1. In 2012, Snout and Smith, Inc. had a gross profit of $27,000 on sales of $110,000.

S & S's operating

expenses for 2012 were $13,000, and its net profit margin was .0585. Snout and Smith had no interest
expense in 2012. What was S&S's operating profit margin?
A) 0.245
B) 0.118 27,000-13,000 = 14,000
C) 0.127
D) 0.157 14,000 / 110,000 = .127
Answer C

2. GAAP, Inc. has total assets of $2,575,000, sales of $5,950,000, total liabilities of $1,855,062, and a net
profit margin of 2.9%. What is GAAP's return on equity? Round to the nearest 0.1%.
A) 8.6%
B) 24.0% 5,950,000 * .029 = Net Income =172,550
C) 16.4%
D) 4.4% 2,575,000 -1,855,062 = Equity = 719,938
Answer: B
ROE = 172,550 / 719, 938 = .24

3. Heavy Load, Inc. has sales of $3,450,000, total assets of $1,240,000, and total liabilities of $275,000,
which consist strictly of notes payable. The firm's operating profit margin is 16.1%, and it pays a 10% rate
of interest on its notes payable. How much is the firm's times-interest-earned?
A) 15.6
B) 45.3 3,450,000 *.161 = operating income = 555,450
C) 20.2 275,000 * .10 = interest = 27,500
D) 3.0
Answer: C TIE = 555,450 / 27,500 = 20.2

4. Song Corp's stock price at the end of last year was $23.50 and its earnings per share for the year
were $1.30. What was its P/E ratio?
a. 17.17
b. 18.08
c. 18.98
d. 19.93
e. 20.93

ANSWER: b
RATIONALE: Stock price $23.50
EPS $1.30
P/E = Stock price/EPS 18.08

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 5. Last year Harrington Inc. had sales of $325,000 and a net income of $19,000, and its year-end assets
were $250,000. The firm's total-debt-to-total-capital ratio was 45.0%. The firm finances using only debt
and common equity and its total assets equal total invested capital. Based on the DuPont equation, what
was the ROE?
a. 13.82%
b. 14.51%
c. 15.23%
d. 16.00%
e. 16.80%

ANSWER: a
RATIONALE: Sales $325,000
Assets = Total invested capital $250,000
Net income $19,000
Debt to total capital ratio 45.0%
Debt = Debt % × Capital = $112,500
Equity = Assets − Debt = $137,500
Profit margin = NI/Sales = 5.85%
TATO = Sales/Assets = 1.30
Equity multiplier = Assets/Equity = 1.82
ROE 13.82%

6. If Turnpoint Inc. has net income of $400,000, assets of $5,000,000, sales of $2,000,000, and debt of
2,000,000, what is its return on equity (ROE)?

A. 13.3%
B. 8%
C. 66.7%
D. 2%

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