# Fi 515 Week 2 Homework Essay

(3-1)

Days Sales Outstanding

Greene Sisters has a DSO of 20 days. The company’s average daily sales are $20,000. What is the level of its accounts receivable? Assume there are 365 days in a year.

DSO = days sales outstanding = receivables / average sales per day = Receivable / (annual sales / 365)

20 = receivables / 20,000

Receivables = 20 * 20,000

Receivables = 400,000

(3-2)

Debt Ratio

Vigo Vacations has an equity multiplier of 2.5. The company’s assets are financed with some combination of long-term debt and common equity. What is the company’s debt ratio?

Equity Multiplier = 2.5

Therefore Equity Ratio = 1/EM

Equity Ratio = 1/2.5 = 0.40 the formula is:

Debt Ratio + Equity Ratio = 1

Therefore Debt

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(3-7)

Current and Quick Ratios

Ace Industries has current assets equal to $3 million. The company’s current ratio is 1.5, and its quick ratio is 1.0. What is the firm’s level of current liabilities? What is the firm’s level of inventories?

(4-1)

Future Value of a Single Payment

If you deposit $10,000 in a bank account that pays 10% interest annually, how much will be in your account after 5 years?

(4-2)

Present Value of a Single Payment

What is the present value of a security that will pay $5,000 in 20 years if securities of equal risk pay 7% annually? your goal?

(4-6)

Future Value: ordinary Annuity versus Annuity Due

What is the future value of a 7%, 5-year ordinary annuity that pays $300 each year? If this were an annuity due, what would its future value be?

(4-13)

Present Value of an Annuity

Find the present value of the following ordinary annuities (see the Notes to Problem 4-12).

a. $400 per year for 10 years at 10%

b. $200 per year for 5 years at 5%

c. $400 per year for 5 years at 0%

d. Now rework parts a, b, and c assuming that payments are made at the beginning of each year; that is, they are annuities due. Year | Cash Stream A | Cash Stream B | 1 | $100 | $300 | 2 | 400 | 400 | 3 | 400 | 400 | 4 | 400 | 400 | 5 | 300 | 100 |

b. What is the value of each cash flow stream at a 0% interest