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CHAPTER 3-7

# CHAPTER 3-7 - these to calculate total sales as PM = 0.087...

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these to calculate total sales as: PM = 0.087 = NI / Sales = \$218,000 / Sales; Sales = \$2,505,747 Credit sales are 70 percent of total sales, so: Credit sales = \$2,515,747(0.70) = \$1,754,023 Now we can find receivables turnover by: Receivables turnover = Credit sales / Accounts receivable = \$1,754,023 / \$132,850 = 13.20 times Days’ sales in receivables = 365 days / Receivables turnover = 365 / 13.20 = 27.65 days 20. The solution to this problem requires a number of steps. First, remember that CA + NFA = TA. So, if we find the CA and the TA, we can solve for NFA. Using the numbers given for the current ratio and the current liabilities, we solve for CA: CR = CA / CL CA = CR(CL) = 1.25(\$875) = \$1,093.75 To find the total assets, we must first find the total debt and equity from the information given. So, we find the sales using the profit margin: PM = NI / Sales NI = PM(Sales) = .095(\$5,870) = \$549.10 We now use the net income figure as an input into ROE to find the total equity: ROE = NI / TE TE = NI / ROE = \$549.10 / .185 = \$2,968.11 Next, we need to find the long-term debt. The long-term debt ratio is: Long-term debt ratio = 0.45 = LTD / (LTD + TE) Inverting both sides gives: 1 / 0.45 = (LTD + TE) / LTD = 1 + (TE / LTD) Substituting the total equity into the equation and solving for long-term debt gives the following:
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