Financial Management Chapter 3 Homework/Solutions
Chapter 3
What is the receivables turnover? (Round your answer to 2 decimal places (e.g., 32.16).)
Receivables turnover times 
Requirement 2:
The days’ sales in receivables? (Round your answer to 2 decimal places (e.g., 32.16).)
Days’ sales in receivables days 
Requirement 3:
How long did it take on average for credit customers to pay off their accounts during the past year? (Round your answer to 2 decimal places (e.g., 32.16).)
Average collection period days 
Explanation:
1.
The receivables turnover for the company was:
Receivables turnover = Credit sales / Receivables Receivables turnover = $7,535,050 / $446,516
Receivables turnover = 16.88 times
2.
Using the receivables turnover, we can calculate the day’s sales in receivables as:
Days’ sales in receivables = 365 days / Receivables turnover Days’ sales in receivables = 365 days / 16.88
Days’ sales in receivables = 21.63 days
3.
The average collection period, which is the same as the day’s sales in receivables, was 21.63 days.
Jiminy Cricket Removal has a profit margin of 10 percent, total asset turnover of 0.98, and ROE of 14.48 percent.
Required:
What is this firm’s debtequity ratio? (Round your answer to 2 decimal places (e.g., 32.16).)
Debtequity ratio 
Explanation:
We can use the Du Pont identity and solve for the equity multiplier. With the equity multiplier we can find the debtequity ratio. Doing so we find:
ROE = (Profit margin)(Total asset turnover)(Equity multiplier) 0.1448 = (0.10)(.98)(Equity multiplier) 
Equity multiplier = 1.48 
Now, using the equation for the equity multiplier, we get:
Equity multiplier = 1 + Debtequity ratio
1.48 = 1 + Debtequity ratio
Debtequity ratio = 0.48
Assume the Crash Davis Driving School has a 16.5 percent ROE and a 64 percent payout ratio.
Required:
What is the sustainable growth rate? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).)
Sustainable growth rate % 
Explanation:
To find the internal growth rate we need the plowback, or retention, ratio. The plowback ratio is:
b = 1 – 0.64
b = 0.36 
Now, we can use the sustainable growth rate equation to find:
Sustainable growth rate = [(ROE)(b)] / [1 – (ROE)(b)] Sustainable growth rate = [0.165(0.36)] / [1 – 0.165(0.36)] Sustainable growth rate = 0.0632 or 6.32%
Explanation:
Profit margin = Net income / Sales
 = $95,381 / $2,296,873
 = 0.0415 or 4.15%
 
Total asset turnover = Sales / Total assets
 = $2,296,873 / $935,080
 = 2.46
 
Equity multiplier = Total assets / Total equity
 = $935,080 / $435,131
 = 2.15
Using the Du Pont identity to calculate ROE, we get:
ROE = (Profit margin)(Total asset turnover)(Equity multiplier) ROE = (0.0415)(2.46)(2.15)
ROE = 0.2192 or 21.92%
The most recent financial statements for Shinoda Manufacturing Co. are shown below:
Income Statement Balance Sheet
Sales $ 64,100 Current assets $ 27,500 Debt $ 43,700  Costs  44,730 Fixed assets  80,400 Equity  64,200          
Taxable income $ 19,370 Total $ 107,900 Total $ 107,900          
Tax (30%)  5,811      
        
Net Income $ 13,559               

Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 42 percent dividend payout ratio. No external financing is possible.
Required:...
Please join StudyMode to read the full document