Quiñones, Mary Angela Felicia T.

BSMA – BCE

Assignment 3

1. D 63.64%
Solution:

Average Assets 1
Divide: Equity Multiplier 2.75
Equity Ratio 36.36%
Debt Ratio (1 – 36.36%) 63.64%

2. B 36.36%
Solution:

Average Assets 1
Divide: Equity Multiplier 2.75
Equity Ratio 36.36%

3. E $3.6
Solution:

Current Assets $4.5

Divide: Current Ratio 1.25
Current Liabilities 3.6

4. C 5.21
Solution:

Common Equity $2,400,000,000

Divide: Common Stock Outstanding $500,000,000
Book Value $4.80

Stock Price per Share $25

Divide: Book Value $4.50
Market-to-Book Ratio 5.21

5. A 1.625
Solution:

Assets $6,000,000,000
Multiply: Basic Earning Power 10%
Earnings Before Interest and Taxes $600,000,000

Assets $6,000,000,000
Multiply: Return on Assets 2.5%
Net Income $150,000,000

Earnings Before Interest and Taxes $600,000,000

Less: Earnings Before Taxes (150 M / (1 – 35%)) $230,769,231
Interest $369,230,769

Earnings Before Interest and Taxes $600,000,000

Divide: Interest $369,230,769
Times Interest Earned Ratio 1.625

6. C 1.44
Solution:

Current Assets $1,070

Divide: Current Liabilities $745
 Current Ratio 1.44

7. A 3.84; 2.00; 1.06; 37.26 days

Solution:

Sales $2,400
Divide: Inventory $625
Inventory Turnover $3.84

Sales $2,400
Divide: Net Fixed Assets $1,200
Fixed Assets Turnover $2.00

Sales $2,400
Divide: Total Sales $2,270
Total Assets Turnover $1.06

Accounts Receivable $245

Divide: Sales / Number of Days $2,400 / 365
Days Sales Outstanding 37.26 days

8. D 0.51; 5.00
Solution:

Total Debt $1,165

Divide: Total Assets $2,270
Debt Ratio 0.51

Earnings Before Interest and Taxes $175

Interest $35
Times Interest Earned Ratio 5.00

9. B 3.50%; 3.70%; 7.60%; 7.71%

Solution:

Net Income $84

Divide: Sales $2,400
Profit Margin 3.50%

Net Income $84

Divide: Total Sales $2,270
Return on Assets 3.70%

Net Income $84

Divide: Common Equity $1,105
Return on Equity 7.60%

Earnings Before Interest and Taxes $175

Divide: Total Assets $2,270
Basic Earning Power 7.71%

10. E 4.76; 2.44; 0.36

Solution:

Net Income $84,000

Divide: Number of Shares Outstanding 10,000
Earnings per Share $8.40

Price $40
Divide: Earnings per Share $8.40
Price-Earnings Ratio 4.76
 Net Income $84,000
Add: Depreciation $80,000
Total $164,000
Divide: Number of Shares Outstanding 10,000
Cash Flow per Share $16.40

Price $40
Divide: Cash Flow per Share $16.40
Price-Cash Flow 2.44

Market Price ($40 X 10,000) $400,000

Divide: Book Value $1,105,000
Market-Book Value 0.36

11. D 7.60%
Solution:

Return on Equity = Profit Margin x Total Assets Turnover X Equity Multiplier

$ 84 $ 2,400 $ 2,270
X X
$ 2,400 $ 2,270 $ 1,105
Return on Equity 7.60%

12. A $230,137
Solution:

Sales $2,000,000
Divide: Number of Days 365
$5,479.45
Multiply: Days Sales Outstanding 42
Accounts Receivable $230,137

13. B $2,500,000
Solution:

Days Sales Outstanding 73

Divide: Number of Days 365
0.20

Accounts Receivable $500,000

Divide 0.20
Sales $2,500,000

14. B 11
Solution:

Sales $2,000,000
Multiply: Profit Margin 6%
Net Income $120,000
Divide: Tax Rate (1 – 40%) 60%
Earnings Before Taxes $200,000
Add: Total Interest Charges $20,000
Earnings Before Interest and Taxes $220,000
Divide: Total Interest Charges $20,000
Times Interest Earned Ratio 11

15. C 3.5
Solution:

Sales $2,000,000
Multiply: Profit Margin 3%
Net Income $60,000
Divide: Tax Rate (1 – 40%) 60%
Earnings Before Taxes $100,000
Add: Total Interest Charges $40,000
Earnings Before Interest and Taxes $140,000
Divide: Total Interest Charges $40,000
Times Interest Earned Ratio 3.5