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Copyright©2014McGraw-HillEducation.Allrightsreserved.NoreproductionordistributionwithoutthepriorwrittenconsentofMcGraw-HillEducation.
Chapter08
ReturnonInvestedCapitalandProfitabilityAnalysis
MultipleChoiceQuestions
1.
Whichofthefollowingratiosbestmeasurestheprofitabilityofacompany?
A.
Returnonequity
B.
Grossmargin
C.
Currentratio
D.
Netoperatingassetturnover
2.
Belowarethenetoperatingassetturnoversandnetoperatingprofitmarginsforcompaniesthatoperateinthreedifferentindustries(A,BandC).Theindustriesaregrocerystores,oilextractionanddrugindustry.
MatchtheindustrytoA,BorC
A.
OptionA
B.
OptionB
C.
OptionC
D.
OptionD
3.
Whichofthefollowingstatementsiscorrect?
A.
Netoperatingprofitmargindividedbynetoperatingassetturnoverequalsreturnonnetoperatingassets.
B.
Returnonnetoperatingassetscanbedisaggregatedintonetoperatingprofitmarginandleverage.
C.
Returnonequityequalsreturnonnetoperatingassetslessinterest,netoftax.
D.
Returnonequitycanbedisaggregatedintonetoperatingprofitmargin,netoperatingassetturnoverandleverage.
4.
Whichofthefollowingcouldexplainadecreaseinnetoperatingassetturnoverforacompany?
A.
Switchingfromstraightlinetoaccelerateddepreciationforfinancialreportingpurposes
B.
Anincreaseinthefinancialleverageofthecompany
C.
Additionofanewplantforproductionpurposes
D.
Decreasecostofproductioninputs
5.
ErrCompanyhasamajorlawsuitagainstthemforunsafeproducts.Itrecognizesahugeliabilityin2004of$300million.Theeffectofthisliabilityistodecreasestockholders'equityby50%.In2005,theeffectofrecognizingthisliability,allelseequal,is:
A.
returnonnetoperatingassetswillincreasedramatically.
B.
returnonnetoperatingassetswilldecreasedramatically.
C.
returnonequitywillincreasedramatically.
D.
returnonequitywilldecreasedramatically.
6.
Returnonoperatingassetsfor2005is:
A.
7.9%.
B.
7.41%.
C.
8.78%.
D.
8.1%.
7.
Returnoncommonequityfor2005is:
A.
11.42%.
B.
10.0%.
C.
11.0%.
D.
10.47%.
Assumeallassetsareoperatingassets;allcurrentliabilitiesareoperatingliabilities.
8.
Returnonnetoperatingassetsfor2006is:
A.
11.30%.
B.
12.03%.
C.
9.93%.
D.
11.19%.
9.
Returnonequityfor2006is:
A.
20.41%.
B.
19.75%.
C.
17.54%.
D.
18.12%.
10.
Whichofthefollowingcouldcausereturnonnetoperatingassetstoincrease,allotherthingsequal?
A.
Adecreaseininterestrateondebt
B.
Increaseindaysaccountsreceivableareoutstanding
C.
Increaseininventoryturnover
D.
Decreaseingrossmargin
11.
EysterCorporationreported$10millioninearningsandpaiddividendsof$3millionforfiscal2005.Returnonequityanddividendpayoutareexpectedtoremainconstantfortheforeseeablefuture.Netbookvalueattheendoffiscal2004was100million.Costofequityis10%.Usingtheresidualincomemethod,theintrinsicvalueofEyster'sstockattheendof2005shouldbe:
A.
$110million.
B.
$107million.
C.
$101million.
D.
notdeterminable.
12.
Whencalculatingreturnonnetoperatingassets,interestexpensenetoftaxisaddedbacktonetincomeforpurposesofcalculatingthenumerator.Whattaxrateshouldbeused?
A.
Estatetaxrate
B.
Marginaltaxrate
C.
Statutoryfederaltaxrate
D.
Statutoryfederaltaxrateplusstatutorystatetaxrate
BelowisselectedinformationfromTricrop.
13.
ReturnonnetoperatingassetsforYear1is:
A.
30.8%.
B.
16.3%.
C.
15.4%.
D.
14.5%.
14.
ReturnoncommonequityforYear1is:
A.
19.0%.
B.
19.60%.
C.
21.08%.
D.
26.03%.
15.
WhichofthefollowingiscorrectconcerningchangesatTricropfromYear1toYear2?
A.
OptionA
B.
OptionB
C.
OptionC
D.
OptionD
16.
Whichofthefollowingstatementsiscorrectconcerningchangesfromyear1toyear2atTricrop?
A.
Despitefavorablechangesinthetaxrate,returnonnetoperatingassetshasdecreased
B.
Despitefavorablechangesinnetoperatingassetutilization,returnonnetoperatingassetshasdecreased
C.
Largelybecauseoffavorablechangesintaxrates,returnonnetoperatingassetshasincreased
D.
Largelyduetofavorablechangesinleverage,returnonnetoperatingassetshasincreased
17.
Whichofthefollowingwillincreasethesustainableequitygrowthofacompany,allotherthingsequal?
A.
Increasedividendpayout
B.
Paysuppliersmorequickly
C.
Paysuppliersmoreslowly
D.
Decreasedividendpayout
18.
Whichofthefollowingwillcauseanincreaseinnetoperatingincome(NOPAT)?
A.
Increaseinthereturnonnetoperatingassets
B.
Decreaseinthereturnonnetoperatingassets
C.
Nochangeinthereturnonnetoperatingassets
D.
Thereisnotsufficientinformation
19.
Whichofthefollowingwouldexplainanobserveddecreaseinreturnonequity,allelseequal?
A.
Decreaseintaxrate
B.
Increaseininterestrateondebt
C.
Stocksplit
D.
Stockdividend
20.
Whichofthefollowingisthebestmeasureofoperatingefficiency?
A.
Returnonnetoperatingassets
B.
Returnonequity
C.
Returnonsales
D.
Returnoninventory
21.
Returnonoperatingassetsisameasureofwhichofthefollowing?
A.
Profitability
B.
Efficiency
C.
Solvency
D.
Liquidity
ThefollowinginformationrelatestoYutterCorporation:
22.
WhatisYutter'ssustainableequitygrowthrate?
A.
9.12%
B.
9.88%
C.
11.4%
D.
12.0%
23.
WhatisthevalueofYutter'sstockattheendofYear1usingthedividenddiscountmodelassumingthatthedividendpayoutratioremainsconstantandYuttergrowsatitssustainableequitygrowthrate?
A.
$83,333
B.
$157,642
C.
$500,000
D.
$557,000
24.
IfYutter'sdividendpayoutratioincreasedto50%afteryear1then:
A.
thesustainableequitygrowthratewouldincrease.
B.
thereturnonequitywoulddecrease.
C.
thevalueofthestockwoulddecrease.
D.
thereturnonnetoperatingassetswoulddecrease.
25.
Costofgoodssolddividedbyinventoryprovidesinformationabout:
A.
profitability.
B.
capitalstructure.
C.
managementofworkingcapital.
D.
grossprofitmargin.
26.
Whenconsideringthedifferencebetweenreturnonnetoperatingassets(RNOA)andreturnoncommonshareholders'equity(ROCE),whichofthefollowingstatementsisincorrect?
A.
PreferreddividendsaredeductedfromthenumeratorwhencalculatingROCEbutnotwhencalculatingRNOA.
B.
RNOAisapre-interestmeasurebutROCEisnot.
C.
RNOAisapost-interestmeasurebutROCEisnot.
D.
RNOAisindependentoftheformoffinancingbutROCEisnot.
27.
Purchasesdividedbyaccountspayableprovidesinformationabout:
A.
capitalstructure.
B.
managementofworkingcapital.
C.
grossprofitmargin.
D.
profitability.
WidgetCo.andToolsInc.bothoperateinthesameindustry.Theyarecapital-intensivecompaniesproducingwidgets.Belowareselecteddata:
28.
Whichofthefollowingstatementsisthemostplausibleexplanationofthedifferenceinobservednetoperatingprofitmargins?
A.
WidgetCo'slowerfinancialleverage
B.
WidgetCousesLIFOandToolsusesFIFO
C.
WidgetCo'slowertaxrate
D.
WidgetCo'snetoperatingassetturnover
29.
Whichofthefollowingstatementsbestexplainsthedifferenceinobservednetoperatingassetturnover?
A.
WidgetCo'slowerfinancialleverage
B.
WidgetCousesFIFOandToolsusesLIFO
C.
WidgetCo'slowertaxrate
D.
WidgetCohassignificantoperatingleasesandToolInc.hasnoleases
30.
Whichofthefollowingstatementsiscorrect?
A.
WidgethashigherRNOAthanTools.
B.
WidgethaslowerRNOAthanTools.
C.
WidgethassameRNOAasTools.
D.
InsufficientinformationtocalculateRNOA.
31.
Whichofthefollowingstatementscouldexplainthedifferenceinobservedtaxrates?
A.
Widgetusesstraight-linedepreciationandToolusesMACRS.
B.
WidgetusesLIFOandToolusesFIFO.
C.
Toolhasforeignsubsidiariesincountrieswithmuchlowertaxrates.
D.
Widgethassignificantamountsofinterestincomefrommunicipalbonds.
32.
WidgethasahigherEBIT/RevenuebutlowernetoperatingprofitmarginthanTool.Whichofthefollowingstatementscouldexplainthisbetterasapercentageofsales?
A.
Widgethasgreaterinterestexpenseandtaxes.
B.
Widgethasgreaterinterestexpensebutlowertaxes.
C.
Widgethaslowerinterestexpensebuthighertaxes.
D.
Widgethaslowerinterestexpenseandtaxes.
33.
WhichofthefollowingstatementsabouttherelationshipbetweenRNOAandROCEiscorrect?
A.
ROCEisalwaysgreaterthanRNOA
B.
ROCEisgreaterthanRNOA,ifRNOAisgreaterthanafter-taxcostofdividends
C.
ROCEisgreaterthanRNOA,ifRNOAisgreaterthancostofdebt
D.
ROCEisgreaterthanRNOA,ifRNOAisgreaterthanafter-taxcostofdebt
34.
Whichofthefollowingstatementsabouttheequitygrowthrateiscorrect?
I.ThehighertheROCEthehigherequitygrowthrate,allotherthingsequal.
II.Thehigherthedividendpayoutthehighertheequitygrowthrate.
III.Theequitygrowthrateisunaffectedbythecostofdebt.
IV.Theequitygrowthrateindicatestheexpectedgrowthinstockpriceeachperiod.
A.
I,II,III,andIV
B.
I,II,andIII
C.
IandIII
D.
Ionly
35.
Whichofthefollowingstatementsaboutthereturnonshareholders'investment(ROSI)iscorrect?
A.
Ifbookvalueofequityislessthanmarketvalue,ROSIisgreaterthanROCE.
B.
ROSIwillbehigherthegreaterthedividendpayoutratio.
C.
ROSIislikelytobemorevolatilethanROCE.
D.
ROSInormallyequalsROCE.
36.
Whichofthefollowingsituationsismostlikelytoexplainanaccountsreceivableturnoverthatislowerthantheindustrynorm?
A.
Thecompanymakeslesscreditsalesthanindustry.
B.
Thecompanygivescustomerslesstimetopaythanitscompetitors.
C.
Thecompanyhasbeensellinginferiorproductstocompetitors.
D.
Thecompanyissystematicallyunder-estimatingbaddebts.
37.
Whichofthefollowingsituationsismostlikelytoexplainanetoperatingassetturnoverthatishigherthantheindustrynorm?
A.
Thecompanyhasmorerecentlypurchasedfixedassets.
B.
ThecompanyusesFIFOwhilecompetitorsuseLIFO.
C.
Thecompanyusestheaccelerateddepreciationmethodwhilecompetitorsusethestraightlinemethod.
D.
Thecompanypurchasesmorecreditsuppliesthancompetitors.
SelectedinformationforAcmeCorp.:
38.
WhencalculatingAcme'sreturnonnetoperatingassetsinYear1,whichofthefollowingadjustmentstotheassetbaseismostappropriatetoconsider?
A.
Accumulateddepreciationadjustment
B.
Intangibleassetadjustment
C.
Non-operatingassetadjustment
D.
Noassetadjustment
39.
WhencalculatingAcme'sreturnonnetoperatingassetsinYear2,whichofthefollowingadjustmentstotheassetbaseismostappropriatetoconsider?
A.
Accumulateddepreciationadjustment
B.
Tangibleassetadjustment
C.
Non-operatingassetadjustment
D.
Noassetadjustment
40.
WhencalculatingAcme'sreturnonnetoperatingassetsinYear3,whichofthefollowingadjustmentstotheassetbaseismostappropriatetoconsider?
A.
Accumulateddepreciationadjustment
B.
Intangibleassetadjustment
C.
Operatingassetadjustment
D.
Noassetadjustment
True/FalseQuestions
41.
Ananalysisofacompany'sperformancerequiresjointanalysisofnetincomeinrelationtotheinvestedcapital.
True
False
42.
Thereisonlyonewaytomeasureinvestedcapital.
True
False
43.
Acompanythatoperatesinahighlycompetitiveindustrywithlowbarrierstoentryislikelytohavelownetoperatingprofitmarginscomparedtocompaniesthatoperateinlesscompetitiveindustries.
True
False
44.
Companiesthathavelownetoperatingprofitmarginsgenerallyonlyearnareasonablereturnonnetoperatingassetsiftheycanutilizetheirnetoperatingassetsveryefficiently.
True
False
45.
ThetwocomponentsofRNOA,netoperatingprofitmarginandNOAturnover,areindependentofeachother.
True
False
46.
Ifacompanyhasrapidlygrowingearningspershare,theirreturnonnetoperatingassetsmustbeincreasingtoo.
True
False
47.
Whencalculatingreturnonequityminority,interestisaddedtothenumeratorasithasbeendeductedinarrivingatnetincome.
True
False
48.
Whencalculatingreturnonnetoperatingassets,deferredtaxesshouldbedeductedfromthedenominator.
True
False
49.
Returnonequityisthereturnstockholdershaverealizedduringthepastyear.
True
False
50.
Therelationbetweenacompany'sreturnoncommonequity(ROCE)andreturnonnetoperatingassets(RNOA)revealsinformationaboutthecompany'ssuccesswithfinancialleverage.
True
False
51.
Adecreaseinnetoperatingprofitmarginwillcausebothreturnonnetoperatingassetsandreturnonequitytodecrease,allotherthingsbeingequal.
True
False
52.
Returnonnetoperatingassetswillalwaysbegreaterthanorequaltothepretaxreturnonequity.
True
False
53.
Whencalculatingreturnontotalequity,itisnormaltoaddbackpreferreddividendstonetincome.
True
False
54.
Itispossibletohaveanincreasingreturnonnetoperatingassetswhilenetoperatingprofitmarginisdecreasing.
True
False
55.
Returnoninvestedcapitalisabettermeasureofprofitabilitythanearningsasearningsnumbersfailtoreflectthecapitalneededtogeneratethoseearnings.
True
False
56.
Iftwocompaniesbothincreasetheirnetincomeby25%overtheprioryearthismeanstheyhavebothbeenequallyprofitablethisyear.
True
False
57.
Whencalculatingreturnonnetoperatingassetsitmaybenecessarytoadjustassetstoreflectthefactthatnotallassetsareoperatingassets.
True
False
58.
Iffutureexpectedreturnoncommonstockholders'equityislessthanexpectedrequiredreturnbyequityholdersthenthemarketvalueofacompany'sstockshouldbelessthanbookvalue.
True
False
59.
Sustainableequitygrowthrateisafunctionofreturnoncommonstockholders'equityandthedividendpayoutratio.
True
False
60.
Returnonequitycanbeexpressedasreturnonnetoperatingassetsmultipliedbyleverage(netoperatingassets/equity)andbyearningsleverage.
True
False
61.
Theaccounting-basedstockvaluationformulacalculatesthevalueofastockasthebookvalueofthenetoperatingassetsplusthepresentvalueoffutureexpecteddividendsdiscountedatthecostofequity.
True
False
62.
Whencalculatingreturnonnetoperatingassets,thenumeratorisnetincomeplusminorityinterest.
True
False
63.
Returnonnetoperatingassetsisabettermeasureofoperatingperformancethanreturnonequity,asitisindependentoftheformoffinancing.
True
False
64.
Itispossibletohaveincreasingearningsgrowthwhilehavingdecreasingreturnonnetoperatingassets.
True
False
65.
Itispossibletoassessthecommonequitygrowthratebyanalyzingtheretentionofearnings.
True
False
66.
Anadvantageofleveragethatbenefitscommonstockholdersissuccessfultradingontheequity.
True
False
67.
Financialstatementsofadiversifiedcompanyshouldbeanalyzedbysegments.
True
False
68.
Practiceconsidersasegmentsignificantifitssales,operatingincome(orloss),oridentifiableassetsare30%ormoreofthecombinedamountsofallthecompany'soperatingassets.
True
False
EssayQuestions
69.
ReturnonEquity
a.Calculatereturnoncommonequity(ROCE)forfiscalX4andX7.Identify,asfarasallowedbythedata,componentsdrivinganychangesinROCEfromX4toX7.(IfyouwanttogivestudentsmoreguidancethenasktodisaggregateROCEintonetoperatingprofitmargin,netoperatingassetturnoverandleverage.)
b.CompareandcontrastthechangeinearningspersharetoROCEoverthistimeperiod.
70.
ROCEandEPSCalculationandInterpretation
YouaregiventhefollowingdataforGoodCompanyInc.for2004,2005,and2006(amountsinthousands).
a.CalculateROCEforthethreeyears.
b.CalculatebasicEPSforthethreeyears.
c.InterpretyourfindingsforbothROCEandEPS.
71.
EffectofTransactions
Indicatetheeffectofthefollowingtransactionson:
i.Returnonnetoperatingassets(RNOA)
ii.Returnoncommonshareholders'equity(ROCE)
iii.Earningspershare(basic)
Considereachtransactionindependentlyandexplainyouranswer.AssumethatROCEishigherthanRNOA.
1.Companyissuesmorepreferredstockandusesproceedstoreduceaccountspayable.
2.Companyhasastocksplit.
3.Companyconvertstojust-in-timeinventorysystem(JIT).Thisallowsthemtoholdhalfthelevelsofinventoryforthesameamountofsales(salesthemselvesarenotincreasedbythischangetoJIT).
72.
Financing
a.NiglowCorporationproducesmetalcastings.Inthepastyearitearneda10%returnonitsnetoperatingassetsbaseof$10million.Niglowneeds$10milliontoexpanditsoperations,andhastheoptionofobtainingnone,some,oralloftheproceedsfromthebank.Currentlythecompanyisallequityfinanced.Itexpectstobeabletomaintainitsreturnonnetoperatingassetsaftertheexpansion.Thebankhasindicatedthattheamountitwillchargeontheloanwillbedependentupontheresultantdebt/equityratio.Specifically,therateswillbe8%,9%,10%,and12%fordebt-to-equityratioslessthanorequalto0.25,0.5,1.0,andover1.0,respectively.Niglow'staxrateis40%.
b.CalculateNiglow'sreturnoncommonequityiftheexpansionisfinanced:
i.usingallequity
ii.50%debt,50%equity
iii.alldebt
c.WhatwouldNiglow'sreturnonnetoperatingassetsneedtobeforthereturnonequitytobedecreasedbyfinancingtheexpansionusingalldebt?
73.
Ratios
BelowareselectedratiosforManufacturersCorporation.Usethisinformationanswerthefollowingquestions.
a.Calculatereturnonnetoperatingassetsforallthreeyears.Identifyreasonsforanychanges.
b.Calculatereturnonequityforallthreeyears.Commentonchanges.
74.
ReturnonNetOperatingAssets
Whencalculatingreturnonnetoperatingassetsanalystssometimesmakeadjustmentstothenetoperatingassetbaseusedinthedenominatorortheratio.Threepossibleadjustmentsarelistedbelow.Explainwhattheseadjustmentsare,anddiscussthemeritsoftheseadjustments.
1.Non-operatingassetadjustment
2.Intangibleassetadjustment
3.Accumulateddepreciationadjustment
75.
FactorsAffectingReturnonCapital
YouarecomparingtheReturnonCommonEquity(ROCE)anditscomponents(netoperatingprofitmargin,netoperatingassetturnoverandleverage)oftwocompaniesinthesameindustry,ABCCorpandXYZCorporation.ExplainhoweachofthefollowingwillaffectofROCEanditscomponentsofABCrelativetoXYZ,allotherthingsequal.
1.ABCCorporationis100%equityfinanced,whereasXYZhasasignificantamountofdebtfinancing.
2.ABCissuedstockdividendduringyear,andXYZdidnot.
3.ABCusesFIFOandXYZusesLIFO(assumingnormaleconomicconditions)
4.ABCsoldreceivablesatfacevalueattheendoftheyear.
76.
ROCEandComponents
BelowareselectedratiosforWidgetCorporationandToolsInc.Usethisinformationtoanswerthefollowingquestions.
a.Whichcompanyhasahigherreturnonequity?
b.Weknowfromtheresidualincomemethodofvaluationthat,allotherthingsequal,thecompanywiththehigherROCEwillhaveahigherintrinsicvalue.Whyareallotherthingsnotlikelytobeequalinthisinstance(hint:lookatcomponentsofROCE)?
c.Whichcompanyhasbetteroperatingperformance(thatis,ignoringcapitalstructure).
Chapter08ReturnonInvestedCapitalandProfitabilityAnalysisAnswerKey
MultipleChoiceQuestions
1.
Whichofthefollowingratiosbestmeasurestheprofitabilityofacompany?
A.
Returnonequity
B.
Grossmargin
C.
Currentratio
D.
Netoperatingassetturnover
2.
Belowarethenetoperatingassetturnoversandnetoperatingprofitmarginsforcompaniesthatoperateinthreedifferentindustries(A,BandC).Theindustriesaregrocerystores,oilextractionanddrugindustry.
MatchtheindustrytoA,BorC
A.
OptionA
B.
OptionB
C.
OptionC
D.
OptionD
3.
Whichofthefollowingstatementsiscorrect?
A.
Netoperatingprofitmargindividedbynetoperatingassetturnoverequalsreturnonnetoperatingassets.
B.
Returnonnetoperatingassetscanbedisaggregatedintonetoperatingprofitmarginandleverage.
C.
Returnonequityequalsreturnonnetoperatingassetslessinterest,netoftax.
D.
Returnonequitycanbedisaggregatedintonetoperatingprofitmargin,netoperatingassetturnoverandleverage.
4.
Whichofthefollowingcouldexplainadecreaseinnetoperatingassetturnoverforacompany?
A.
Switchingfromstraightlinetoaccelerateddepreciationforfinancialreportingpurposes
B.
Anincreaseinthefinancialleverageofthecompany
C.
Additionofanewplantforproductionpurposes
D.
Decreasecostofproductioninputs
5.
ErrCompanyhasamajorlawsuitagainstthemforunsafeproducts.Itrecognizesahugeliabilityin2004of$300million.Theeffectofthisliabilityistodecreasestockholders'equityby50%.In2005,theeffectofrecognizingthisliability,allelseequal,is:
A.
returnonnetoperatingassetswillincreasedramatically.
B.
returnonnetoperatingassetswilldecreasedramatically.
C.
returnonequitywillincreasedramatically.
D.
returnonequitywilldecreasedramatically.
6.
Returnonoperatingassetsfor2005is:
A.
7.9%.
B.
7.41%.
C.
8.78%.
D.
8.1%.
7.
Returnoncommonequityfor2005is:
A.
11.42%.
B.
10.0%.
C.
11.0%.
D.
10.47%.
Assumeallassetsareoperatingassets;allcurrentliabilitiesareoperatingliabilities.
8.
Returnonnetoperatingassetsfor2006is:
A.
11.30%.
B.
12.03%.
C.
9.93%.
D.
11.19%.
9.
Returnonequityfor2006is:
A.
20.41%.
B.
19.75%.
C.
17.54%.
D.
18.12%.
10.
Whichofthefollowingcouldcausereturnonnetoperatingassetstoincrease,allotherthingsequal?
A.
Adecreaseininterestrateondebt
B.
Increaseindaysaccountsreceivableareoutstanding
C.
Increaseininventoryturnover
D.
Decreaseingrossmargin
11.
EysterCorporationreported$10millioninearningsandpaiddividendsof$3millionforfiscal2005.Returnonequityanddividendpayoutareexpectedtoremainconstantfortheforeseeablefuture.Netbookvalueattheendoffiscal2004was100million.Costofequityis10%.Usingtheresidualincomemethod,theintrinsicvalueofEyster'sstockattheendof2005shouldbe:
A.
$110million.
B.
$107million.
C.
$101million.
D.
notdeterminable.
12.
Whencalculatingreturnonnetoperatingassets,interestexpensenetoftaxisaddedbacktonetincomeforpurposesofcalculatingthenumerator.Whattaxrateshouldbeused?
A.
Estatetaxrate
B.
Marginaltaxrate
C.
Statutoryfederaltaxrate
D.
Statutoryfederaltaxrateplusstatutorystatetaxrate
BelowisselectedinformationfromTricrop.
13.
ReturnonnetoperatingassetsforYear1is:
A.
30.8%.
B.
16.3%.
C.
15.4%.
D.
14.5%.
14.
ReturnoncommonequityforYear1is:
A.
19.0%.
B.
19.60%.
C.
21.08%.
D.
26.03%.
15.
WhichofthefollowingiscorrectconcerningchangesatTricropfromYear1toYear2?
A.
OptionA
B.
OptionB
C.
OptionC
D.
OptionD
16.
Whichofthefollowingstatementsiscorrectconcerningchangesfromyear1toyear2atTricrop?
A.
Despitefavorablechangesinthetaxrate,returnonnetoperatingassetshasdecreased
B.
Despitefavorablechangesinnetoperatingassetutilization,returnonnetoperatingassetshasdecreased
C.
Largelybecauseoffavorablechangesintaxrates,returnonnetoperatingassetshasincreased
D.
Largelyduetofavorablechangesinleverage,returnonnetoperatingassetshasincreased
17.
Whichofthefollowingwillincreasethesustainableequitygrowthofacompany,allotherthingsequal?
A.
Increasedividendpayout
B.
Paysuppliersmorequickly
C.
Paysuppliersmoreslowly
D.
Decreasedividendpayout
18.
Whichofthefollowingwillcauseanincreaseinnetoperatingincome(NOPAT)?
A.
Increaseinthereturnonnetoperatingassets
B.
Decreaseinthereturnonnetoperatingassets
C.
Nochangeinthereturnonnetoperatingassets
D.
Thereisnotsufficientinformation
19.
Whichofthefollowingwouldexplainanobserveddecreaseinreturnonequity,allelseequal?
A.
Decreaseintaxrate
B.
Increaseininterestrateondebt
C.
Stocksplit
D.
Stockdividend
20.
Whichofthefollowingisthebestmeasureofoperatingefficiency?
A.
Returnonnetoperatingassets
B.
Returnonequity
C.
Returnonsales
D.
Returnoninventory
21.
Returnonoperatingassetsisameasureofwhichofthefollowing?
A.
Profitability
B.
Efficiency
C.
Solvency
D.
Liquidity
ThefollowinginformationrelatestoYutterCorporation:
22.
WhatisYutter'ssustainableequitygrowthrate?
A.
9.12%
B.
9.88%
C.
11.4%
D.
12.0%
23.
WhatisthevalueofYutter'sstockattheendofYear1usingthedividenddiscountmodelassumingthatthedividendpayoutratioremainsconstantandYuttergrowsatitssustainableequitygrowthrate?
A.
$83,333
B.
$157,642
C.
$500,000
D.
$557,000
24.
IfYutter'sdividendpayoutratioincreasedto50%afteryear1then:
A.
thesustainableequitygrowthratewouldincrease.
B.
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