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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