Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN: 9781337395083
Author: Eugene F. Brigham, Phillip R. Daves
Publisher: Cengage Learning
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Chapter 22, Problem 15MC
Suppose the firm makes the change but its competitors react by making similar changes to their own credit terms, with the net result being that gross sales remain at the current $1,000,000 level. What would be the impact on the firm’s after-tax profitability?
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Please select the option that best analyzes the PROFIT MARGIN for our example company.
The profit margin indicates the amount of sales that are ultimately realized as income after all expenses are considered. Profit margin is not a good measure of how well a company performs, so this information does not indicate how well our company is performing financially.
The profit margin indicates the amount of sales that are ultimately realized as income after all expenses are considered. Our company retains between 15-20% of its sales as income, which is a comfortable profit margin.
The profit margin indicates the amount of sales that are ultimately realized as income after all expenses are considered. Our company retains between 80-85% of its income as sales, which is a very high profit margin.
The profit margin indicates the amount of sales that are ultimately realized as income after all expenses are considered. Our company retains between 80-85% of its income as sales, which…
Which of the following statements is/are true?
O In the case of flat-rate write-offs on receivables, the sales tax must also be corrected.
All deposits are income effective.
O If a company's profit is to be reported as high, administrative costs are taken into account when determining the production costs.
O Compared to straight-line depreciation, declining-balance depreciation means that profits tend to be higher in the future.
Discuss and explain the difference between profit/loss and cash flow. How could a company have positive cash flow, but show a net loss at year end? What are some examples of industries and/or companies that might generate subtantial cash flow, but could lose money? Conversely, what are some examples of industries and/or companies that might generate very limited cash flow, but could show a profit at year end?
Chapter 22 Solutions
Intermediate Financial Management (MindTap Course List)
Ch. 22 - Prob. 1QCh. 22 - Prob. 2QCh. 22 - Is it true that if a firm calculates its days...Ch. 22 - Firm A had no credit losses last year, but 1% of...Ch. 22 - Indicate by a (+), (), or (0) whether each of the...Ch. 22 - Cost of Bank Loan On March 1, Minnerly Motors...Ch. 22 - Cost of Bank Loan Mary Jones recently obtained an...Ch. 22 - Del Hawley, owner of Hawleys Hardware, is...Ch. 22 - Gifts Galore Inc. borrowed 1.5 million from...Ch. 22 - Relaxing Collection Efforts The Boyd Corporation...
Ch. 22 - Tightening Credit Terms Kim Mitchell, the new...Ch. 22 - Effective Cost of Short-Term Credit Yonge...Ch. 22 - Monitoring of Receivables
The Russ Fogler Company,...Ch. 22 - Prob. 10PCh. 22 - Prob. 1MCCh. 22 - Prob. 2MCCh. 22 - Prob. 3MCCh. 22 - Prob. 4MCCh. 22 - Prob. 5MCCh. 22 - Prob. 6MCCh. 22 - Prob. 7MCCh. 22 - Assume that it is now July of Year 1 and that the...Ch. 22 - Now assume that it is several years later. The...Ch. 22 - Prob. 10MCCh. 22 - Prob. 11MCCh. 22 - Prob. 12MCCh. 22 - Prob. 13MCCh. 22 - Prob. 14MCCh. 22 - Suppose the firm makes the change but its...
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- What would be a reason a company would want to understate income? A. to help nudge its stock price higher B. to lower its tax bill C. to show an increase in overall profits D. to increase investor confidencearrow_forwardSuppose a company increases the price of its product and demand hardly declines.which of the following will increase? A) profit margin B) return - on - equity C) taxes D) all the abovearrow_forwardWhich of the following statements is CORRECT? O The more depreciation a firm reports, the higher its tax bill, other things held constant. O People sometimes talk about the firm's net cash flow, which is shown as the lowest entry on the income statement, hence it is often called "the bottom line." O Depreciation and amortization are not cash charges, so neither of them has an effect on a firm's reported profits. O Net cash flow (NCF) is often defined as follows: Net Cash Flow = Net Income + Depreciation and Amortization Charges. O Depreciation reduces a firm's cash balance, so an increase in depreciation would normally lead to a reduction in the firm's net cash flow.arrow_forward
- You observe that a firm?s profit margin is below the industry average, while its return on equity and debt ratio exceed the industry average. What can you conclude?arrow_forwardIf the firm is in a very competitive, mature industry, what effect will the competitive conditions have on residual income for the firm and others in the industry? Now suppose the firm holds a competitive advantage in its industry, but the advantage is not likely to be sustainable for more than a few years. As the firm’s competitive advantage diminishes, what effect will that have on that firm’s residual income? and If a firm’s residual income for a particular year is positive, does that mean the firm was profitable? Explain. If a firm’s residual income for a particular year is negative, does that mean the firm necessarily reported a loss on the income statement? Explain. What does it mean when a firm’s residual income is zero?arrow_forwardWhich one of the following will decrease the net working capital of a firm? Assume the current ratio is greater than 1.0. A. selling inventory at cost B. collecting payment from a customer C. paying a payment on a long-term debt D. selling a fixed asset for book value E. paying a supplier for the purchase of an inventory itemarrow_forward
- How would each of the following factors affectratio analysis? (a) The firm’s sales are highly seasonal. (b) The firm uses some type of windowdressing. (c) The firm issues more debt and usesthe proceeds to repurchase stock. (d) The firmleases more of its fixed assets than most firmsin its industry. (e) In an effort to stimulate sales,the firm eases its credit policy by offering 60-daycredit terms rather than the current 30-day terms.How might one use sensitivity analysis to helpquantify the answers?arrow_forwardJones Group has been generating stable after-tax return on equity (ROE) despite declining operating income. Explain how it might be able to maintain its stable after-tax ROE.arrow_forwardWhy do companies accelerate depreciation on their tax return but often use slower depreciation rates on their financial statements? a. to avoid taxes b. to postpone taxes c. to improve earnings d. to improve long term cashflowarrow_forward
- Calculating the margin of safety (MOS) measure will help a firm answer which of the following questions? How much will operating profit (πB) change if sales change? Are we using our debt wisely? Will we break even? How much revenue can we lose before we drop below the breakeven point? How much operating profit (πB) will we earn?arrow_forwardWhich of the following would indicate an improvement in a company's financial position, holding other things constant? The profit margin declines. O The MV/BV ratio increases. The ROA decreases. The TIE increases. O The liability-to-asset ratio increases.arrow_forwardCan you identify a possible explanation for the company’s declining profits? If so, what is it?arrow_forward
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