PS_4_Solutions - (Post Check)

PS_4_Solutions - (Post Check) - BusM 401 Problem Set #4...

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BusM 401 Problem Set #4 Financial Instruments Solutions Use the following financial statements from Roxbury Corporation to answer questions 1 and 2. Financial Statements for Roxbury Corporation 2005 and 2006, in $millions INCOME STATEMENT BALANCE SHEET 2005 2006 2005 2006 Net sales $ 47,616 52,378 $ 951 1,046 Cost of goods sold 40,718 44,790 Accounts receivable 6,666 7,333 6,171 6,788 Inventories 5,236 5,760 EBIT 727 800 Net fixed assets 2,048 2,253 Interest expense 215 255 Total assets $ 14,901 16,392 Earnings before tax 512 545 Tax 154 163 Bank loan $ 392 547 Net income $ 359 382 Accounts payable 7,419 8,161 Long-term debt 2,148 2,551 Total liabilities 9,959 11,259 Common stock 1,293 1,293 Retained earnings 3,649 3,840 Total equity 4,942 5,133 $ 14,901 16,392 1. Estimate the length of Roxbury’s cash conversion cycle in 2006. CCC = inventory pd. + receivables pd. – payables pd. =Inventory/(COGS/365) + Receivables/(Sales/365) – Payables/(COGS/365) = 5760/(44790/365) + 7333/(52378/365) – 8161/(44790/365) = 46.9 + 51.1 – 66.5 = 31.5 days
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2. What is Roxbury’s sustainable growth rate in 2006? g* = retention ratio X ROE retention ratio is 0.5 (equity increased by 191, divided that by net income of 382) ROE is 382/4942=7.72% (remember for sustainable growth, use beginning-of-period
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This note was uploaded on 02/22/2012 for the course BUS M 401 taught by Professor Toddmitton during the Winter '10 term at BYU.

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PS_4_Solutions - (Post Check) - BusM 401 Problem Set #4...

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