Chapters 2,3,11,12 Solutions

Chapters 2,3,11,12 Solutions - Chapters 2, 3, 11, 12...

Info iconThis preview shows pages 1–5. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapters 2, 3, 11, 12 Solutions 2-12 a. EBIT $1,260 x (1-Tax rate) 60.0% Net operating profit after taxes (NOPAT) $756 b. 2010 2009 Cash $550 $500 + Accounts receivable 2,750 2,500 + Inventories 1,650 1,500 Operating current assets $4,950 $4,500 Accounts payable $1,100 $1,000 + Accruals 550 500 Operating current liabilities $1,650 $1,500 Operating current assets $4,950 $4,500 - Operating current liabilities 1,650 1,500 Net operating working capital (NOWC) $3,300 $3,000 c. 2010 2009 Net operating working capital (NOWC) $3,300 $3,000 + Net plant and equipment 3,850 3,500 Total net operating capital $7,150 $6,500
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
d. 2010 NOPAT $756 - Investment in total net operating capital 650 Free cash flow $106 e. 2010 NOPAT $756 ÷ Total net operating capital 7,150 Return on invested capital (ROIC) 10.57% f. Uses of FCF 2010 After-tax interest payment = $72 Reduction (increase) in debt = -$284 Payment of dividends = $220 Repurchase (Issue) stock = $88 Purchase (Sale) of short-term investments = $10 Total uses of FCF = $106
Background image of page 2
3-13 a. (Dollar amounts in thousands.) Industry Firm Average Current assets Current liabilities = $330,000 $655,000 = 1.98 2.0 DSO = 5 36 Sales/ receivable Accounts = 11 . 404 , 4 $ 000 , 336 $ = 76 days 35 days Inventory Sales = $241,500 $1,607,500 = 6.66 6.7 assets Fixed Sales = $292,500 $1,607,500 = 5.50 12.1 assets Total Sales = $947,500 $1,607,500 = 1.70 3.0 Sales income Net = $1,607,500 $27,300 = 1.7% 1.2% assets Total income Net = $947,500 $27,300 = 2.9% 3.6%
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
equity Common income Net = $361,000 $27,300 = 7.6% 9.0% assets Total debt Total = $947,500 $586,500 = 61.9% 60.0% b. For the firm, ROE = PM T.A. turnover EM = 1.7% 1.7 $361,000 $947,500 = 7.6%. For the industry, ROE = 1.2% 3 2.5 = 9%. Note : To find the industry ratio of assets to common equity, recognize that 1 - (total debt/total assets) = common equity/total assets. So, common equity/total assets = 40%, and 1/0.40 = 2.5 = total assets/common equity. c. The firm’s days sales outstanding is more than twice as long as the industry average, indicating that the firm should tighten credit or enforce a more stringent collection policy. The total assets turnover ratio is well below the industry average so sales should be increased, assets decreased, or both. While the company’s profit margin is higher than the industry average, its other profitability ratios are low compared to the industry--net income should be higher given the amount of equity and assets. However, the company seems to be in an average liquidity position and financial leverage is similar to others in the industry. d.
Background image of page 4
Image of page 5
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 02/27/2012 for the course BUS 510 taught by Professor Mehdi during the Spring '11 term at University of La Verne.

Page1 / 17

Chapters 2,3,11,12 Solutions - Chapters 2, 3, 11, 12...

This preview shows document pages 1 - 5. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online