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

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