Financial Management Chapter 3 Homework/Solutions
Financial Management
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 debt-equity ratio? (Round your answer to 2 decimal places (e.g., 32.16).) | Debt-equity ratio | |
Explanation: We can use the Du Pont identity and solve for the equity multiplier. With the equity multiplier we can find the debt-equity 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 + Debt-equity ratio | 1.48 = 1 + Debt-equity ratio | Debt-equity ratio = 0.48 |
Assume the Crash Davis Driving School has a
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 debt-equity ratio? (Round your answer to 2 decimal places (e.g., 32.16).) | Debt-equity ratio | |
Explanation: We can use the Du Pont identity and solve for the equity multiplier. With the equity multiplier we can find the debt-equity 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 + Debt-equity ratio | 1.48 = 1 + Debt-equity ratio | Debt-equity ratio = 0.48 |
Assume the Crash Davis Driving School has a