HOMEWORK solutions 14b

HOMEWORK solutions 14b - Homework solutions Ch 14 part b...

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Homework solutions: Ch. 14, part b AP14–4. Req. 1 Ratio Rand Company Tand Company Tests of profitability: 1. Return on equity $80,000 ÷ $570,000 = 14% $35,000 ÷ $222,000 = 15.8% 2. Return on assets [$80,000 + ($190,000 x 12% x .70)] ÷ $880,000 = 10.9% [$35,000 + ($55,000 x 12% x .70)] ÷ $292,000 = 13.6% 3. Financial leverage percentage 14.0% – 10.9% = 3.1% 15.8% – 13.6% = 2.2% 4. Earnings per share $80,000 ÷ 24,000 shares = $3.33 $35,000 ÷ 10,500 shares = $3.33 5. Profit margin $80,000 ÷ $800,000 = 10% $35,000 ÷ $280,000 = 12.5% 6. Fixed asset turnover $800,000 ÷ $550,000 = 1.45 $280,000 ÷ $160,000 = 1.75 Tests of liquidity: 7. Cash ratio $25,000 ÷ $120,000 = .21 $45,000 ÷ $15,000 = 3 8. Current ratio $190,000 ÷ $120,000 = 1.58 $75,000 ÷ $15,000 = 5 9. Quick ratio $80,000 ÷ $120,000 = .67 $50,000 ÷ $15,000 = 3.33 10. Receivable turnover $400,000 ÷ [($47,000 + $55,000) ÷ 2] = 7.84 $70,000 ÷ [($11,000 + $5,000) ÷ 2] = 8.75 11. Inventory turnover $480,000 ÷ [($95,000 + $110,000) ÷ 2] = 4.68 $150,000 ÷ [($38,000 + $25,000 ÷ 2] = 4.76 Solvency and equity position: 12. Times Interest earned ($80,000 + $22,800 + $34,300) ÷ $22,800 = 6.01 ($35,000 + $6,600 + 15,000) ÷ $6,600 = 8.58 13. Debt/equity ratio $310,000 ÷ $570,000 = .54 $70,000 ÷ $222,000 = .32 Market tests: 14. Price/earnings ratio $14.00 ÷ $3.33 = 4.20 $11.00 ÷ $3.33 = 3.30 15. Dividend yield ratio ($20,000 ÷ 24,000 shares) ÷ $14.00
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HOMEWORK solutions 14b - Homework solutions Ch 14 part b...

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