Labor officials believe that the management of Hatfield is attempting to understate its net income to avoid making any concessions in the labor...

9. Labor officials believe that the management of Hatfield is attempting to understate its net income to avoid making any concessions in the labor negotiations. Which of the following actions by management will most likely result in low-quality earnings?

a. Lengthening the life of a depreciable asset to lower the depreciation expense.

b. Lowering the discount rate used in the valuation of the company's pension obligations.

c. The recognition of revenue at the time of delivery rather than when payment is received.

10. Hatfield has begun recording all new equipment leases on its books as operating leases, a change from its consistent past use of capital leases, in which the present value of lease payments is classified as a debt obligation. What is the most likely motivation behind Hatfield's change in accounting methodology? Hatfield is attempting to:

a. Improve its leverage ratios and reduce its perceived leverage.

b. Reduce its cost of goods sold and increase its profitability.

c. Increase its operating margins relative to industry peers.

11. The SEC due-diligence team is searching for the reason behind Hatfield's inventory build-up relative to its sales growth. One way to identify a deliberate manipulation of financial results by Hatfield is to search for:

a. A decline in inventory turnover.

b. Receivables that are growing faster than sales.

c. A delay in the recognition of expenses.

12. Use the DuPont system and the following data to find return on equity.

·         Leverage ratio 2.2∙

·         Total asset turnover 2.0∙

·         Net profit margin 5.5%∙

·         Dividend payout ratio31.8%

13. A firm has an ROE of 3%, a debt/equity ratio of .5, a tax rate of 35%, and pays an inter-est rate of 6% on its debt. What is its operating ROA?

15. An analyst gathers the following information about Meyer, Inc.:∙

·        Meyer has 1,000 shares of 8% cumulative preferred stock outstanding, with a par value of $100 and liquidation value of $110.∙

·        Meyer has 20,000 shares of common stock outstanding, with a par value of $20.∙

·        Meyer had retained earnings at the beginning of the year of $5,000,000.∙

·        Net income for the year was $70,000.∙

·        This year, for the first time in its history, Meyer paid no dividends on preferred or common stock.

What is the book value per share of Meyer's common stock?

16. Here are data on two firms:

a. Which firm has the higher economic value added?

b. Which has higher economic value added per dollar of invested capital?