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...