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The Global Business Simulation Strategy Game – Glo – Bus Quiz Answers

If you’re in a business strategy class, you may be taking the Global Business Simulation Strategy Game, or “Glo-Bus” for short. You will most likely take two quizzes in this course, Glo-Bus Quiz 1 and Glo-Bus Quiz 2. Both quizzes will go over the basics of the game and especially quiz 2 can have very difficult questions. Many of the questions have a financial basis. Here is a sample question that you will most likely get.

Given the following data from the Financial Statements:

Income statement data Quarter 1

(in 000s)

Sales revenue $50,000

Operating Income $14,400

Net Income $9,555

balance sheet data

Total current assets $70,000

Total assets $149,000

Total current liabilities $26,000

Long-term debt (withdrawal of credit line) $33,000

Total Equity $90,000

Other financial data

Depreciation $4,000

Dividend payments $2,250

Based on the above figures, the company’s capital structure consists of what percentages of debt and equity? (These percentages are one of the components used to determine a company’s credit rating, as explained on the Help screen on the GSR Comparative Financial Performance page.)

Here are the 5 answers.

20% debt and 80% capital or 20:80.

27% debt and 73% equity or 27:73.

35% debt and 65% equity or 35:65.

37% debt and 63% equity or 37:63.

None of those.

So to answer this question, we need to look at this income statement and conclude what is debt and equity.

Total Equity is listed at $90,000, so that’s easy.

But the really hard part is figuring out what debt is. Believe it or not, but current liabilities are not part of “debt.” And that’s a mistake people make.

So the debt is simply long-term debt of $33,000. But then what?

To calculate the correct ratio, the formula for debt ratio = debt / (debt + equity)

[And for note the equity ratio=equity/(debt+equity)]

Or therefore 33,000/(33,000+90,000)=.268 or what is equal to 27%. Therefore, the debt ratio is 27% and the balance of 73% is principal.

The correct answer is the second!

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