Fi515 Homework 2 Essay

829 Words May 16th, 2012 4 Pages
Problem 3-1:
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.

The Days Sales Outstanding: Receivable / Average sales per day
DSO= 20 days, Average daily sales = $20,000

Receivable
20 days= 20,000 Receivable = 20 x 20,000 = $400,000

Problem 3-2:
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?
Debt Ratio: Total liabilities / Total assets

Problem 3-3:
Winston Washers’s stock price is $75 per share. Winston has $10 billion in total as- sets. Its balance sheet shows
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What is the company’s total assets turnover? What is the firm’s equity multiplier?
ROA = Profit margin x Total assets turnover
10% = 2% x Total assets turnover
Total assets turnover = 10 / 2 = 5

ROE = ROA x Equity multiplier
15% = 10% x Equity multiplier
Equity multiplier = 15 / 10 = 1.5

Problem 3-7:
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? Current assets
Current Ratio = current liabilities

1.5 = 3,000,000 Current liabilities

Current liabilities = 2 million

Current assets - Inventories
Quick ratio = Current liabilities

3,000,000- Inventories 1.0 = 2,000,000

Inventories = 1 million

Problem 4-1:
If you deposit $10,000 in a bank account that pays 10% interest annually, how much will be in your account after 5 years?
PV= 10,000
I= 10%
N= 5
PMT= 0
FV= 16,105.10

Problem 4-2:
What is the present value of a security that will pay $5,000 in 20 years if securities of equal risk pay 7% annually?
N= 20
FV= 5,000
I= 7%
PMT=0
PV = 1,292.09

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