Question

1. ABC company has current year total asset of $140,000, intangible assets of 55,000, equity of $95,000. Considering only for the fact that ABC company last year leverage ratio was 0.48, will the bank feel more comfortable lending the ABC company this year?

Group of answer choices

Yes, because the leverage ratio is higher

No, because the leverage ratio is higher

Yes, because the leverage ratio is lower

No, because the leverage ratio is lower

2. Which of the following is correct?

I. Debt to Tangible Net Assets Ratio = Total Liabilities / Tangible Net Worth

II. Leverage Ratio = Total Liabilities / Total Assets

III. Return on Equity (ROE) = Net Income / Shareholder’s Equity

Group of answer choices

I only

I and II

I and III

I, II, and III

3. Variances could arise:

Group of answer choices

A. during the normal course of operations because a machine unexpectedly breaks down.

B. because of a permanent change in the firm's operating environment such as a competitor introduces a new product.

C. because budgets or standards are either too tight or too loose.

D. Both A and B.

E. A, B, and C.

Answer 1

1)
	Debt = Total assets - equity
	= ($140000+55000) -$95000
	=$195000-95000
	=$100000
	Current year leverage ratio
	= Debt/ total assets
	=$100000/195000
	0.51
	Leverage ratio increased from 0.48 to 0.51
	which is not a good sign.
	Due to this, the bank will not feel more comfortable lending the ABC company this year
	Therefore the SECOND option is correct.
2)	All three options are correct.
	Therefore the THIRD option is correct.
3)	All A, B, and C are correct.
	Hence the correct option is E