Mt Prevost Machine Corp -Refer to the Financial Statements of Mt

question 11

Multiple Choice

Mt. Prevost Machine Corp.
Income Statement (2001)
$\begin{array}{lr}\text { Sales } & \$ 4,000,000 \\ \text { Cost of goods sold } & 3,040,000 \\ \text { Gross profit } & 960,000 \\ \text { Selling and administrative expenses } & 430,000 \\ \text { Operating profit } & 530,000 \\ \text { Interest expense } & 160,000 \\ \text { Income before tax } & 370,000 \\ \text { Tax expense } & 148,000 \\ \text { Net income } & \$ 222,000\end{array}$
$\begin{array}{l}\text { Balance Sheet }\\\begin{array}{lrr} & 2001 & 2000 \\\text { Cash } & \$ 60,000 & \$ 50,000 \\\text { Aceounts receivable } & 550,000 & 500,000 \\\text { Inventory } & 690,000 & 620,000 \\\text { Total current assets } & 1,300,000 & 1,170,000 \\\text { Fixed assets } & 1,300,000 & 1,230,000 \\\text { Total assets } & 2,600,000 & 2,400,000 \\\text { Aceounts payable } & & \\\text { Bank loan } & 270,000 & 250,000 \\\text { Total current liabilities } & 580,000 & 500,000 \\\text { Bonds payable } & 850,000 & 750,000 \\\text { Total liabilities } & 900,000 & 1,000,000 \\\text { Common stock (25,000 shares) } & 1,750,000 & 1,750,000 \\\text { Retained earnings } & 250,000 & 250,000 \\\text { Total liabilities \& equity } & 600,000 & 400,000 \\\hline\end{array}\end{array}$
-Refer to the financial statements of Mt.Prevost Machine Corp.The firm's leverage ratio for 2001 is ________.

• A) 0.72
• B) 1.53
• C) 3.06
• D) 47.90
• E) none of these

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Definitions:

Recoveries

denotes the periods following recessions during which economic activity starts to increase and recover towards previous levels.

Discouraged Workers

Individuals who are not actively seeking work because they believe no jobs are available for them or there are none for which they would qualify.

Unemployed

Refers to individuals who are without a job but are actively seeking work.

Contraction

The downturn of the business cycle, when real GDP is declining.