Finance CH 3 Practice

(4) SME Company has a debt-equity ratio of .80. Return on assets is 8.7 percent, and total equity is $515,000. a. What is the equity multiplier? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the return on equity? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. What is the net income? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) Equity Multiplier Return on Equity Net Income

EM= 1+D/E Ratio EM= 1+.80 EM=1.80 ROE= ROA *EM ROE= 8.7*1.80 ROE= 15.66% NI=TE*ROE NI= 515,000*(.1566) 15.66% NI=80,649

(6) DJ, Inc., has net working capital of $3,220, current liabilities of $4,470, and inventory of $4,400. a. What is the current ratio? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.) b. What is the quick ratio? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.) Current Ratio ? Quick Ratio ?

NWC=CA-CL CA=CL+NWC CA=4470+3220=7690 CR=CA/CL CR=7690/4470=1.72 QR=CA-Inventory/CL QR=7690-4400/4470= 0.74

(5) Some recent financial statements for Smolira Golf Corp. follow. SMOLIRA GOLF CORP. C

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(11) In response to complaints about high prices, a grocery chain runs the following advertising campaign: "If you pay your child $9 to go buy $100 worth of groceries, then your child makes twice as much on the trip as we do." You've collected the following information from the grocery chain's financial statements: ($ in millions) Sales $ 720.0 Net income 32.4 Total assets 320.0 Total debt 190.0 a. What is the profit margin for the child as a percentage of what they spend ? and the profit margin for the store? b. What is the store's ROE?

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(12) Firm A and Firm B have debt-total asset ratios of 40 percent and 30 percent and returns on total assets of 9 percent and 14 percent, respectively. ROE Firm A Firm B

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(13) Prince Albert Canning PLC had a net loss of £34,043 on sales of £198,752. a. What was the company's profit margin? b. In dollars, sales were $315,433. What was the net loss in dollars?

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(7) Queen, Inc., has a total debt ratio of .38. a. What is its debt-equity ratio? b. What is its equity multiplier?

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(8) Makers Corp. had additions to retained earnings for the year just ended of $261,000. The firm paid out $194,000 in cash dividends, and it has ending total equity of $4.99 million. The company currently has 130,000 shares of common stock outstanding. a. What are earnings per share? b. What are dividends per share? c. What is the book value per share? d. If the stock currently sells for $74 per share, what is the market-to-book ratio? e. What is the price-earnings ratio? f. If the company had sales of $4.55 million, what is the price-sales ratio?

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(2) If Roten Rooters, Inc., has an equity multiplier of 1.63, total asset turnover of 2.50, and a profit margin of 4.3 percent, what is its ROE?

DuPont Identity ROE=TAT*PM*EM ROE=2.50*.043 (4.3%)*1.63+17.52

(1) DTO, Inc., has sales of $21 million, total assets of $19.1 million, and total debt of $6.8 million. Assume the profit margin is 8 percent. a. What is the company's net income? b. What is the company's ROA? c. What is the company's ROE?

A PM=NI/NS .08=NI/21,000,000 (cross multiply) 1,680,000=NI B ROA=NI/Average TA ROA= 1,680,000/19,100,000= 8.8% C TA-TL=TE 19.,100,000-6,800,000=12,300,000 ROE= NI/Average TE ROE=1,680,000/12,230,000 ROA=13.74%

(10)Y3K, Inc., has sales of $6,279, total assets of $2,895, and a debt-equity ratio of 1.90. If its return on equity is 13 percent, what is its net income? Net Income ?

A( Asset) = L( Debt) + C (Equity) Debt and equity ratio=1.9 L / C = 1.9 L = 1.9C A = 1.9C + C 2,895 = 2.9 C C = 2,895 / 2.9 = 998.28 Equity=$998.28 Return on Equity =13% Net Income / Equity=0.13 Net income / 998.28 =0 .13 Net income = $129.78

Some recent financial statements for Smolira Golf Corp. follow. SMOLIRA GOLF CORP. 2017 and 2018 Balance Sheets Assets Liabilities and Owners' Equity 2017 2018 2017 2018 Current assets Current liabilities Cash $ 35,985 $ 39,308 Accounts payable $ 39,562 $ 43,382 Accounts receivable 18,601 29,206 Notes payable 20,608 17,400 Inventory 4,090 43,272 Other 21,304 25,914 Total $ 58,676 $ 111,786 Total $ 81,474 $ 86,696 Long-term debt $ 123,000 $ 189,270 Owners' equity Common stock and paid-in surplus $ 56,600 $ 56,600 Accumulated retained earnings 263,647 301,253 Fixed assets Net plant and equipment $ 466,045 $ 522,033 Total $ 320,247 $ 357,853 Total assets $ 524,721 $ 633,819 Total liabilities and owners' equity $ 524,721 $ 633,819 SMOLIRA GOLF CORP. 2018 Income Statement Sales $ 514,454 Cost of goods sold 364,928 Depreciation 46,463 Earnings before interest and taxes $ 103,063 Interest paid 21,283 Taxable income $ 81,780 Taxes (21%) 17,174 Net income $ 64,606 Dividends $ 27,000 Retained earnings 37,606 Smolira Golf Corp. has 56,000 shares of common stock outstanding, and the market price for a share of stock at the end of 2018 was $27. a. What is the price-earnings ratio? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What are the dividends per share? (Round your answer to 2 decimal places, e.g., 32.16.) c. What is the market-to-book ratio at the end of 2018? (Round your answer to 2 decimal places, e.g., 32.16.) d. If the company's growth rate is 5 percent, what is the PEG ratio? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

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(3) Jack Corp. has a profit margin of 6.3 percent, total asset turnover of 2.2, and ROE of 18.44 percent. What is this firm's debt-equity ratio? What is D/E Ratio?

per DuPont analysis... ROE = Net profit margin * total asset turnover * assets/equity 18.44 = 6.3* 2.2 * A/E 18.44 / 13.86 = A/E A/E = 1.33 A/E = 1 + D/E so D/E = A/E - 1 1.33-1=.33