Ch 3 Financial Analysis Partial Solutions

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Lasami Abdullah
FIN3403
Homework
Chapter 3
Chapter 3 #1-6 & #8-11
1. Division A profit margin = Net Income/Sales = $100,000/$2,000,000 = .0500 = 5% Division B profit margin = Net Income/Sales = $25,000/$300,000 = .0833 = 8.3% Based on the return on sales, Division B is superior even though they didn’t sell as much in dollars as Division A, their profit margin is higher.

2. Database Systems

Net Income = Sales * Profit Margin = $1,200,000 * 0.06 = $72,000

Return on Assets (Investment) = Net Income/Total Assets = $72,000/$500,000 = 14.4%

3. Net Income = Sales * Profit Margin = $960,000 * 0.07 = $67,200

Assets = $960,000/2.4 = $400,000

Return on Assets (Investment) = $67,200/$400,000 = 16.8%

4. Sales = $5,000,000 * 1.2 = $6,000,000
Net income = $5,000,000 * 0.08 = $400,000

Profit margin (Return on Sales) = $400,000/$6,000,000 = 6.67%

5. Sales = $8,000,000 * 2.5 = $20,000,000

Net Income = $8,000,000 * .095 = $760,000

Profit Margin (Return on Sales) = $760,000/$8,000,000 = 3.8%

6. A. Profit Margin = Net Income/Sales = $175,000/$2,000,000 = 8.8%

B. Sales [2,000,000 + (2,000,000 * .10)]……………………. $2,200,000
Cost of Goods Sold [1,400,000 + (1,400,000 * .20)]…….. $1,680,000
Gross Profit………………………………………………... $520,000
Selling and Administrative Expenses……………………… $300,000
Operating Profit……………………………………………. $220,000
Interest Expense……………………………………………. $50,000
Income before taxes………………………………………... $170,000
Taxes (30%)………………………………………………... $51,000
Income after taxes………………………………………….. $119,000

Profit Margin = $119,000/$2,200,000 = 5.4%

8. Neon Light Company

A. Return on Assets = Net Income/Total Assets = $100,000/$1,000,000 = 10%

B. Stockholders’ Equity = Total Assets – Total Debt = $1,000,000-$600,000 = $400,000...
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