# Fin 515 Week 2 Homework

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