Answer-Chapter 3-Financial Management
Problems (Page 112) 3-1 to 3.7,
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.
Answer:
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?
Answer:
The equity multiplier is 2.5. This means that for every dollar of equity the company has $2.5 of assets
Equity Multiplier = 2.5
Therefore Equity Ratio = 1/EM
Equity Ratio = 1/2.5 = 0.40 the formula is:
Debt Ratio + Equity Ratio = 1
Therefore 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?
Answer:
Market value per share = $75 common equity = 6,000,000 number of shares outstanding = 800 millions 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/(6,000,000/800,000,000) market-to-book ratio = $75/7.5 market-to-book ratio = 10
Winston Washer’s market-to-book ratio is 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?
Answer:
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 multiple of 2.0.
Its sales are $100 million
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.
Answer:
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?
Answer:
The equity multiplier is 2.5. This means that for every dollar of equity the company has $2.5 of assets
Equity Multiplier = 2.5
Therefore Equity Ratio = 1/EM
Equity Ratio = 1/2.5 = 0.40 the formula is:
Debt Ratio + Equity Ratio = 1
Therefore 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?
Answer:
Market value per share = $75 common equity = 6,000,000 number of shares outstanding = 800 millions 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/(6,000,000/800,000,000) market-to-book ratio = $75/7.5 market-to-book ratio = 10
Winston Washer’s market-to-book ratio is 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?
Answer:
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 multiple of 2.0.
Its sales are $100 million