Questions based on return on equity

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Multiple choice questions on Return on equity.

1.  During the latest year Ruth Corp. had sales of $300,000 and a net income of $20,000, and its year-end asserts were $200,000. The firm's total debt to total assets ratio was 40%. Based on the Du Pont equation, what was the firm's ROE?

a.         15.33%

b.        15.67%

c.         16.00%

d.        16.33%

e.         16.67%

2.   Rangoon Corp's sales last year were $400,000, and its year-end total assets were $300,000. The average firm in the industry has a total assets turnover ratio (TATO)of 2.5. The new CFO believes the firm has excess assets that can be sold so as to bring the TATO down to the industry average without affecting sales. By how much must the assets be reduced to bring the TATO to the industry average?

a.         $100,000

b.        $110,000

c.         $120,000

d.        $130,000

e.         $140,000

3.   Which of the following statement is CORRECT?

a. The NYSE does not exist as a physical location; rather it represents a loose collection of dealers who trade stock electronically.

b. An example of a primary market transaction would be your uncle transferring 100 shares of Wal-Mart stock to you as a birthday gift.

c.  Capital market instruments include both long-term debt and common stocks.

d. If your uncle in New York sold 100 shares of Microsoft through his broker to an investor in Los Angeles, this would be a primary market transaction.

e. While the two frequently perform similar functions, investment banks generally specialize in lending money, whereas commercial banks generally help companies raise large blocks of capital from investors.

Reference no: EM1315852

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