1111 Words5 Pages

Problems (p.112) (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. Ans:
DSO (Days Sales Outstanding) = Accounts Receivables/Average Sales per day
Accounts Receivables = 20 * 20000 = $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 debtratio?
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 = 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?
Ans:
Book value per share = Common Equity / Shares outstanding = $ 6 billion / 800 million shares
Book value per share = 6000/800 = $ 7.5 per share
Market Price per share = $ 75 per share
Winston’s market/book ratio = Market Price per share/ Book value per share
Winston’s market/book ratio = 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?
Ans:
Cash flow per share = $3.00
Price/cash flow ratio = 8.0
Price Per Share = 8 * 3= $ 24
Company’s P/E ratio = 24 /1.5 = 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?
Ans:
ROE = Profit Margin * Total Assets Turnover * Equity

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