# Finance Chapter 3

Pages: 3 (438 words) Published: November 23, 2012
PROBLEM:01
The formula which breaks down the return on equity into three component parts is referred to as DuPont formula.

PROBLEM:02
The Purple Martin has annual sales of \$687,400, total debt of \$210,000, total equity of \$365,000, and a profit margin of 4.80 percent. What is the return on assets?

ROA = net income / total assets
ROA = (687400 * 4.80) / (210000 + 365000)
ROA = 5.74

PROBLEM:03
The Meat Market has \$747,000 in sales. The profit margin is 4.1 percent and the firm has 7,500 shares of stock outstanding. The market price per share is \$22. What is the price-earnings ratio?

P/E = market value per share / earnings per share
P/E = 22 / (747000 * 4.1 / 7500)
P/E = .0539

PROBLEM:04
Beach Wear has current liabilities of \$350,000, a quick ratio of 1.65, inventory turnover of 3.2, and a current ratio of 2.9. What is the cost of goods sold?

CA = current ratio * current liablities
CA = 2.9 * 350000
CA = 1015000

QR = (CA - Inventory) / CL
1.65 = (1015000 - Inventory) / 350000
Inventory = 437500

Cost of goods sold = IT * T
Cost of goods sold = 3.2 * 4375000
Cost of goods sold = 1400000

PROBLEM:05
Study the comparative balance sheets for Kyprianides Inc. and Pecchia Company in the year 2011. Notice that both companies have the same amount of assets. However, there are some differences in the way the two companies finance those assets. Fill in the spaces on the balance sheets and then answer the following questions.

Kyprianides Inc.Pecchia Co.

Current Assets
Cash and equivalents200300
Accounts Receivable1,1002,400
Inventory 4,6002,000

Total Current Assets 4,9004,700
Property, Plant and Equipment10,00011,200

Total Assets 15,90015,900

Current Liabilities
Accounts Payable 3,0003,200
Current portion of LT debt200400

Total Current Liabilities 3,2003,600
Notes payable 2,0007,000...