Principles of Finance

[Kiwi Lover]

Hi All,

I just took the Thomas Edison 20-question mock exam for Principles of Finance. I only got two wrong....I'm happy with that.

One of my wrong answers was a silly mistake. But I can't figure out the reasoning behind the other question I got wrong.

Maybe an accounting/math/finance guru can help me understand how TESC came up with the answer they did.

Here's the question:

------
A firm has a current ratio of 2.4, a quick ratio of 1.5, an inventory turnover of 6 times, and current liabilities of $600,000. What is the firm's level of sales?

a. $1,420,000
b. $1,960,000
c. $2,160,000
d. $3,240,000 <---- Correct Answer
------

I understand each of the individual elements contained in the question. But I can't figure out how to put it all together to find the "level of sales".

Can anyone help?

Snazz,

First of all, there wasn't one question on the Finance exam like the one you've listed, but I'll list out how I would have come up with the answer anyway. It's definitely a step-by-step process to come up with the right answer! Here goes:

1. First you need to compute what the assets are. Current ratio is 2.4, and current ratio is current assets divided by current liabilities. They said current liabilities were $600,000, so to get current assets I multiplied the $600,000 times 2.4. So assets = $1,440,000.

2. Now that you know what the assets equal, you can figure out what the inventory number is. Quick ratio is 1.5, and quick ratio is current assets minus inventory divided by current liabilities. We know that current assets = $1,440,000 and current liabilities = $600,000. So we multiply $600,000 times 1.5 (the quick ratio) to equal $900,000. Then deduct this number from the $1,440,000 in assets to equal the difference of $540,000, which is your inventory number.

3. If inventory is $540,000 and inventory turnover is 6 times, then $540,000 times 6 equals $3,240,000 in sales.

I hope that makes sense!! hilarious

[snazzlefrag]

Snazz,

First of all, there wasn't one question on the Finance exam like the one you've listed, but I'll list out how I would have come up with the answer anyway. It's definitely a step-by-step process to come up with the right answer! Here goes:

1. First you need to compute what the assets are. Current ratio is 2.4, and current ratio is current assets divided by current liabilities. They said current liabilities were $600,000, so to get current assets I multiplied the $600,000 times 2.4. So assets = $1,440,000.

2. Now that you know what the assets equal, you can figure out what the inventory number is. Quick ratio is 1.5, and quick ratio is current assets minus inventory divided by current liabilities. We know that current assets = $1,440,000 and current liabilities = $600,000. So we multiply $600,000 times 1.5 (the quick ratio) to equal $900,000. Then deduct this number from the $1,440,000 in assets to equal the difference of $540,000, which is your inventory number.

3. If inventory is $540,000 and inventory turnover is 6 times, then $540,000 times 6 equals $3,240,000 in sales.

I hope that makes sense!! hilarious

Dyamn JoAnne...did you swallow a calculator? You're like....you're like...like a...like a Math Genius or sumpin' ain't ya?
hilarious

It DOES make total sense to me now that you put the pieces together. It was frustrating me that I knew what all the individual pieces of the puzzle were, but I just couldn't put them together to get the sales level.

I'm GLAD there won't be any questions like that on the exam...because I'm all out of Jack Daniels! :eek:

Actually, I have studied very hard and am not feeling too bad about this exam now. I got 18 out of 20 questions correct on the TESC mock without much difficulty at all. I know the terminology and can do most of the math involved in working out the ratios, TVM, NPV, IRR, PI, cost of capital etc.

I've got Finance coming out of my ears! I woke up violently in the night, screaming "Noooooooo...your Debt to Equity Ratio is too high...For the love of God, turn back now before it's too late!"

So we'll see how it goes. I'm hoping to schedule the exam for sometime this week or early next week.

I'll give it my best shot,
Snazzlefrag

[Kiwi Lover]

Dyamn JoAnne...did you swallow a calculator? You're like....you're like...like a...like a Math Genius or sumpin' ain't ya?

It DOES make total sense to me now that you put the pieces together. It was frustrating me that I knew what all the individual pieces of the puzzle were, but I just couldn't put them together to get the sales level.

I'm GLAD there won't be any questions like that on the exam...because I'm all out of Jack Daniels! :eek:

Actually, I have studied very hard and am not feeling too bad about this exam now. I got 18 out of 20 questions correct on the TESC mock without much difficulty at all. I know the terminology and can do most of the math involved in working out the ratios, TVM, NPV, IRR, PI, cost of capital etc.

I've got Finance coming out of my ears! I woke up violently in the night, screaming "Noooooooo...your Debt to Equity Ratio is too high...For the love of God, turn back now before it's too late!"

So we'll see how it goes. I'm hoping to schedule the exam for sometime this week or early next week.

I'll give it my best shot,
Snazzlefrag

Snazz,

I WISH I were a math genius!!! hilarious

I say GO FOR IT while it's still fresh in your head!! Did you get the e-mail I sent you on Friday that gives more specifics?

You'll do GREAT!

And by the way, I dreamt about operating leverage and debt to asset ratios and breakeven stuff EVERY night for a week - drove me nuts! Now I dream about supply & demand, inflation, equilibrium and all the other fun stuff associated with macro econ.

Ain't studying FUN?!!

Good luck!

[snazzlefrag]

Did you get the e-mail I sent you on Friday that gives more specifics?

Kiwi,

Yes I did get your email. It was VERY helpful once again. I appreciate the time you have been willing to invest in me as I prepare for this exam.

I'm sorry I didn't reply...I thought I did, but obviously I didn't. All my in-laws are in town this week for a wedding. Needless to say, it has been a busy few days! But I did get your email and will make good use of your advice.

Thanks again,
Snazzlefrag

[snazzlefrag]

Hi All,

I have scheduled my Principles of Finance exam for this Friday morning (6/9/06) at 10am.

Can anybody tell me if there were any questions requiring you to calculate depreciation?

It isn't mentioned specifically on the DSST Factsheet, but I suspect it might be on the exam.

If you could let me know ASAP, I would very much appreciate it.

Thanks,
Snazzlefrag

[adrian]

I hope you pass with flying colors.

[Kiwi Lover]

Hi All,

I have scheduled my Principles of Finance exam for this Friday morning (6/9/06) at 10am.

Can anybody tell me if there were any questions requiring you to calculate depreciation?

It isn't mentioned specifically on the DSST Factsheet, but I suspect it might be on the exam.

If you could let me know ASAP, I would very much appreciate it.

Thanks,
Snazzlefrag

Snazz,

I don't remember ANY depreciation questions at all, so don't worry about that.

BEST OF LUCK to you - I know you'll do great! Let us know how it went afterwards.

[snazzlefrag]

Hi All,

I'm going to be heading out to take the Principles of Finance exam in a couple of hours.

I'm having a hard time staying calm and collected right now. I'm more nervous than usual for some reason. Perhaps 'insecure' is a better description of how I am feeling.

I've learned a LOT of information over the past two weeks and I would normally be feeling quite confident around about now. I think my fear is that they will twist the wording of the questions around so that my understanding of the various formulas and ratios will be rendered useless.

Also, this is a pretty huge subject and there are so many possible questions they could ask me. I'm not worried about the terminology, I have that down pat. It's fear of the blasted math that has me all freaked out...I know how to calculate Z if they give me W, X, and Y. But what if they throw a curveball at me and ask me to calculate W using X, Y, and Z. I hope to God I have learned enough to pull this one off.

I have a lot of equity invested in this exam, but right now it feels more like a liability than an asset. I just hope the rate of return will outweigh the risk, because I'm having trouble seeing the Future Value of this particular project.
hilarious

I'm sure I'll be fine...I felt much the same way before my Statistics exam, and I ended up doing well on it.

I'm good enough, I'm smart enough, and gosh darn it people like me!
I'm good enough, I'm smart enough, and gosh darn it people like me!
I'm good enough, I'm smart enough, and gosh darn it people like me!
I'm good enough, I'm smart enough, and gosh darn it people like me!

Hopefully I will be able to bring you all a good report in a few hours.

Until then, please send a few prayers my way.

Thanks,
Snazzlefrag

[yutzyj]

snazz-
now that you're back, how did you do? i'm betting positive. sending you good vibes.

[Kiwi Lover]

Hi All,

I'm going to be heading out to take the Principles of Finance exam in a couple of hours.


I have a lot of equity invested in this exam, but right now it feels more like a liability than an asset. I just hope the rate of return will outweigh the risk, because I'm having trouble seeing the Future Value of this particular project.
hilarious

Until then, please send a few prayers my way.

Thanks,
Snazzlefrag

Snazz,

I know everyone here was really rooting for you especially because YOU have always been so supportive of everyone else. And I did pray for you, so I hope that helped!

I loved the play on words you posted above - very original! I have a feeling you did fine...

Let us know how it went once your brain has recovered!!