Week 2 Homework

3.1

Greene Sisters has a DSO of 20 days. The company’s average daily sales are $20,000.

What is the level of its accounts receivable? Assume there are 365 days in a year.

Day Sales Outstanding= Receivables / Average Sales per day

AR = 20 X $20000 = $400,000

3.2 Vigo vacations has an equity multiplier of 2.5.The company’s assets are financed assets with some combination of long-term debt and common equity. What is the company’s debt ratio?

Equity Multiplier = 2.5

Equity Ratio = 1/2.5 = 0.40 the formula is:

Debt Ratio + Equity Ratio = 1

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

3.3 Winston Washer’s stock price is $75 per share .Winston has $10 billion in total assets. Its balance sheet shows $1 billion in current liabilities, $3 billion in long-term debt and $6 billion in common equity. It has 800 million shares of common stock outstanding .What is Winston’s market/ book ratio?

Market value per share = $75 common equity = 6,000,000 number of shares outstanding = 800 million shares

Market-to-book ratio = market value per share/ (common equity/number of shares outstanding)

Market-to-book ratio = $75/ (6,000,000/800,000,000) market-to-book ratio = $75/7.5 market-to-book ratio = 10

3.4

A company has an EPS of $1.50, a cash flow per share of $3.00, and a price /cash flow ratio of 8.0.What is its P/E ratio?

First Formula:

Price /cash flow ratio = Price per share /cash flow per share

Price per share = $8 x $3 = $24

Second Formula:

P.E = Price per share / EPS

P.E = $24 / 1.5 = 16

3.5

Needham Pharmaceuticals has a profit margin of 3% and an equity multiplier of 2.0. Its sales are $100 million and it has total assets of $50 million. What is its ROE?

ROE= profit margin x asset turnover x equity multiplier

=3% asset turnover = sales/asset = 50/100= 2 equity multiplier=2

ROE= 3% x2x2= 12%

3.6

Equity Multiplier is equal to

ROE= ROA x Equity Multiplier 15=10 (Equity