# Fin 515 Week 2 Homework

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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