The Following Information Comes from the Balance Sheet of Roamer

question 7

Multiple Choice

The following information comes from the balance sheet of Roamer Enterprises. The value of common stock is $60,000, retained earnings equals $40,000, total common equity equals $100,000, preferred stock has a value of $10,000 and long-term debt totals $120,000. For purposes of estimating the firm's WACC, what are the weights of long-term debt, preferred stock, and equity?

• A) D/V = 52.17%, PS/V = 43.48%, and E/V = 4.35%
• B) D/V = 52.17%, PS/V = 4.35%, and E/V = 43.48%
• C) D/V = $120,000, PS/V = $10,000, and E/V =$100,000
• D) There is not enough information to answer this question.

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Definitions:

Inventory Turnover Ratio

A metric indicating how often a company's inventory is sold and replaced over a specific period, useful in evaluating the efficiency of inventory management.

Return on Equity

A measure of a corporation's profitability that reveals how much profit a company generates with the money shareholders have invested.

Average Collection Period

The average number of days it takes for a company to receive payments owed by its customers.

Current Ratio

A financial metric assessing a firm's capacity to settle debts due within a year by comparing its current assets to its current liabilities.