FIN CHAP 03 SOLUTIONS

FIN CHAP 03 SOLUTIONS - CHAPTER 3 3-1 DAYS SALES...

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CHAPTER 3 3-1 DAYS SALES OUTSTANDING Baker Brothers has a DSO of 40 days. The company’s annual sales are $7,300,000. (Assume there are 365 days in a year.) WHAT IS THE LEVEL OF ITS ACCOUNTS RECEIVABLE? GIVEN: 365 / 000 , 300 , 7 $ 40 365 / ? 000 , 300 , 7 $ 40 tan AR S AR DSO AR S days ding Outs Sales Days = = = = = . 000 , 800 $ 000 , 20 $ 40 = = AR AR
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3-2 DEBT RATIO Bartley Barstools has an equity multiplier of 2.4. The company’s assets are financed with some combination of long-term debt and common equity. WHAT IS THE COMPANY’S DEBT RATIO? %. 33 . 58 5833 . 0 4 . 2 1 1 / 1 1 ? / 4 . 2 / = = - = - = = = A D A D E A A D A D E A 2
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3-3 DUPONT ANALYSIS Doublewide Dealers has an ROA of 10 percent, a 2 percent profit margin, and a return on equity equal to 15 percent. WHAT IS THE COMPANY’S TOTAL ASSETS TURNOVER? WHAT IS THE FIRM’S EQUITY MULTIPLIER? . 5 . 1 / / % 10 % 15 / 5 % 2 % 15 / / / / / / . 5 / / % 2 % 10 / / / / . / / / ? / ? / % 15 % 2 % 10 = × = × × = × × = × × = = × = × = × = = = = = = = = = E TA E TA E TA E TA TA S S NI E NI E TA TA S PM ROE TA S TA S TA S S NI A NI TA S PM ROA E NI ROE S NI PM A NI ROA E TA TA S ROE PM ROA 3
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3-4 MARKET/BOOK RATIO Jaster Jets, on the left side of the balance sheet has $10 billion in total assets. The right side of its balance sheet consists of $1 billion in current liabilities, $3 billion in long-term debt, and $6 billion in common equity. The company has 800 million shares of common stock outstanding, and its stock price is $32 per share. WHAT IS JASTER’S MARKET/BOOK RATIO? . 2667 . 4 50 . 7 $ 00 . 32 $ / . 50 . 7 $ 000 , 000 , 800 000 , 000 , 000 , 6 $ ? / 32 $ 000 , 000 , 800 000 , 000 , 000 , 6 $ 000 , 000 , 000 , 3 $ 000 , 000 , 000 , 1 $ 000 , 000 , 000 , 10 $ 0 = = = = = = = = = B M Therefore value Book B M is what then equals P If Shares Common CE debt LT CL TA 4
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3-5 RATIO CALCULATIONS Graser Trucking has $12 billion in assets, and its tax rate is 40 percent. The company’s basic earning power (BEP) ratio is 15 percent, and its return on assets (ROA) is 5 percent. WHAT IS GRASER’S TIMES-INTEREST-EARNED (TIE) RATIO?
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FIN CHAP 03 SOLUTIONS - CHAPTER 3 3-1 DAYS SALES...

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