Financial ratio formulas
Prepared by Pamela Peterson Drake
1.
Operating cycle
Number of days of inventory =
Inventory
=
Inventory
Average day's cost of goods sold
Cost of goods sold / 365
Number of days of receivables =
Accounts receivable
=
Accounts rece

Chapter 2
Financial Statements and Analysis
Solutions to Problems
P2-1. LG 1: Reviewing Basic Financial Statements Basic
Income statement: In this one-year summary of the firms operations, Technica, Inc. showed a net profit
for 2006 and the ability to pay

Chapter 11
The Cost of Capital
Solutions to Problems
P11-1. LG 1: Concept of Cost of Capital
Basic
The firm is basing its decision on the cost to finance a particular project rather than the firms combined
cost of capital. This decision-making method may

Chapter 10
Risk and Refinements in Capital Budgeting
Solutions to Problems
P10-1. LG 1: Recognizing Risk Basic
(a) & (b)
Project
Risk
Reason
A
Low
The cash flows from the project can be easily determined
since this expenditure consists strictly of outflow

Chapter 9
Capital Budgeting Techniques
Solutions to Problems
Note to instructor: In most problems involving the internal rate of return calculation, a financial calculator
has been used.
P9-1. LG 2: Payback Period
Basic
$42,000 $7,000 = 6 years
The compan

Chapter 6
Interest Rates and Bond Valuation
Solutions to Problems
P6-1. LG 1: Interest Rate Fundamentals: The Real Rate of Return
Basic
Real rate of return = 5.5% 2.0% = 3.5%
P6-2.
LG 1: Real Rate of Interest
Intermediate
(a)
Supply and Demand Curve
9
Cur

Chapter 8
Capital Budgeting Cash Flows
Solutions to Problems
Note: The MACRS depreciation percentages used in the following problems appear in Chapter 3, Table
3.2. The percentages are rounded to the nearest integer for ease in calculation.
For simplifica

Chapter 4
Time Value of Money
Solutions to Problems
P4-1. LG 1: Using a Time Line Basic
(a), (b), and (c)
Compounding
Future
Value
$25,000 $3,000 $6,000 $6,000 $10,000 $8,000 $7,000 |
|>
0
1
2
3
4
5
6
End of Year
Present
Value
Discounting
Financial manage

Solutions to Problems: Chapter 7
P7-1. Authorized and available shares
LG 2; Basic
Maximum shares available for sale
Authorized shares
2,000,000
Less: Shares outstanding
1,400,000
Available shares
600,000
b.
$48,000,000
Total shares needed
800,000 shares

Chapter3SolutionstoProblems
P3-1. Reviewing basic financial statements
LG1;Basic
Incomestatement:In this one-year summary of the firms operations, Technica, Inc. showed anet profit
for 2012 and the ability to pay cash dividends to its stockholders.
Balanc

CHAPTER 10
DETERMINING HOW COSTS BEHAVE
10-1
1.
2.
10-2
1.
2.
3.
The two assumptions are
Variations in the level of a single activity (the cost driver) explain the variations in the
related total costs.
Cost behavior is approximated by a linear cost funct