# Ch 3 Financial Analysis Partial Solutions

Pages: 4 (536 words) Published: May 26, 2013
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
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...