1235 Words5 Pages

FIN- 515: Managerial Finance
Homework 2:
Chapter 3 Problems:
(3-1) Days Sales Outstanding: 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.
DSO = Receivables / Ave. sales per day
Receivables= DSO * Ave. sales per day = 20 * 20,000
Receivables= $400,000
(3-2) Debt Ratio: 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 = 1 – (1 / Equity multiplier)
Debt ratio = 1 – (1/2.5) = 1 - .40 = .60
Debt ratio = 60% (3-3) Market/Book Ratio: 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?
M/B= Market price per share/ Book value per share
Market price per share = $75/ share
Book value per share= Common equity/ shares outstanding = $6 billion/ 800 million shares = $6 billion/ .8 billion shares= 7.5
M/B = $75/ 7.5 = 10 (3-4) Price/Earnings Ratio: 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?
P/E= Price per share/ Earnings per share
Earnings per share = EPS= 1.50
Price per share = cash flow per share * price/ cash flow ration= $3 * 8 = $24
P/E = 24 / 1.50
P/E = 16
(3-5) ROE: 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?
Common Equity= Total assets/ Equity multiplier= 50/2= 25

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