# Finance

## Finance

• Submitted By: tinni5858
• Date Submitted: 09/17/2013 3:04 PM
• Words: 1936
• Page: 8
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Ch 3 Problems 3-1 to 3.7

3-1- Greene Sisters has a DSO of 20 days. The company’s average daily sales are \$20,000.
What is the level of its accounts receivable? Assume there are 365 days in a year.

Ans.:
Day Sales Outstanding= Receivables / Average Sales per day
AR = 20 X \$20000 = \$400,000

3-2- Vigo Vacations has an equity multiplier of 2.5. The company’s assets are financed with some combination of long-term debt and common equity. What is the company’s debt ratio?

Ans.:
Equity Multiplier = 2.5
Therefore Equity Ratio = 1/EM
Equity Ratio = 1/2.5 = 0.40
Debt Ratio + Equity Ratio = 1
Therefore Debt Ratio = 1 - Equity Ratio = 1 - 0.40 = 0.60 or 60%

3-3- Winston Washers’s stock price is \$75 per share. Winston has \$10 billion in total assets. Its balance sheet shows \$1 billion in current liabilities, \$3 billion in long-term debt and \$6 billion in common equity. It has 800 million shares of common stock outstanding. What is Winston’s market/book ratio?

Ans.:
Market value per share = \$75
Common equity = 6,000,000
Number of shares outstanding = 800 million shares
Market-to-book ratio = market value per share/(common equity/number of shares outstanding)
Market-to-book ratio = \$75/(6,000,000/800,000,000)
Market-to-book ratio = \$75/(6,000,000/800,000,000)
Market-to-book ratio = \$75/7.5
Market-to-book ratio = 10

3-4- A company has an EPS of \$1.50, a cash flow per share of \$3.00, and a price/cash flow ratio of 8.0. What is its P/E ratio?

Ans.:
P.E = Price per share / EPS
P.E = \$24 / 1.5 = 16

3-5 Needham Pharmaceuticals has a profit margin of 3% and an equity multiplier of 2.0. Its sales are \$100 million and it has total assets of \$50 million. What is its ROE?

Ans.:
Net margin =3%
Asset turn over = Sales/ total assets = 2
Equity multiplier = 2
ROE = (Profit margin) (Total assets turnover)( Equity multiplier)
ROE= 2 x 2 x 3 % = 12 %

3-6 Donaldson & Son has an ROA of 10%, a 2% profit margin, and a return on equity...