- Submitted By: tinni5858
- Date Submitted: 09/17/2013 3:04 PM
- Category: Business
- Words: 1936
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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...