14.Valuable Incorporated’s stock currently sells for $45 per share. The firm has 20 million share of common outstanding. The firm’s total debt equals $600 million and its common equity equals $400 million. What is the firm’s market value added? CHAPTER THREE PROBLEMS 1.ABC, Inc., sells all its merchandise on credit. It has a profit margin of 4%, an average collection period of 60 days, receivables of $150,000, total assets of $3 million and a debt ratio of 0.64. What is the firm's return on equity? 2.The Smythe Corporation's common stock is currently selling at $100 per share which represents a P/E ratio of 10. If the firm has 100 shares of common stock outstanding, a return on equity of 0.20, and a debt ratio of 0.67, what is its return on total assets? 3.If Winkler, Inc., has sales of $2 million per year (all credit) and an average collection period of 35 days, what is its average amount of accounts receivable outstanding (assume a 360 day year)? 4.If a firm has total interest charges of $10,000 per year, sales of $1 million, a tax rate of 40%, and a net profit margin of 6%, what is the firm's times interest earned ratio? 4
11 times 5.A firm that has an equity multiplier of 4.0 will have a debt ratio of: 6.Given the following information, calculate the market price per share of WAM, Inc.: 7.A fire has destroyed a large percentage of the financial records of Hanson Associates. You are charged with piecing together information in order to release a financial report. You have found the return on equity to be 18%. If sales were $4 million, the debt ratio 0.40, and total liabilities $2 million, what was the return on assets? 8.Assume Conservative Corporation is 100% equity financed. Calculate the return on equity given the following information:1. Earnings before taxes = $2,0002. 3. Dividend payout ratio = 60% 4. Total asset turnover = 2.0 5. 9.You are considering a new product for your firm to sell. It should cause a 15% increase in your profit margin but it will also require a 50% increase in total assets. You expect to finance this asset growth entirely by debt. If the following ratios were computed before the change, what will be the new ROE if the new product is sold but sales remain constant?
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