Fin 515 Problem 3-1 Thru 3-7

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3-1 Days Outstanding
DSO20
ADS 20,000
Days365

A/R = ADS X DSO 400,000

3-2 Debt Ratio
EM2.5
Equity Multiplier = 2.5
Therefore Equity Ratio = 1/EM
Equity Ratio = 1/2.5 = 0.40

Debt Ratio + Equity Ratio = 1
Therefor Debt Ratio = 1 - Equity Ratio = 1 - 0.40 = 0.60or 60%

3-3 Market/Book Ratio

Stock $75
Total Assets 10,000,000,000
Curr Liab 1,000,000,000
LTD 3,000,000,000
CE 6,000,000,000
Shares 800,000,000

Book Value per Share = Common Equity/Shares outstanding CE / 6,000,000,000
Shares 800,000,000
Book value = 7.5

MarketBook Ratio = Market Price per share/book value per share

MP /75
BV7.5
M/B = 10

3-4 PE Ratio
EPS1.5Price per share
CF/S35.33333333310.66666667
P/CF8

Price/earnings (P/E) ratio = Price per share/Earnings per share Price Per Share / 10.67
EPS1.5
PE = 16.0

3-5 ROE
PM3%
EM2
Sales 100,000,000
Assets 50,000,000

Return on Equity = NI/Average Stockholder Equity or multiplying Profit Margin x Asset Turnover x Equity Multiplier
12%
Asset turnover = Sales/Assets
Assets 100,000,000
Sales 50,000,000
Asset Turnover2

EM X AT X EM = 12%
3 X 2 X 2

3-6 Du Pont Analysis
ROA10%
PM2%
ROE15%

ROE = ROA X EM therefore divide the ROE by ROA to get the EM

ROE /15%
ROA10%
EM 1.50

Asset Turnover = PM X AT therefore divide ROA by PM

ROA /10%
PM2%
Asset Turnover 5

3-7 Current &...
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