The Financial Statements of Midwest Tours Are Given Below

question 86

Multiple Choice

The financial statements of Midwest Tours are given below. $\begin{array}{c} \text { Midwest Tours } \\\text { Income Statement (2009) }\\\begin{array}{lrr} \hline \text { Sales } & \$ 2,500,000 \\\text { Cost of goods sold } & \underline {1,260,000} \\\text { Gross profit } & 1,240,000 \\\text { Selling \& administrative expenses } & \underline { 700,000} \\\text { Operating profit } & 540,000 \\\text { Interest expense } & \underline {160,000 }\\\text { Income before tax } & 380,000 \\\text { Tax expense } & \underline {152,000} \\ \text { Net income } & \underline {\$ 228,000} \\\end{array} \end{array}$ $\begin{array}{c}\begin{array}{lll} \text { Balance Sheet } &2009\\\\ \text { Cash } &\$ 60,000 \\ \text { Accounts receivable } & 500,000 \\ \text { Inventory } & \underline {300,000} \\ \text {Total current assets } &\$ 860,000 \\ \text {Fixed assets } & \underline {2,180,000} \\ \text { Total assets } & \underline {\$ 3,040,000} \\\\ \text { Accounts Payable } &\$ 200,000 \\ \text { Bank loan } & \underline {460,000} \\ \text { Total current liabilities } & \$ 660,000 \\ \text {Bond payable } & \underline { 860,000} \\ \text { Total liabilities } & \underline {\$ 1,520,000 }\\ \text { Common stock ( 130,000 shares) } & \$ 120,000 \\ \text {Retained earnings } & \underline {1,400,000}\\ \text { Total liabilities \& equity } & \underline {\$ 3,040,000} \\\end{array}\begin{array}{lll}2008\\\\\$ 50,000 \\450,000 \\ \underline { 270,000 }\\ \$ 770,000 \\ \underline { 2,000,000} \\ \underline { \$ 2,770,000 }\\\\\$ 170,000 \\ \underline { 440,000} \\ \$ 610,000 \\ \underline {860,000} \\ \underline {\$ 1,470,000 }\\\$ 120,000\\ \underline {1,300,000} \\ \underline { \$ 2,890,000 } \\\end{array}\end{array}$ Note: The common shares are trading in the stock market for $36 each. Refer to the financial statements of Midwest Tours. The firm's leverage ratio for 2009 is

• A) 1.62.
• B) 1.56.
• C) 2.00.
• D) 2.42.
• E) 2.17.

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Definitions:

Cross-Price Elasticity

An indicator of the responsiveness in the demand for a certain product when there's a variation in the cost of a different product.

Mountain Dew

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A carbonaceous solid derived from coal processing, used as a fuel and in the manufacture of dry cells, electrodes, and other industrial products.

Cross-Price Elasticity

An assessment of how the demand for one product adjusts in response to price variations of a different product.