FIN 304 Chapter 4 Quiz

1. ABC Corp’s total assets at the end of last year were $405,000 and its EBIT was $52,500. What
was its basic earning power (BEP) ratio?

2. River Corp’s total assets at the end of last year were $415,000 and its net income was $32,750.
What was its return on total assets?

3. Alpha Corp’s sales last year were $280,000, and its net income was $23,000. What was its profit
margin?

4. AJ Corp’s sales last year were $435,000, its operating costs were $362,500 and its interest
charges were $12,500. What was the firm’s times interest earned (TIE) ratio?

5. B Corp has $720,000 of assets; it uses no debt and is financed only with common equity. The
new CFO wants to employ enough debt to raise the debt/assets ratio to 40% using the proceeds
from borrowing to buy back common stock at its book value. How much must the firm borrow
to achieve the target debt ratio?

6. Considered alone, which of the following would increase a company’s current ratio?

a. An increase in net fixed assets

b. An increase in accrued liabilities 0
c. An increase in notes payable ‘ t

d. An increase in accounts receivable

e. An increase in accounts payable

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