Submitted by: Submitted by matasik123
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Words: 1548
Pages: 7
Category: Business and Industry
Date Submitted: 11/10/2012 09:20 PM
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 = $...