FI515_Homework2

FI515_Homework2 - Ch 3 Problems 3-1 to 3.7 3-1- Greene...

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Ch 3 Problems 3-1 to 3.7 3-1- Greene Sisters has a DSO of 20 days. The company’s average daily sales are $20,000. What is the level of its accounts receivable? Assume there are 365 days in a year. Ans.: Day Sales Outstanding= Receivables / Average Sales per day AR = 20 X $20000 = $400,000 3-2- Vigo Vacations has an equity multiplier of 2.5. The company’s assets are financed with some combination of long-term debt and common equity. What is the company’s debt ratio? Ans.: Equity Multiplier = 2.5 Therefore Equity Ratio = 1/EM Equity Ratio = 1/2.5 = 0.40 Debt Ratio + Equity Ratio = 1 Therefore Debt Ratio = 1 - Equity Ratio = 1 - 0.40 = 0.60 or 60% 3-3- Winston Washers’s stock price is $75 per share. Winston has $10 billion in total assets. Its balance sheet shows $1 billion in current liabilities, $3 billion in long-term debt and $6 billion in common equity. It has 800 million shares of common stock outstanding. What is Winston’s market/book ratio? Ans.: Market value per share = $75 Common equity = 6,000,000 Number of shares outstanding = 800 million shares
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Market-to-book ratio = market value per share/(common equity/number of shares outstanding) Market-to-book ratio = $75/(6,000,000/800,000,000)
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FI515_Homework2 - Ch 3 Problems 3-1 to 3.7 3-1- Greene...

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