Location via proxy:   [ UP ]  
[Report a bug]   [Manage cookies]                
Scribd Logo
Upload

Welcome to Scribd!

  • 24 views

    Solutions of End-of-Chapter Four Problems

    Uploaded by

    ctyre34
    These solutions summarize the key calculations and outcomes from solving end-of-chapter problems in finance. They include: 1) Calculating accounts receivable based on days sales outstanding and sales. 2) Determining a company's debt ratio given its market-to-book ratio, equity, and total invested capital. 3) Solving for a company's sales-to-total assets ratio and total assets-to-equity ratio given various profitability metrics. 4) Calculating a company's market-to-book ratio based on its stock price, book value per share, and target market-to-book multiple.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd

    Solutions of End-of-Chapter Four Problems

    Uploaded by

    ctyre34
    24 views4 pages
    These solutions summarize the key calculations and outcomes from solving end-of-chapter problems in finance. They include: 1) Calculating accounts receivable based on days sales outstanding and sales. 2) Determining a company's debt ratio given its market-to-book ratio, equity, and total invested capital. 3) Solving for a company's sales-to-total assets ratio and total assets-to-equity ratio given various profitability metrics. 4) Calculating a company's market-to-book ratio based on its stock price, book value per share, and target market-to-book multiple.

    Original Description:

    Solutions to End of Chapter 4 problems

    Original Title

    SolutionstoEndofch4problems8thedition

    Copyright

    © © All Rights Reserved

    Available Formats

    DOCX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    These solutions summarize the key calculations and outcomes from solving end-of-chapter problems in finance. They include: 1) Calculating accounts receivable based on days sales outstanding and sales. 2) Determining a company's debt ratio given its market-to-book ratio, equity, and total invested capital. 3) Solving for a company's sales-to-total assets ratio and total assets-to-equity ratio given various profitability metrics. 4) Calculating a company's market-to-book ratio based on its stock price, book value per share, and target market-to-book multiple.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    24 views4 pages

    Solutions of End-of-Chapter Four Problems

    Uploaded by

    ctyre34
    These solutions summarize the key calculations and outcomes from solving end-of-chapter problems in finance. They include: 1) Calculating accounts receivable based on days sales outstanding and sales. 2) Determining a company's debt ratio given its market-to-book ratio, equity, and total invested capital. 3) Solving for a company's sales-to-total assets ratio and total assets-to-equity ratio given various profitability metrics. 4) Calculating a company's market-to-book ratio based on its stock price, book value per share, and target market-to-book multiple.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 4

    Solutions of End-of-Chapter Four Problems

    4-1 DSO = 40 days; S = $7,300,000; AR = ?

    AR
    DSO =
    S
    365
    AR
    40 =
    $7,300 ,000 /365
    40 = AR/$20,000
    AR = $800,000.

    4-2 Since the firms M/B ratio = 1, then its total market value of equity is equal to its book value of equity.

    Common equity = $14 5,000,000 shares = $70,000,000.

    Total invested capital = Debt + Equity


    $125,000,000 = Debt + $70,000,000
    Debt = $55,000,000.

    Debt
    Total debt to total capital =
    Debt Equity
    $55,000 ,000
    =
    $125,000 ,000
    = 44%.

    4-3 ROA = 10%; PM = 2%; ROE = 15%; S/TA = ?; TA/E = ?


    ROA = NI/TA; PM = NI/S; ROE = NI/E.

    ROA = PM S/TA
    NI/TA = NI/S S/TA
    10% = 2% S/TA
    S/TA = 5.

    ROE = PM S/TA TA/E


    NI/E = NI/S S/TA TA/E
    15% = 2% 5 TA/E
    15% = 10% TA/E
    TA/E = 1.5.

    4-4 TA = $10,000,000,000; CL = $1,000,000,000; LT debt = $3,000,000,000; CE = $6,000,000,000;


    Shares outstanding = 800,000,000; P0 = $32; M/B = ?

    $6,000 ,000 ,000


    Book value = = $7.50.
    800 ,000 ,000
    $32.00
    M/B = = 4.2667.
    $7.50
    4-5 EPS = $2.00; BVPS = $20; M/B = 1.2; P/E = ?

    M/B = 1.2
    P/$20 = 1.2
    P = $24.00.

    P/E = $24.00/$2.00 = 12.0.

    4-6 NI/S = 2%; TA/E = 2.0; Sales = $100,000,000; Assets = $50,000,000; ROE = ?

    ROE = NI/S S/TA TA/E


    = 2% $100,000,000/$50,000,000 2
    = 8%.

    4-8 Step 1: Calculate total assets from information given.


    Sales = $6 million.

    3.2 = Sales/TA
    $6,000 ,000
    3.2 =
    Assets
    Assets = $1,875,000.

    Step 2: Calculate net income.


    Equity = 0.5 Total assets = 0.5 $1,875,000 = $937,500.

    ROE = NI/S S/TA TA/E


    0.12 = NI/$6,000,000 3.2 $1,875,000/$937,500
    6.4NI
    0.12 =
    $6,000 ,000
    $720,000 = 6.4NI
    $112,500 = NI.

    4-10 Stockholders equity = $3,750,000,000; M/B = 1.9; P = ?


    Total market value = $3,750,000,000(1.9) = $7,125,000,000.
    Market value per share = $7,125,000,000/50,000,000 = $142.50.

    Alternative solution:
    Stockholders equity = $3,750,000,000; Shares outstanding = 50,000,000; P = ?
    Book value per share = $3,750,000,000/50,000,000 = $75.
    Market value per share = $75(1.9) = $142.50.
    4-12 TA = $12,000,000,000; T = 40%; EBIT/TA = 15%; ROA = 5%; TIE = ?

    EBIT
    = 0.15
    $12,000 ,000,000
    EBIT = $1,800,000,000.

    NI
    = 0.05
    $12,000 ,000,000
    NI = $600,000,000.

    Now use the income statement format to determine interest so you can calculate the firms TIE
    ratio.
    INT = EBIT EBT
    EBIT $1,800,000,000 See above.
    = $1,800,000,000 $1,000,000,000
    INT 800,000,000
    EBT $1,000,000,000 EBT = $600,000,000/0.6
    Taxes (40%) 400,000,000
    NI $ 600,000,000 See above.

    TIE = EBIT/INT
    = $1,800,000,000/$800,000,000
    = 2.25.

    4-18 TA = $5,000,000,000; T = 40%; EBIT/TA = 10%; ROA = 5%; TIE ?

    EBIT
    0.10
    $5,000,000 ,000
    EBIT $500 ,000 ,000 .

    NI
    0.05
    $5,000,000 ,000
    NI $250 ,000 ,000 .

    Now use the income statement format to determine interest so you can calculate the firms TIE
    ratio.
    INT = EBIT EBT
    EBIT $500,000,000 See above.
    = $500,000,000 $416,666,667.
    INT 83,333,333
    EBT $416,666,667 EBT = $250,000,000/0.6
    Taxes (40%) 166,666,667
    NI $250,000,000 See above.

    TIE = EBIT/INT
    = $500,000,000/$83,333,333
    = 6.0.
    4-20 Step 1: Solve for current annual sales using the DSO equation:
    55 = $750,000/(Sales/365)
    55Sales = $273,750,000
    Sales = $4,977,272.73.

    Step 2: If sales fall by 15%, the new sales level will be $4,977,272.73(0.85) = $4,230,681.82.
    Again, using the DSO equation, solve for the new accounts receivable figure as follows:
    35 = AR/($4,230,681.82/365)
    35 = AR/$11,590.91
    AR = $405,681.82 $405,682.

    You might also like