Chp 1

Concept Review
1.1
The Financial Management Decision Process. What are the three types of financial
management decisions? For each type of decision, give an example of a business transaction
that would be relevant.

1.2
Sole Proprietorships and Partnerships. What are the four primary disadvantages to the
sole proprietorship and partnership forms of business organization? What benefits are there to
these types of business organization as opposed to the corporate form?

1.3
Corporations. What is the primary disadvantage of the corporate form of organization?
Name at least two of the advantages of corporate organization.

1.5
Goal of Financial Management. Goal of Financial Management.What goal
should always motivate the actions of the firm’s financial manager?

1.6
Agency Problems. Who owns a corporation? Describe the process whereby the
owners control the firm's management. What is the main reason that an agency
relationship exists in the corporate form of organization? In this context, what kinds
of problems can arise?

Chp3

Questions & Problems

8
DuPont Identity. Jiminy Cricket Removal has a profit margin of 8 percent, total asset
turnover of 1.24, and ROE of 14.3 percent. What is this firm’s debt-equity ratio?

13.
Sustainable Growth. Based on the following information, calculate the
sustainable growth rate for Northern Lights Co.:
Profit margin = 10.4%
Capital intensity ratio = 0.60
Debt-equity ratio = .55
Net income = $115,000
Dividends = $55,000

27.
Using the DuPont Identity. Y3K, Inc., has sales of $9,310, total assets of $4,390,
and a debt-equity ratio of .25. If its return on equity is 15 percent, what is its net
income?

Calculating Financial Ratios. Find the following financial ratios for Smolira Golf
(use year-end figures rather than average values where appropriate):
Short-term solvency ratios
a. Current ratio _______________
b. Quick ratio _______________
c. Cash ratio _______________
Asset utilization ratios
d. Total asset turnover _______________
e. Inventory turnover _______________
f. Receivables turnover _______________
Long-term solvency ratios
g. Total debt ratio _______________
h. Debt-equity ratio _______________
i. Equity multiplier _______________
j. Times interest earned ratio _______________
k. Cash coverage ratio _______________
Profitability ratios
l. Profit margin _______________
m. Return on assets _______________
n. Return on equity _______________

36.
DuPont Identity. Construct the DuPont identity for Smolira Golf