Exam1Q2 - XYZ changed its inventory methods so as to...

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87. XYZ's balance sheet and income statement are given below: Balance Sheet: Cash $ 50 Accounts payable $ 100 A/R 150 Notes payable 0 Inventories 300 Long-term debt (10%) 700 Fixed assets 500 Common equity (20 shares) 200 Total assets $1,000 Total liabilities and equity $1,000 Income Statement: Sales $1,000 Cost of goods sold 855 EBIT $ 145 Interest 70 EBT $ 75 Taxes (33.333%) 25 Net income $ 50 The industry average inventory turnover is 5, the interest rate on the firm's long-term debt is 10 percent, 20 shares are outstanding, and the stock sells at a P/E of 8.0. If
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Unformatted text preview: XYZ changed its inventory methods so as to operate at the industry average inventory turnover, if it used the funds generated by this change to buy back common stock at the current market price and thus to reduce common equity, and if sales, the cost of goods sold, and the P/E ratio remained constant, by what dollar amount would its stock price increase? $ 6.67...
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This note was uploaded on 12/14/2010 for the course FIN 422 taught by Professor Sridharsundaram during the Fall '09 term at Grand Valley State University.

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