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Category: Science and Technology
Date Submitted: 09/26/2012 11:06 AM
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...