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ACC350 - HW #7 (Chapter 10) Solutions

Wednesday, October 23, 2013

Multiple Choice Questions

1. CD Productions needs to know its anticipated cash inflows for the next quarter by month. Cash sales are 10 percent of total sales each month. Historically, sales on account have been collected as follows: 60 percent in the month of sale, 30 percent in the month after the sale, and the remaining 10 percent two months after the sale. Sales for the quarter are projected as follows: April, $120,000; May, $100,000; and June, $80,000. Accounts receivable on March 31 were $60,000.

CD Productions would expect to have an accounts receivable balance on June 30 of
a. $37,800 (90,000x0.1 (receivables from May sales) + 72,000x0.4 (receivables from June sales)).
b. $42,000.
c. $32,000.
d. $28,800.

2. Which of the following changes would NOT change return on investment (ROI)?
a. Decrease sales and expenses by the same percentage.
b. Increase total assets.
c. Increase sales dollars by the same amount as total assets.
d. Decrease sales and expenses by the same dollar amount.

3. Beta Division had the following information:
Av. operating assets in Beta Division $400,000
Operating income in Beta Division $50,000
Weighted average cost of capital 12%
Minimum required rate of return 15%
Operating Income Margin for Beta Division 20%

What is the turnover ratio for Beta Division?
a. 0.200
b. 0.125
c. 0.625
d. 8.000
SUPPORTING CALCULATIONS:
Operating income margin=operating income/sales=0.2
Sales=operating income/0.2=50,000/0.2=250,000
Turnover = Sales/Av. Operating assets =250,000//$400,000 = 0.625

4. If the operating asset turnover increased by 50 percent and the margin increased by 50 percent, the ROI would increase by
a. 50%.
b. 25%.
c.