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HW2sol

# HW2sol - Solution to Problem Set 2 FINA 4200 Spring 2010 I...

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Solution to Problem Set 2 - FINA 4200 Spring 2010 I. Multiple Choices 1. b 2. b 3. b 4. d 5. a 6. b 7. d 8. a 9. c 10. e 11. e 12. a 13. d 14. a 15. c 16. b 17. a 18. c 19. a 20. b 21. e 22. a 23. d 24. b 25. e 26. e 27. a II. Essay Questions Chapter 8 Q1. DSO = 20 days; ADS = \$20,000; AR = ? . 000 , 400 AR = \$ 000 , 20 \$ AR = 20 365 S AR DSO = Q3. TA = \$10,000,000,000; CL = \$1,000,000,000; LT debt = \$3,000,000,000; CE = \$6,000,000,000; Shares outstanding = 800,000,000; P 0 = \$32; M/B = ? Book value = 000 , 000 , 800 000 , 000 , 000 , 6 \$ = \$7.50. M/B = 50 . 7 \$ 00 . 75 \$ = 10. Q5. PM = 3%; EM = 2.0; Sales = \$100,000,000; Assets = \$50,000,000; ROE = ? ROE = PM × TATO × EM = NI/S × S/TA × A/E = 3% × \$100,000,00/\$50,000,000 × 2 = 12%. 1

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Q8. We are given ROA = 3% and Sales/Total assets = 1.5 × . From Du Pont equation: ROA = Profit margin × Total assets turnover 3% = Profit margin (1.5) Profit margin = 3%/1.5 = 2%. We can also calculate the company’s debt ratio in a similar manner, given the facts of the problem. We are given ROA(NI/A) and ROE(NI/E); if we use the reciprocal of ROE we have the following equation: % . 40 = 40 . 0 = 60 . 0 - 1 = A D % . 60 = A E 05 . 0 1 % _ 3 = A E , so A E - 1 = A D and NI E _ A NI = A E Alternatively, ROE = ROA × EM 5% = 3% × EM EM = 5%/3% = 5/3 = TA/E.
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HW2sol - Solution to Problem Set 2 FINA 4200 Spring 2010 I...

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