# Fi515 Homework 2

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Problem 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. The Days Sales Outstanding: Receivable / Average sales per day DSO= 20 days, Average daily sales = \$20,000 Receivable 20 days= 20,000 Receivable = 20 x 20,000 = \$400,000 Problem 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? Debt Ratio: Total liabilities / Total assets Problem 3-3: Winston Washers’s stock price is \$75 per share. Winston has \$10 billion in total as- sets. 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? Common equity Book value per share = shares outstanding = 6 billion 800 million = \$7.5 Market / Book Ratio: Market price per share Book value per share = 75 = 10 7.5 Problem 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? EPS= \$1.5 Cash flow per share = \$3 Price per share Price/cash flow ratio = cash flow per share Price per share 8.0 = \$3 Price per share = \$3 x 8.0 = \$24 Price / earnings ratio: Price per share Earnings per share P/ E Ratio= 24/ 1.5 = 16 Problem 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? Total assets turnover: sales / total