Fin 515 Problem 3-1 Thru 3-7

3-1 Days Outstanding
DSO 20
ADS 20,000
Days 365 A/R = ADS X DSO 400,000 3-2 Debt Ratio
EM 2.5
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
BV 7.5
M/B = 10

3-4 PE Ratio
EPS 1.5 Price per share
CF/S 3 5.333333333 10.66666667
P/CF 8 Price/earnings (P/E) ratio = Price per share/Earnings per share
Price Per Share / 10.67
EPS 1.5
PE = 16.0

3-5 ROE
PM 3%
EM 2
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 Turnover 2 EM X AT X EM = 12%
3 X 2 X 2

3-6 Du Pont Analysis
ROA 10%
PM 2%
ROE 15% ROE = ROA X EM therefore divide the ROE by ROA to get the EM ROE / 15%
ROA 10%
EM 1.50 Asset Turnover = PM X AT therefore divide ROA by PM ROA / 10%
PM 2%
Asset Turnover 5

3-7 Current &