Current Asset Management Solutions 11

Current Asset Management Solutions 11 - Equity 80.00 100.00...

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Old Exam Questions - Current Asset Management - Solutions Page 11 of 21 Pages Equity _______ _______ Total liabilities and equity _______ _______ 15% of Sales 25% of Sales Income Statement Restricted Relaxed EBIT _______ _______ Interest (10%) _______ _______ EBT _______ _______ Taxes (40%) _______ _______ Net income _______ _______ A. 7.0% B. 6.2% * C. 5.4% D. 4.6% E. 3.8% Construct simplified comparative balance sheets and income statements for the restricted and relaxed policies ( In thousands of dollars ): 15% of Sales 25% of Sales Balance sheet: Restricted Relaxed Current assets $ 60.00 $100.00 Fixed assets 100.00 100.00 Total assets $160.00 $200.00 Debt $ 80.00 $100.00
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Unformatted text preview: Equity 80.00 100.00 Total liabilities and equity $160.00 $200.00 15% of Sales 25% of Sales Income Statement Restricted Relaxed EBIT $ 36.00 $ 36.00 Interest (10%) - 8.00- 10.00 EBT $ 28.00 $ 26.00 Taxes (40%) - 11.20- 10.40 Net income $ 16.80 $ 15.60 ROE = NI/Equity $16.80/$80 = 0.21 $15.60/$100 = 0.156 Difference in ROEs = 0.21 - 0.156 = 0.054 = 5.4% 14. Assume that, on average, a firm sells $2,000,000 in merchandise a month and that it keeps inventory equal to one-half of its monthly sales on hand at all times. Determine the firms inventory conversion period if it analyzes its accounts using a 365-day year A. 20.1 days B. 30.7 days C. 25.5 days...
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