Finance 515

Yolanda Johnson

Fin 515

Homework 2

Problems pg 112 and 165-167

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 receivables? Assume there are 365 days in a year.

Days sales outstanding = Receivables/average sales per day

DSO 20 = Receivables/$20,000

Account receivables = 20 X $20,000= $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?

Equity multiplier is 2.5

Equity Ratio = 1/EM

Equity Ratio = 1/2.5=0.40

Debt ratio + Equity Ratio = 1

Debt Ratio = 1 – Equity Ratio = 1-0.40 =.60 ( 60%)

3-3 Market /Book Ratio

Winston Washer’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?

BVPshare= Common Equity/shares outstanding

Bvps= $6,000000000/$800,000,000= $7.5

Market book ratio = Market price per share/book value per share ($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 ration of 8.0. What is its P/E ratio?

Price/ Cash flow ratio = PPS/ Cash flow per share

8.0 = Price per share/$3.00

PPS = 8*3= 24

PE ratio = Price per share/Earnings per share

24/1.5 =16

P/E ratio = 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 $50million. What is its ROE?

Return on Equity = ROA * Equity multiplier and ROA = Profit margin X Total Assets turnover

ROA = .03 *2 = .06 ROE = .06 *2.0 =.12 = 12%

3-6 Dupont Analysis

Donaldson&son has an ROA of 10%, a 2%profit margin and a return on equity equal...