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A Good Bit of Relatively Simple Algebra Is Involved in These

question 90

Multiple Choice

A good bit of relatively simple algebra is involved in these problems, and although the calculations are simple, it will take students some time to set up the problems and do the arithmetic. We allow for this when assigning problems for a timed test. Also, note that students must know the definitions of a number of ratios to answer the questions. We provide our students with a formula sheet on exams, using the relevant sections of Appendix C at the then of the text. Otherwise, they spend too much time trying to memorize thing rather than trying to understand the issues.
The difficulty of the problems depends on (1) whether or not students are provided with a formula sheet and (2) the amount of time they have to work the problems. Out difficulty assessments assume that they have a formula sheet and a "reasonable" amount of time for the test. Note that a few of the problems are trivially easy if students have formula sheets.
To work some of the problems, students must transpose equations and solve for items that are normally inputs. For example, the equation for the profit margin is given as Profit margin = Net income/Sales. We might have a problem where sales and the profit margin are given and then require students to find the firm's net income. We explain to our students in class before the exam that they will have to transpose terms in the formulas to work some problems.
Problems 84 through 114 are all stand-along problems with individualized data. Problems 115 through 133 are all based on a common set of financial statements, and they require students to calculate ratios and find items like EPS, TIE, and the like using this data set. The financial statements can be changed algorithmically, and this changes the calculated ratios and other items.
-Ajax 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?

Definitions:

Capital Balances

The amount of funds contributed by owners or shareholders, plus retained earnings or net income, less any dividends paid out.

Capital Deficiency

A financial situation where a company's liabilities exceed its assets, indicating potential difficulties in covering its debts.

Capital Balances

The amounts in a business's equity accounts that represent the owners' stakes in the company.

Noncash Assets

Assets owned by a business that cannot be easily converted to cash, such as property, plant, and equipment.