a. Return on assets, or ROA, can be expressed as the product of two ratios. Which two?\

b. Return on equity, or ROE, can be expressed as the product of three ratios. Which three?

Calculate the missing amount in each of the following separate companies a through d.

	(a)	(b)	(c)	(d)
Equity, December 31, 2009	$0	$0	$0	$0
Owner investments during the year	110,000	?	87,000	210,000
Net income (loss) for the year	?	(47,000)	(10,000)	(55,000)
Owner withdrawals during the year	22,000	90,000	(4,000)	?
Equity, December 31, 2010	104,000	85,000	?	110,000

Indicate whether each of the following types of transactions will either increase owner’s equity.

1. owner’s investments
2. revenues
3. expenses
4. owner’s withdrawals

Determine the financial statement on which the item below appears. Use I for income statement. E for statement of owner's equity, and B for balance sheet.
 Wages Payable

Use the formulas in the How To box: Prepare a Balance Sheet to explain the formula: Total current assets $+$ total plant and equipment $=$ total liabilities $+$ total owner's equity.

The Graber Corporation’s common stock has a beta of 1.15. If the risk-free rate is 3.5% and the expected return on the market is 11%, determine the company’s cost of equity capital.

Patton Paints Corporation has a target capital structure of $40 \%$ debt and $60 \%$ common equity, with no preferred stock. Its before-tax cost of debt is $12 \%$, and its marginal tax rate is $40 \%$. The current stock price is $\mathrm{P}_0=\$ 22.50$. The last dividend was $\mathrm{D}_0=\$ 2.00$, and it is expected to grow at a $7 \%$ constant rate. What is its cost of common equity and its WACC?

Many companies in recent years have bought back their common stock. For example, IBM, with large cash holdings, spent almost $35 billion over three years repurchasing its stock.18 What are the reasons companies buy back their own shares? What is the effect of common stock buybacks on earnings per share, return on equity, return on assets, debt to equity, and the current ratio?

Define each of the following terms:

Stockholders' equity; retained earnings; working capital; net working capital; net operating working capital (NOWC); total debt

For the items listed below, indicate how the item affects equity (increase, decrease, or no impact).

Item	Increase? Decrease? or No Impact?
Revenues
Gains
Losses
Drawings
Investments

A vacant lot acquired for $100,000 is sold for$350,000 in cash. What is the effect of the sale on the total amount of the seller’s (1) assets, (2) liabilities, and (3) owner’s equity?

Assume the following relationships for the Caulder Corp.: $$ \begin{matrix} \text{Sales/Total assets} & \text{1.3 }{\times}\\ \text{Return on assets (ROA)} & \text{4.0\\%}\\ \text{Return on equity (ROE)} & \text{8.0\\%}\\ \end{matrix} $$ Calculate Caulder’s profit margin and debt-to-capital ratio assuming the firm uses only debt and common equity, so total assets equal total invested capital.

Determine the financial statement on which the item below appears. Use I for income statement. E for statement of owner's equity, and B for balance sheet.
 Services Revenue

The following information was taken from Sigmund Company's balance sheet:

$$\begin{array}{lr}\text { Fixed assets (net) } & \$ 1,050,000 \\ \text { Long-term liabilities } & 750,000 \\ \text { Total liabilities } & 850,000 \\ \text { Total stockholders' equity } & 500,000\end{array}$$

Determine the company's (a) ratio of fixed assets to long-term liabilities and (b) ratio of liabilities to stockholders' equity. Round to one decimal place.