ACC
TIF_ch03

# We have 1 05 450 we can now solve for the cash

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we have: EBIT = \$50 + [\$200 / (1 – 0.5)] = \$450. We can now solve for the cash coverage ratio (CCR). We have CCR = (EBIT + DEP) / INT = (\$450 + \$50) / \$50 = 10 .] c 68. A firm with net income (NI) of \$500,000 pays 48% of its NI in dividends (thus, the dividend payout ratio is 0.48). If the firm has 150,000 shares of common stock outstanding, what is the dividend paid per share of stock? [HINT. Dividend paid per share = (dividend payout ratio)NI / outstanding shares.] a. \$0.30 b. \$1.44 c. \$1.60 d. \$1.74 [ ANSWER: The dividend paid per share is equal to the total dividend paid to all shareholders divided by outstanding shares. The total dividend paid is the dividend payout ratio times net income (NI). The dividend payout ratio is proportion of NI that is paid out in dividends. What is not paid out in dividends in retained. The retention ratio is the retained earnings divided by NI. We have: Total dividends paid = (dividend payout ratio)(NI) = (0.48)(\$500,000) = \$240,000. Dividend paid per share = total dividends paid / outstanding shares = \$240,000 / 150,000 = \$1.60 . OR: We can use the formula: dividend paid per share = (dividend payout ratio)(NI) / outstanding shares = (0.48) (\$500,000) / 150,000 = \$1.60.]

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b 69. A firm has current liabilities of \$250, a current ratio of 1.2, and quick ratio (or acid test) ratio of 0.80. Compute the level of inventory for this firm. [HINT. Inventory = (current assets) – (QR)(CL) where current assets = CA = (CR)(CL).] [ ratio is: QR = (CA – inventory) / CL. Rearranging this equation, it can be shown that inventory = CA – (QR)(CL). Given in the problems are values for QR and CL. Thus, we need to solve for CA. We can do this by first noting that the current ratio = CR = CA / CL. Rearranging, we have CA = (CR)(CL). Inserting the given values for CR and CL, we have: CA = (CR)(CL) = (1.2)(\$250) = \$300. Inserting the given values for CA, QR, and CL into the previous formula for inventory, we have: inventory = CA – (QR)(CL) = \$300 – (0.8)(\$250) = \$300 – \$200 = \$100 .] a 70. Chalk Corp. has days’ sales outstanding or an average collection period (ACP) of 36.5 days. Sales are \$300,000. What is the average investment in receivables (AR)? [HINT. AR = (ACP)(sales) / (365 days).] [ receivable) / sales where accounts receivable proxies for the average investment in receivables. Solving for accounts receivable (AR), we have AR = (ACP)(sales) / (365 days). Inserting the given values, we have: AR = (36.5 days)(\$300,000) / (365 days) = \$30,000 .] IV. Longer Problems 71. For the year ended December 31, 2005, Musial Resources, Inc. recorded the following items: cost of goods sold: \$495; interest expense: \$30; preferred dividends paid: \$5; common dividends paid: \$10; selling expenses: \$40; administrative expenses: \$135; depreciation expenses: \$110; and sales revenues: \$850. Taxes are 40% of taxable income. Prepare an income statement for the year ended December 31, 2005, for Musial Resources, Inc. Musial Resources, Inc.: Annual Income Statement (in \$1,000 and ending 12/31/05) Sales revenue \$ 850 Costs of goods sold 495 Selling expenses 40 Administrative expenses 135 Depreciation expense 110 Interest expense 30 Earnings before taxes 40 Taxes @ 40% 16 Net income 24 Dividends on common and preferred stock 15 Addition to (reduction in) retained earnings \$ 9
72.

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