Mgmt 200 Assignment Soln 4-26-10

Mgmt 200 Assignment Soln 4-26-10 - Management 200...

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Management 200 – Introductory Financial Accounting – Spring 2010 Krannert School of Management - Purdue University Solutions to class assignment for April 26, 2010 Problem 13-5 Basic Financial Ratios 1. Financial ratios for 2008 for CCB Enterprises (thousands omitted): a. Times interest earned = (Net income + Income tax expense + Interest expense)/Interest expense = (\$72,000 + \$48,000 + \$20,000)/\$20,000 = \$140,000/\$20,000 = 7 to 1 b. Return on total assets = (Net income + Interest expense, net of tax)/Average total assets = {\$72,000 + [\$20,000 x (1 – 40%*)]}/[(\$540,000 + \$510,000)/2] = \$84,000/\$525,000 = 16 % *Tax rate = Income taxes/Income before tax = \$48,000/\$120,000 = 40%. c. Return on common stockholders’ equity = (Net income – Preferred dividends)/Average common stockholders’ equity = \$72,000/[(\$260,000 + \$217,000)/2] = \$72,000/\$238,500 = 30.19 % d. Debt/equity ratio = Total liabilities/Total stockholders’ equity = \$280,000/\$260,000 = 1.08 to 1 e. Current ratio = Current assets/Current liabilities = \$144,000/\$120,000 = 1.2 to 1 f. Quick (acid-test) ratio = (Cash + Marketable securities + Short-term receivables)/ Current liabilities = (\$26,000 + \$48,000)/\$120,000 = \$74,000/\$120,000 = .62 to 1 g. Accounts receivable turnover ratio =

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This note was uploaded on 05/25/2010 for the course MGMT 200 taught by Professor Greigg during the Spring '08 term at Purdue.

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Mgmt 200 Assignment Soln 4-26-10 - Management 200...

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