Exhibit 19-8
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)

question 42

Multiple Choice

Exhibit 19-8
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
Zeco Company has the following financial statements for year ending 12/31/2009. $\begin{array}{lr}\text { Sales } & 1,000,000 \\\text { Cost of Goods Sold } & \underline{750,000 }\\\text { Gross Profit } & 250,000 \\\text { Depreciation } & 100,000 \\\text { Operating Expenses } & 70,000 \\\text { Administration Exp. } & \underline{65,000} \\\text { Operating Profit } & 15,000 \\\text { Interest Expense }\\\\\text { Profit Before Taxes } & \underline{8,000} \\\text { Taxes } & 7,000 \\\\& \underline{2,800} \\\text { Net Income }& 4,200 \\\text { Dividends } & 3,200 \\\end{array}$ $\begin{array}{c}\begin{array}{lll}\text { Assets }\\\hline \text { Cash } & 50,000 \\\text { Accounts Receivable } & 250,000 \\\text { Inventory } & \underline { 325,000} \\ \quad \text { Total Current Assets } & 825,000 \\\text { Net Fixed Assets } & \underline { 450,000} \\ \text { Total Assets } & 1,275,000\\\\\end{array}\begin{array}{lll}\text { Liablities }\\\hline \text { Notes Payable } & 250,000 \\\text { Accounts Payable } & \underline { 350,000} \\ \text { Total Current Liab. } & 800,000 \\\text { Long Term Debt } & 225,000 \\\text { Common Stock } & 200,000 \\\text { Retained Earnings } & \underline { 50,000 }\\ \text { Total Liab. \& Earnings } & 1,275,000\end{array}\end{array}$
The Zeco Company's industry averages are as follows:
Net Profit Margin = 4.5%; Total Asset Turnover = 0.8; Total Assets/ Equity = 1.5
-Refer to Exhibit 19-8. Based on this information what are the strengths and concerns of Zeco Company?

• A) Zeco needs to lower its leverage and improve profitability and efficiency.
• B) Zeco needs to increase its leverage and improve efficiency.
• C) Zeco needs to lower its leverage and improve efficiency.
• D) Zeco needs to lower its leverage and improve profitability.
• E) Zeco needs to increase its leverage and improve profitability.

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Definitions:

Choppy Conditions

Phenomena characterized by sudden changes or turbulence, often used in the context of water or financial markets.

Personal Life

Aspects of an individual's life that are primarily personal as opposed to professional, including family, friendship, and leisure activities.

Attractiveness

The quality of being appealing or pleasing in appearance or other qualities to others.

Similarity

The state of being alike or sharing common features, traits, or characteristics.