Week2 Fin515

Problem 3-1

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 / Average Sales per Day

DSO = 20

ASpD = $ 20,000

Receivables = DSO * ASpD = 20 * $ 20,000 = $ 400,000

Problem 3-2

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 = 2.5

Debt Ratio = ?

Equity Multiplier = Total Assets/ Common Equity

Equity Ratio = 1/ Equity Multiplier

Debt Ratio = 1 - Equity Ratio

Debt Ratio = 1 - (1/2.5) = 1 - 0.4 = 0.6 = 60 %

Problem 3-3

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 Ratio = ?

M/B Ratio = Market Price per Share / Book Value per Share

M/B Ratio = Market Price per Share / (Total Assets - Intangible Assets and Liabilities )

M/B Ratio = Market Price per Share / (Common Equity/ Number of Shares)

Market Value ( per share ) = $ 75

Number of common stock outstanding shares = $800 000,000

Common Equity = $ 6 000 000 000

M/B Ratio = $ 75 / ( $ 6 000 000 000 / $ 800 000 000 ) = $ 75 / 7.5 = 10

Problem 3-4

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?

EPS = $ 1.50

CF = $ 3.00

P/ CF = $ 8.0

P/E Ratio = ?

P/E Ratio = Price per Share/ EPS

P/ $ 3.00 = $ 8.00

P = $3.00 * $ 8.00 = $ 24.00

P/E Ratio = $ 24.00 / $1.50 = 16

Problem 3-5

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?

PM = 3%

Equity Multiplier = 2.0

Sales = $...