Prob 15 (a) PM = 7% According to Dupont Analysis:

ROA = 25.20% ROA = PM x AT

AT =

(b) D/A= 50% According to Dupont Analysis:

ROE = ROA / (1 - D/A)

ROE =

(c) If D/A = 35% ROE =

Prob 16 (a) Sales = 4,780,000 ROA = PM x AT

PM = 4.5% ROA =
AT = 2.7
CL = 123,000 D = CL + LTL
LTL = 349,000 D=

A(ssets) = Sales / AT
A=

Financing Plan (FP) = 1 - D/A

FP =

ROE = ROA / FP
ROE =

(b) If AT = 3 ROA =

ROE =

Prob 17 Cable Multi-Media

Net Income (NI) 31,200 140,000
Sales 317,000 2,700,000
Total Assets 402,000 965,000
Total Debt 163,000 542,000
E(quity) 239,000 423,000

(a) ROE = NI / E

ROE (Cable) = 13.05%

 ROE (MM) = 33.10% Multi-media has the higher return

(b) Cable Multi-Media

PM (NI / Sales) 9.8% 5.2%
ROA (NI / TA) 7.8% 14.5%
AT (Sales / TA) 0.8 2.8
D / TA 40.5% 56.2%

(c) Dupont Analysis

Prob 18 Sales = 3,000,000 Credit Sales =

Cash Sales = 10%
Accts Rec (AR) 285,000
Days in a Year 360 ACP =

Prob 19 Acc Rec T/O = 15 ART =

Acc Rec = 80,000
Days in a Year 360 Credit Sales =

Daily Credit Sale

Prob 20 20X1 20X2

 Sales 8,000,000 10,000,000
COGS 6,000,000 9,000,000
Inventory 800,000 1,000,000
(a) Inv T/O 10 10
(b) Inv T/O * 7.5 9
(c) Probably carrying excess inventory in 20X1

20X1 20X2
Prob 21 Cash 163,000 163,000
Acct Rec 889,000 924,000
Inventory 411,000 1,063,000
FA 520,000 520,000
Sales 4,820,000 5,740,000

(a) & (b) Acc Rec T/O 5.4 6.2 Increase

Inv T/O 11.7 5.4 Decrease
FA T/O 9.3 11.0 Increase
TA T/O 2.4 2.1 Decrease
Total Asset Turnover has declined in 20X2 because of a significant decline in Inventory Turno
(c) which could not be compensated by the higher turnover of Accounts Receivable and Fixed As

ASSETS LIAB & EQUITY

Prob 22 Cash 60,000 Acct Payable
Acct Rec 240,000 Accrued Tax
Inventory 350,000 Bonds payable
FA 410,000 Common Stock
Paid-in Capital
Ret Earnings
Total Assets 1,060,000 Total L & E

Sales 2,400,000
Credit Sales % 90%

(a) Current Ratio 2.6

(b) Quick Ratio 1.2
(c) Debt-to-total-asset Ratio 38%
(d) Asset turnover 2.3
(e) Average collection period 40
Prob 23 Sales 246,000
COGS 122,000
Gross profit 124,000
Fixed charges (excl Interest) 27,500
EBIT 96,500
Interest 21,800
EBT 74,700
Taxes (35%) 26,145
NI 48,555

Prob 24 Sales 126,000

COGS 93,000
Gross profit 33,000
Selling & Admin Expenses 11,000
Lease expenses 4,000
EBIT 18,000
Interest 3,000
EBT 15,000
Taxes (30%) 4,500
NI 10,500

(a) Interest coverag 6.0

FCC 3.1

(b) Total Assets = 80,000

Using Dupont Analysis:

ROA = PM x AT

PM = 8.3%
AT = 1.6
ROA = 13.1%
rding to Dupont Analysis:
= PM x AT

3.6

rding to Dupont Analysis:

= ROA / (1 - D/A)

50.4%

38.8%

= PM x AT
12.15%

472,000

ets) = Sales / AT
1,770,370

ncing Plan (FP) = 1 - D/A

73%

= ROA / FP
16.6%

13.5%

18.4%
igher return

9.8%
x 7.8%
Cable 0.8
÷ = 13.05%
163,000
÷ 0.59
402,000

5.2%
x 14.5% MM's ROE is higher than Cables because:
Multi-Media 2.8 (a) MM's ROA is higher, due to a higher AT
÷ = 33.10% that more than compensates for the lower P
542,000 (b) MM's has a higher Debt/Asset ratio, givi
÷ 0.44 lower Financing Plan
965,000

Sales x (1 - Cash Sale%)

2,700,000

AR / (Credit Sales/Days)
38 days

Credit Sales / Acc Rev

ART x Acc Rec

1,200,000

3,333
 a significant decline in Inventory Turnover
er of Accounts Receivable and Fixed Assets

& EQUITY
220,000
30,000
150,000
80,000
200,000
380,000
1,060,000
Times Interest Earned = EBIT / Interest
4.4
Fixed Charge Coverage = EBIT + Fixed charges
2.5
s ROE is higher than Cables because:
MM's ROA is higher, due to a higher AT
more than compensates for the lower PM
MM's has a higher Debt/Asset ratio, giving a
r Financing Plan