Chapter 2--Analysis of Fina - Copy

# If boyd corporation has sales of 2 million per year

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68. If Boyd Corporation has sales of \$2 million per year (all credit) and days sales outstanding of 35 days, what is its average amount of accounts receivable outstanding (assume a 360 day year)? A. \$194,444 B. \$57,143 C. \$5,556 D. \$97,222 E. \$285,714 69. A firm has a profit margin of 15 percent on sales of \$20,000,000. If the firm has debt of \$7,500,000, total assets of \$22,500,000, and an after-tax interest cost on total debt of 5 percent, what is the firm's ROA? 70. Collins Company had the following partial balance sheet and complete income statement information for last year: Balance Sheet: Cash \$ 20 A/R 1,000 Inventories 2,000 Total current assets \$ 3,020 Net fixed assets 2,980 Total assets \$ 6,000 Income Statement : Sales \$10,000 Cost of goods sold 9,200 EBIT \$ 800 Interest (10%) 400 EBT \$ 400 Taxes (40%) 160 Net Income \$ 240

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The industry average DSO is 30 (360-day basis). Collins plans to change its credit policy so as to cause its DSO to equal the industry average, and this change is expected to have no effect on either sales or cost of goods sold. If the cash generated from reducing receivables is used to retire debt (which was outstanding all last year and which has a 10% interest rate), what will Collins' debt ratio (Total debt/Total assets) be after the change in DSO is reflected in the balance sheet? 71. A firm has total interest charges of \$10,000 per year, sales of \$1 million, a tax rate of 40 percent, and a net profit margin of 6 percent. What is the firm's times-interest-earned ratio? 72. Alumbat Corporation has \$800,000 of debt outstanding, and it pays an interest rate of 10 percent annually on its bank loan. Alumbat's annual sales are \$3,200,000; its average tax rate is 40 percent; and its net profit margin on sales is 6 percent. If the company does not maintain a TIE ratio of at least 4 times, its bank will refuse to renew its loan, and bankruptcy will result. What is Alumbat's current TIE ratio? A. 2.4 B. 3.4 C. 3.6 D. 4.0 E. 5.0 73. Determine the increase or decrease in cash for Rinky Supply Company for last year, given the following information. (Assume no other changes occurred during the past year.) Decrease in marketable securities = \$25 Increase in accounts receivables = \$50 Increase in notes payable = \$30 Decrease in accounts payable = \$20 Increase in accrued wages and taxes = \$15 Increase in inventories = \$35 Retained earnings = \$ 5

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