HW Solutions (Chapter 3)

HW Solutions (Chapter 3) - 3-3A.Instructors Note: This is a...

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Unformatted text preview: 3-3A.Instructors Note: This is a very rudimentary "getting started" exercise. It requires no analysis beyond looking up the appropriate formula and plugging in the corresponding figures. sliabilitiecurrent assetscurrent ratioCurrent ==000,2$500,3$=1.75XassetstotaldebttotalratioDebt ==000,8$000,4$=.50 or 50%Times interest earned = expenseinterest incomeoperating=367$700,1$=4.63XAverage collection period=365/ salescredit receivableaccounts=365/000,8$000,2$=91 daysInventory turnover=inventorysoldgoodsofcost =000,1$300,3$=3.3XFixed asset turnover=assetsfixedsalesnet =500,4$000,8$=1.78XTotal asset turnover=assetstotalsalesnet =000,8$000,8$= 1XGross profit margin=salesnet profitgross=000,8$700,4$=.59 or 59%Operating profit marginsalesnet incomeoperating==000,8$700,1$=.21 or 21%assetstotalincomeoperatinginvestmenton returnincomeOperating==000,8$700,1$=.21 or 21%equitycommon incomenet equityonReturn ==000,4$800$=.20 or 20%or, we can calculate return on equity as:= Return on assets (1- debt ratio)= assetsTotalincomeNet -assetsTotaldebtTotal1=(29.50-18,000800= .20 or 20%3-4A.a.Total Assets Turnover=assetstotalsales=$5m$10m= 2xb.3.5=$5msalesSales=$17.5mThus, the needed sales growth is $7.5 million ($17.5m - $10m), or an increase of 75%:$10m$7.5m=75%c.For last year,Investmenton Return IncomeOperating=marginprofit operatingXturnoverassettotal=10%X2.0 = 20%If sales grow by 75%, then for next year-end assuming a 10% operating profit margin:Investmenton Return IncomeOperating=marginprofit operatingXturnoverassettotal=10%X3.5 = 35%3-5A.a.Sales/365Credit ReceivableAccountsPeriodCollectionAverage=Avg Collection Period=$9m)/365x (.75$562,500Avg Collection Period=30 daysNote that the average collection period is based on credit sales, which are 75% of total firm sales.b.periodcollectionAverage=20=$9m)/365x (.75ReceivableAccountsSolving for accounts receivable:receivableAccounts=$369,863Thus, Brenmar would reduce its accounts receivable by $562,500 - $369,863 = $192,637.c.Inventory Turnover=sInventorieSoldGoodsofCost 9=sInventorieSalesx .70Inventories=9$9mx .70=$700,0003-6A.a.IndustryRATIO20022003NormLiquidity:Current Ratio6.0x4.0x5.0xAcid-test (Quick) Ratio3.25x1.92x3.0xAverage Collection Period137 days107 days90 daysInventory Turnover1.27x1.36x2.2xOperating profitability:Operating Profit Margin20.8%24.8%20.0%Total Asset Turnover.5x.56x.75xAverage Collection Period137 days107 days90 daysInventory Turnover1.27x1.36x2.2xFixed Asset Turnover1.00x1....
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HW Solutions (Chapter 3) - 3-3A.Instructors Note: This is a...

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