Problems 3.1 - 3.6

3.1 SDJ Inc has a Net Working Capital of $1,050; Current Liabilities of $4,300 and Inventory of $1,300. What is the Current Ratio and the Quick Ratio?

(1) Current Assets = Working Capital + Current Liabilities = $ 1050 + $ 4300 = $ 5350 (2) Current Ratio = Current Assets / Current Liabilities = $ 5350 / $ 4300 = 1.2442 (3) Quick Ratio = (Current Assets - Inventory) / Current Liabilities = ($ 5350 - $ 1300) / $ 4300 = $ 4050 / $ 4300 = 0.9419

3.5. Paulette's Plants Inc has a Total Debt Ratio of 0.62. What is the Debt Equity Ratio? What is its Equity Multiplier?

(1) Debt Equity Ratio = Debt / Equity = 0.62 / 0.38 = 1.6316 (2) Equity Multiplier = Assets / Equity = 1 / 0.38 = 2.6316

Problem 3.6 Bethesda has additions to Retained Earnings of $275,000. Cash Dividends were $150,000 and the Ending Total Equity is $6 million. If 125,000 Shares of Common Stock are outstanding, what is its EPS? What is its DPS? What is its Book Value Per Share? If the Stock Price is $95, what is the Market to Book Ratio? What is its PE Ratio?

(1) EPS = (Retained Earnings + Cash Div) / Number of Shares = ($ 275000 + $ 150000) / 125000 = $ 425000 / 125000 = $ 3.40 (2) DPS = Cash Dividends / Number of Shares = $ 150000 / 125000 = $ 1.20 (3) Book Value per Share = Equity / Number of Shares = $ 6000000 / 125000 = $ 48 (4) Market to Book Ratio = Market Price Per Share / Book Price per Share = $ 95 / $ 48 = 1.9792 (5) PE Ratio = Market Price Per Share / EPS = $ 95 / $ 3.40 = 27.94

3.2 Determine Net Income, ROA, and ROE for a company with Sales of $32 million, Total Assets of $43 million, and Total Debt of $9 million. The Profit Margin is 7%

(1) Net Income = Sales x Profit Margin = $ 32 M x 7% = $ 2.24 M (2) Return on Assets = Net Income / Assets = $ 2.24 M / $ 43 M = 0.0521 or 5.21% (3) Return on Equity = Net Income / (Assets - Debt) = $ 2.24 M / ($ 43 M - $ 9 M) = $ 2.24 M / $ 34 M = 0.0659 or 6.59%