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Chapter 4 Study Problems

# Chapter 4 Study Problems - Allen Corporation Sales Total...

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Allen Corporation (Figures in million dollars) Sales \$65 Total assets \$42 Total liabilities \$20 Interest rate 6% Tax rate 30% Operating Profit margin 12% Operating profit (EBIT) = sales *operating profit margin ratio =\$ 65*12% = Interest = Total liabilities* Interest rate =\$20*6%= \$1.20 Earning before tax (EBT) =Operating profit -Interest =\$7.8-\$1.2 = \$6.60 Tax = Earning before tax (EBT) *tax rate =\$6.60*30% = \$1.98 Net income = Earning before tax (EBT) -tax =\$6.60-\$1.98= \$4.62 Operating return on assets = Operating income/total assets =EBIT/Assets*100 = equity =Total asses-total liabilities = \$42-\$20 =\$22 Return on equity =Net income/ Equity *100 =\$4.62/\$22*100= 21 21%

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\$7.80 =\$7.80/\$42*100= 18.57
Average Collection Period Credit Sales 562,500 (9,000,000x.75) = 6750000 562,500*365/6,750,000 205312500 30.42 Average Collection Period = 30.42 Or 30 Days 6,750,000*20= 135000000 B.) Average Collection = 365 days * AR/6,750,000 =20 135000000 369863.01 New Accounts Receivable \$369,863 C.) Inventory Turnover = COGS/Inventory 9= COGS/Inventory Gross Profit/\$9M = 30% Gross Profit=\$2.7M Sales - COGS=Gross Profit OR \$9M-COGS=\$2.7M COGS=\$6.7M 9=6,700,000/Inventory = 700,000 Inventory

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Chapter 4 Study Problems - Allen Corporation Sales Total...

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