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Updated_Chapter_4_Assignment_Solutions

# Updated_Chapter_4_Assignment_Solutions - BUS 320 Chapter 4...

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BUS 320 Chapter 4 Assignment Solutions Sales 1. Inv. T/O = --------- Inv. 2,400 Use Profit Margin: .12 = ---------- ; so, Sales = \$20,000 Sales 9,500 – Inv. Use Quick Ratio: 1.5 = ------------------- ; so, Inv. = \$5,000 3,000 \$20,000 So, Inv T/O = ------------ = 4.0 \$5,000 EBIT EBIT 2. TIE = ------------ = --------------------- Interest (.10)(1,200,000) Set up partial Income Statement: EBIT 920,000 - Interest 120,000 = EBT 800,000 (600,000 / 1 - .25) - Tax (25%) 200,000 = Net Income 600,000 (.06)(10,000,000) 920,000 So, TIE = ------------ = 7.67 120,000 Net Income \$50,000 3. ROE = ---------------- = --------------- Total Equity Total Equity 600,000 Use Debt Ratio: .60 = --------------- ; so, Total Assets = \$1,000,000 Total Assets TA = TD + TE

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1,000,000 = 600,000 + TE ; so, TE = \$400,000 50,000 so, ROE = ---------- = .125 = 12.5% 400,000 Total Debt 4. Debt Ratio = -------------- Total Assets 160,000 Use Profit Margin: .10 = ----------- ; so, Sales = \$1,600,000 Sales 1,600,000 Use TA Turnover: 2.0 = ------------- ; so, TA = \$800,000 TA TA = TD + TE ; so, 800,000 = TD + 400,000; so, TD = \$400,000 400,000 Debt Ratio = ------------ = .50 800,000 Sales 5. Inv. T/O = ------------- Inventory 80,000 Use PM: .10 = ------------ ; so, Sales = \$800,000 Sales Use Quick Ratio: (CA= TA – FA ; so, CA = 800,000 – 300,000 = 500,000) 500,000 – Inv. 1.5 = -------------------- ; so, Inv. = \$200,000 200,000 800,000 Inv. T/O = ----------- = 4.0 200,000
TA 6. Use Equity Multiplier: 2.4 = --------- ; so, TA = \$96,000 40,000 NI Use Return on Assets:.10 = ----------- ; so, NI = \$9,600 96,000 CA 7. Current Ratio = -------- CL TA Use Equity Multiplier: 2.2 = ------------ ; so, TA = \$44,000 20,000 CA – Inv. 10,000 – 4,000 Quick Ratio = --------------- ; 3.0 = -------------------- ; so, CL = \$2,000 CL CL 10,000 So, Current Ratio = ------------ = 5.0 2,000 NI 8. Profit Margin = ---------- Sales Sales Use TA Turnover: 1.5 = -------------- ; so, Sales = \$1,800,000 1,200,000 NI Use ROE: .15 = ----------- ; so, NI = \$112,500 750,000 112,500 so, Profit Margin = ------------- = .0625 = 6.25% 1,800,000 TD 30,000 9. Debt Ratio = ------ = ----------- =

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Updated_Chapter_4_Assignment_Solutions - BUS 320 Chapter 4...

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