Chapter 3- Book Problems - Fall 2005

Chapter 3- Book Problems - Fall 2005 - Chapter 3 problems...

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Chapter 3 –problems 1. Using the formula for NWC, we get: NWC = CA – CL CA = CL + NWC = $1,320 + 4,460 = $5,780 So, the current ratio is: Current ratio = CA / CL = $5,780/$4,460 = 1.30 times And the quick ratio is: Quick ratio = (CA – Inventory) / CL = ($5,780 – 1,875) / $4,460 = 0.88 times 2. We need to find net income first. So: Profit margin = Net income / Sales Net income = Sales(Profit margin) Net income = ($29M)(0.09) = $2,610,000 ROA = Net income / TA = $2.61M / $37M = 7.05% To find ROE, we need to find total equity. TA = TD +CE 37 = 13 + CE CE = 24 ROE = Net income / TE = = $2.61M / $24M = 10.88% 3. Receivables turnover = Sales / Receivables Receivables turnover = $2,873,150 / $421,865 = 6.81 times Days’ sales in receivables = 365 days / Receivables turnover = 365 / 6.81 = 53.59 days The average collection period for an outstanding accounts receivable balance was 53.59 days.
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4. Inventory turnover = COGS / Inventory Inventory turnover = $2,532,095 / $386,500 = 6.55 times
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This note was uploaded on 09/23/2009 for the course FIN 301 taught by Professor Premaker during the Spring '08 term at Iowa State.

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Chapter 3- Book Problems - Fall 2005 - Chapter 3 problems...

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