Ch 4 - INT = = EBIT EBT INT EBIT EBT...

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INT = EBIT – EBT = $1,800,000,000 – $1,000,000,000 INT = EBIT – EBT = $500,000,000 - $416,666,667 Solutions of End-of-Chapter Problems 4-1 DSO = 40 days; S = $7,300,000; AR = ? DSO=  40 =  40 = AR/$20,000 AR = $800,000. 4-2 A/E = 2.4; D/A = ? 4-3 ROA = 10%; PM = 2%; ROE = 15%; S/TA = ?; TA/E = ? ROA = NI/A; PM = NI/S; ROE = NI/E. ROA = PM  ×  S/TA NI/A = NI/S  ×  S/TA 10% = 2%  ×  S/TA S/TA = TATO = 5. ROE = PM  ×  S/TA  ×  TA/E NI/E = NI/S  ×  S/TA  ×  TA/E 15% = 2%  ×  5  ×  TA/E 15% = 10%  ×  TA/E TA/E = EM = 1.5.
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4-4 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 =  = $7.50. M/B =  = 4.2667. 4-5 EPS = $2.00; CFPS = $3.00; P/CF = 8.0 × ; P/E = ? P/CF = 8.0 P/$3.00 = 8.0 P = $24.00. P/E = $24.00/$2.00 = 12.0 × . 4-6 PM = 2%; EM = 2.0; Sales = $100,000,000; Assets = $50,000,000; ROE = ? ROE= PM  ×  TATO  ×  EM = NI/S  ×  S/TA  ×  A/E = 2%  ×  $100,000,00/$50,000,000  ×  2 = 8%. 4-7 Step 1: Calculate total assets from information given. Sales = $6 million. 3.2 × = Sales/TA 3.2 × Assets= $1,875,000. Step 2: Calculate net income. There is 50% debt and 50% equity, so Equity = $1,875,000  ×  0.5 = $937,500. ROE = NI/S  ×  S/TA  ×  TA/E 0.12= NI/$6,000,000  ×  3.2  ×  $1,875,000/$937,500
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0.12=  $720,000 = 6.4NI $112,500 = NI. 4-8 ROA = 8%; net income = $600,000; TA = ? ROA=      8% =       TA = $7,500,000. To calculate BEP, we still need EBIT.  To calculate EBIT construct a partial income statement: EBIT $1,148,077 ($225,000 + $923,077) Interest     225,000 (Given) EBT $   923,077 $600,000/0.65 Taxes (35%)     323,077 NI $   600,000 BEP = 0.1531 = 15.31%. 4-9 Stockholders’ equity = $3,750,000,000; M/B = 1.9; P = ? Total market value = $3,750,000,000(1.9) = $7,125,000,000. Market value per share = $7,125,000,000/50,000,000 = $142.50. Alternative solution: Stockholders’ equity = $3,750,000,000; Shares outstanding = 50,000,000; P = ? Book value per share = $3,750,000,000/50,000,000 = $75. Market value per share = $75(1.9) = $142.50. 4-10 We are given ROA = 3% and Sales/Total assets = 1.5 × . From the DuPont equation: ROA = Profit margin  ×  Total assets turnover 3% = Profit margin(1.5)
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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: Alternatively, using the DuPont equation: ROE= ROA  ×  EM 5% = 3%  ×  EM EM = 5%/3% = 5/3 = TA/E. Take reciprocal:  E/TA = 3/5 = 60%; therefore, D/A = 1 – 0.60 = 0.40 = 40%.
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This note was uploaded on 09/09/2011 for the course BUSINESS 300 taught by Professor N/a during the Spring '09 term at DeVry Chicago.

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Ch 4 - INT = = EBIT EBT INT EBIT EBT...

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