8,000

Operating Profit (Loss)

44,000

Interest Income (expenses)

(10,000)

Pre-tax Profit (Loss)

34,000

Income Taxes

10,200

Net Profit (Loss)

$ 23,800